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, 2005
Date of reporting period: December 31, 2005
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
DECEMBER 31, 2005
S&P 500 INDEX FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
Formerly known as the
American AAdvantage Funds
About American Beacon Advisors
- --------------------------------
Since 1986, American Beacon
Advisors has offered a variety
of products and investment
advisory services to numerous
institutional and retail
clients, including a variety of
mutual funds, corporate cash
management, and separate account
management.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations,
financial planners, and other
institutional investors. With
American Beacon Advisors, you
can put the experience of a
multi-billion dollar asset
management firm to work for your
company.
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, American Beacon
Advisors, 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 Beacon 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............. 29
Statement of Assets and Liabilities.. 35
Statement of Operations.............. 36
Statements of Changes in Net Assets.. 37
Financial Highlights................. 38
Notes to Financial Statements........ 39
Master Small Cap Index Series
Summary Schedule of Investments...... 48
Statement of Assets and Liabilities.. 55
Statement of Operations.............. 56
Statements of Changes in Net Assets.. 57
Financial Highlights................. 58
Notes to Financial Statements........ 59
Master International Index Series
Summary Schedule of Investments...... 69
Statement of Assets and Liabilities.. 74
Statement of Operations.............. 75
Statements of Changes in Net Assets.. 76
Financial Highlights................. 77
Notes to Financial Statements........ 78
Additional Information............Back Cover
</Table>
American Beacon Funds December 31, 2005
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
E nclosed please find the Annual Report for the American Beacon S&P 500,
International Equity, and Small Cap Index Funds for the year ended December 31,
2005.
As investors faced increasing oil prices, rising interest rates and
devastating hurricane damage, most financial markets experienced modest growth.
The Dow Jones Industrial Average posted gains of 1.72%, the S&P 500 Index
increased by 4.91% and the MSCI EAFE Index returned 13.54%. Additionally, the
Federal Reserve increased the Fed Funds Rate to 4.25%, up 2.00% from a year ago.
During the year, the Institutional Class of the American Beacon S&P 500
Index Fund realized an increase of 4.74%, the American Beacon Small Cap Index
Fund returned 4.51%, and the American Beacon International Equity Index Fund
recorded gains of 13.58%. 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.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
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 current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 1-800-967-9009.
1
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2
DOMESTIC EQUITY MARKET OVERVIEW
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
U.S. equity markets, which "muddled through" 2005, finished the year with mid
single-digit growth. For most of 2005, stocks remained in one of the narrowest
trading ranges in history.
The year began with a slide after the strong fourth quarter of 2004, with
cyclical and small capitalization stocks performing the worst out of the gate.
January was characterized by mixed economic data, increasing interest rates,
disappointing earnings reports, and climbing oil prices. The markets were able
to reverse course in February, even as the productivity report showed a
continued slowdown in productivity growth and oil prices continued to climb. In
March, the markets resumed their downward slide experienced in January due to
the combination of the trade deficit, mixed economic news, high oil prices, and
rising interest rates.
April began on the heels of a March economic soft spot, as retail sales,
payrolls, and consumer and business sentiment weakened. For most of April,
equity markets were dogged by continuing inflation concerns as oil climbed above
$57 per barrel. April closed with the announcement of one of the biggest jumps
in the Consumer Price Index (CPI) in several months, as the CPI rose 0.6% in
March. May featured the announcement of slower-than-expected first quarter gross
domestic product growth of 3.1%. Despite concerns around economic deceleration,
slowing profit growth, and continued high oil prices, first quarter earnings
reports remained strong. June brought a slowdown in the equity market rally that
began in May as the specter of economic deceleration dampened markets.
July was an impressive month for equity markets, despite the drag from a
strong dollar, higher energy prices, and a major terror attack in London, which
caused an immediate 4% drop in the S&P 500 Index. Investors quickly rebounded
however, and the losses were recovered only one day later. August brought a
reversal of July's rally, as higher oil prices continued to fan the fears of
economic weakness, reaching a record high of $70 per barrel during the aftermath
of Hurricane Katrina. Despite the downturn of U.S. equity markets in August,
September turned slightly positive as improved profits in the energy sector
provided a counterbalance to lagging retail, transportation, tourism, and
insurance sectors.
Equity markets slid again in October amid continued signs of a slower
economy and renewed concerns about inflation. Despite a U.S. gross domestic
product growth rate of 4.1% for the third quarter, short term interest rates
rose, oil prices remained historically high, and consumer confidence declined.
In November, equity markets were resilient in the face of Fed tightening, the
energy shock, and the strength of the U.S. dollar, and rebounded because strong
productivity and high margins resulted in good earnings and oil prices fell to
the mid-$50 per barrel range from $70 per barrel. After posting gains for nearly
six weeks, December saw equity markets finish on an uninspiring note as thin
volume led to volatile movements in stock prices. Compounding the mixed results
throughout the year and leaving investors uncertain about the direction of the
economy heading into 2006, the yield curve inverted at the end of December,
meaning long-term yields fell below short-term yields, historically a harbinger
of an economic downturn.
As expected, interest rates moved considerably during the year as the yield
curve flattened dramatically and inverted at the close of 2005. The Federal
Reserve through the Federal Open Market Committee ("FOMC") continued its
"measured pace" of monetary tightening by raising the Federal Funds rate 25
basis points (0.25%) eight times during the year. This brought the Fed Funds
rate to 4.25% from 2.25%.
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 BEACON S&P 500 INDEX FUND+
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2005, the total return of the
Institutional Class of the American Beacon S&P 500 Index Fund was 4.74%,
slightly below the S&P 500 Index return of 4.91% and slightly in excess of the
Lipper S&P 500 Objective Funds Index return of 4.65%.
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER S&P 500
INSTITUTIONAL OBJECTIVE S&P 500 PLANAHEAD
CLASS FUNDS INDEX INDEX CLASS
12/96.. $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/97.. $13,309.00 $13,308.00 $13,336.00 $13,309.00
12/98.. $17,151.00 $17,079.00 $17,147.00 $17,113.00
12/99.. $20,702.00 $20,601.00 $20,755.00 $20,576.00
12/00.. $18,807.00 $18,685.00 $18,867.00 $18,646.00
12/01.. $16,528.00 $16,404.00 $16,625.00 $16,319.00
12/02.. $12,847.00 $12,746.00 $12,951.00 $12,633.00
12/03.. $16,478.00 $16,345.00 $16,665.00 $16,126.00
12/04.. $18,251.00 $17,071.00 $18,479.00 $18,772.00
12/05.. $19,115.00 $18,912.00 $19,386.00 $18,540.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------------------
PERIODS ENDED 12/31/05
--------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR 5 YEAR (12/31/96)
------ ------ ------- ----------
Institutional Class(1)... 4.74% 14.16% 0.33% 7.46%
PlanAhead Class(1, 2).... 4.32% 13.64% -0.11% 7.10%
Lipper S&P 500 Index..... 4.65% 14.06% 0.24% 7.34%
S&P 500 Index............ 4.91% 14.39% 0.55% 7.63%
</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.
Eight out of ten sectors in the S&P 500 Index (the "Index") had positive
returns for 2005. The strongest performing sectors for 2005 were Energy and
Utilities. Energy surged 31.3% for all of 2005, and Utilities tacked on an
uncharacteristically exciting 16.8% for the full year. No other S&P sectors
achieved anything close to double digits. The weakest sector in 2005 was
Consumer Discretionary, which tumbled 6.3% for the year. Although showing some
flashes of brilliance in the leisure and retail areas, the Consumer
Discretionary names were weighed down by dauntingly severe conditions in the
auto and media industries.
The top contributing stocks to the Index's return for the twelve-month
period ended December 31, 2005 were ExxonMobil Corp. (up 11.8%), Altria Group,
Inc. (up 27.7%) and Apple Computer, Inc. (up 123.3%). The largest detractors for
the year were Dell, Inc. (down 28.9%), IBM Corp. (down 15.8%) and Verizon
Communications, Inc. (down 22.2%).
As of December 30, 2005, the Fund's largest sector weightings were
Financials (21.3% of assets), Information Technology (15.1% of assets), and
Health Care (13.3% of assets), consistent with the top sector weightings in the
Index.
The investment manager continues to utilize a replication strategy, owning
all 500 names in the S&P 500 Index 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. 3.3%
Exxon Mobil Corp. 3.1%
Citigroup, Inc. 2.2%
Microsoft Corp. 2.1%
Procter & Gamble Co. 1.7%
Bank of America Corp. 1.7%
Johnson & Johnson 1.6%
American Int'l Group, Inc. 1.6%
Pfizer, Inc. 1.5%
Altria Group, Inc. 1.4%
</Table>
* Percent of equity portion of State Street Equity 500 Index
Portfolio
+ The S&P 500 Index Fund is not sponsored, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in this fund.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON S&P 500 INDEX FUND -- CONTINUED
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financials 21.3%
Information Technology 15.1%
Health Care 13.3%
Industrials 11.4%
Consumer Discretionary 10.8%
Consumer Staples 9.5%
Energy 9.3%
Utilities 3.3%
Telecommunication Services 3.0%
Materials 3.0%
</Table>
* Percent of equity portion of State Street Equity 500 Index
Portfolio
5
PERFORMANCE OVERVIEW
AMERICAN BEACON SMALL CAP INDEX FUND(SM)
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2005, the total return of the
Institutional Class of the American Beacon Small Cap Index Fund was 4.51%. The
Fund's performance was in line with the Russell 2000(R) Index return of 4.55%,
but below the Lipper Small-Cap Core Funds Index return of 7.56% for the period.
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER SC RUSSELL 2000
CLASS CORE INDEX INDEX
7/31/00 $10,000.00 $10,000.00 $10,000.00
12/00 $ 9,741.00 $10,166.00 $ 9,725.00
12/01 $ 9,943.00 $10,890.00 $ 9,967.00
12/02 $ 7,917.00 $ 8,795.00 $ 7,926.00
12/03 $11,631.00 $12,391.00 $11,671.00
12/04 $13,714.00 $14,666.00 $13,810.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
PERIODS ENDED 12/31/05
------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR 5 YEAR (7/31/00)
------ ------ ------ ---------
Institutional Class(1)..... 4.51% 21.88% 8.03% 6.87%
Lipper Small-Cap Core
Index..................... 7.56% 21.50% 9.18% 8.78%
Russell 2000 Index......... 4.55% 22.13% 8.22% 7.02%
</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, 9 of 12 Russell 2000 sectors posted positive returns. The top
performing sectors were Integrated Oils and Other Energy, with returns of 62.6%
and 38.6%, respectively. The worst performing sectors were Technology, which was
down 2.5%, and Financial Services, which was down 1.0%.
The Index's best individual performers for 2005 were NutriSystem, Inc. (up
1,163.9%), Titanium Metals Corp. (up 424.1%), and Dynamic Materials Corp. (up
394.5%). The worst performing stocks for the year were Doral Financial Corp.
(down 78.5%), PRG-Schultz International, Inc. (down 87.9%), and Majesco
Entertainment Co. (down 92.2%).
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*
--------------
Amylin Pharmaceuticals Inc. 0.40%
Intuitive Surgical Inc. 0.30%
Cimarex Energy Co. 0.30%
Cal Dive International Inc. 0.30%
Vertex Pharmaceuticals Inc. 0.20%
Integrated Device Technology, Inc. 0.20%
Sierra Pacific Resources 0.20%
JLG Industries, Inc. 0.20%
Eagle Materials, Inc. 0.20%
Cabot Oil & Gas Corp. 0.20%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financial Services 23.9%
Consumer Discretionary 19.0%
Technology 14.4%
Health Care 11.0%
Materials & Processing 8.9%
Producer Durables 7.7%
Other Energy 4.9%
Utilities 3.8%
Autos and Transportation 3.5%
Consumer Staples 2.0%
Other 0.6%
Integrated Oils 0.3%
</Table>
* Percent of equity portion of Master Small Cap Index Series
+ Russell 2000 Index is a service mark of the Frank Russell Company.
6
INTERNATIONAL ECONOMIC OVERVIEW
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
International equity markets generated positive performance in 2005 as developed
markets around the world strengthened on optimistic economic reports. In fact,
throughout the year, international equity markets outperformed U.S. equity
markets.
European equity markets performed well in 2005 as 14 of 16 European MSCI
country indexes posted positive gains. A key reason behind the upbeat outlook
for world economic growth was that inflation retreated in most regions,
especially in Europe and Japan. Despite the July terrorist attacks in London,
worries about the economic impact of hurricanes in the United States, and higher
energy costs, European equity markets performed strongly in the second half of
2005. In December, European manufacturing growth grew at its fastest pace in 16
months, while German unemployment declined by its greatest amount in more than
15 years. Economic growth accelerated as companies stepped up their hiring and
investment activity, which in turn increased optimism that consumers would spend
more and bolster Europe's export-driven economy. The strongest-performing
European markets of 2005 were Austria, Denmark and Norway which gained 24.64%,
24.50% and 24.26% respectively. Ireland and Portugal returned -2.93% and -1.87%,
respectively, and were the only two markets in Europe to post negative returns
last year. The European Central Bank raised interest rates by 25 basis points
(0.25%) for the first time since 2000, leaving the region's benchmark rate at
2.25%.
In Asia, all five MSCI country indexes gained ground in 2005. Japan turned
in the strongest growth in the region, returning 25.52%. Business confidence in
that country climbed to its highest level in a year, and Japanese companies plan
to invest in their businesses at the fastest pace since 1990, according to the
Bank of Japan's Tankan business confidence survey. Other strong performers in
the region included Australia (up 16.02%), Singapore (up 14.37%) and Hong Kong
(up 8.40%).
In 2005, the U.S. dollar gained 12.7% against the euro, 10.6% against the
British pound and 15% against the Japanese yen. Exchange rates were largely
driven by interest rate decisions and expectations in the United States.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM)
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2005, the Institutional Class of
the American Beacon International Equity Index Fund posted an impressive total
return of 13.58%, closely tracking the MSCI EAFE Index return of 13.54% and
underperforming the Lipper International Funds Index return of 15.67%.
(PERFORMANCE GRAPH)
<Table>
<Caption>
LIPPER
INSTITUTIONAL INTERNATIONAL
CLASS EAFE 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
12/05 $11,568.00 $11,688.00 $11,918.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
PERIODS ENDED 12/31/05
------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEAR 5 YEAR (7/31/00)
------ ------ ------ ---------
Institutional Class(1)..... 13.58% 23.74% 4.47% 2.73%
Lipper Int'l. Funds
Index..................... 15.67% 23.11% 5.33% 3.29%
EAFE Index(2).............. 13.54% 23.68% 4.59% 2.92%
</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.
For the year, 19 of 21 countries in the MSCI EAFE Index ("EAFE") posted
positive returns. The strongest-performing European markets of 2005 were
Austria, Denmark and Norway, which gained 24.6%, 24.5% and 24.3%, respectively.
Ireland and Portugal returned -2.3% and -1.9%, respectively, and were the only
two countries in EAFE to post negative returns in 2005. In Asia, Japan turned in
the strongest growth in the region, returning 25.5%. Other strong performers in
Asia included Australia (up 16.0%) and Singapore (up 14.4%).
Turning to sector performance, 9 of 10 EAFE sectors posted positive returns
for the year, led by Materials (up 27.9%), Industrials (up 24.9%), and Energy
(up 18.1%). The worst performing sectors were Telecommunication Services (down
12.4%), Consumer Staples (up 9.0%), and Consumer Discretionary (up 10.6%).
The 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 2.2%
HSBC Holdings plc 1.7%
Toyota Motor Corp. 1.5%
GlaxoSmithKline plc 1.4%
Total SA 1.4%
Vodafone Group plc 1.3%
Novartis AG 1.2%
Royal Dutch Petroleum Co. 1.2%
Nestle SA 1.2%
Roche Holding AG 1.1%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
Financials 28.5% 28.5%
Consumer Discretionary 12.0% 12.3%
Industrials 10.7% 10.7%
Energy 8.2% 8.1%
Materials 8.1% 8.0%
Health Care 7.8% 7.9%
Consumer Staples 7.7% 7.8%
Information Technology 6.4% 6.2%
Telecommunication Services 5.6% 5.6%
Utilities 5.0% 4.9%
</Table>
* Percent of equity portion of Master International Index
Series
8
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
COUNTRY ALLOCATION
(COUNTRY CHART)
<Table>
<Caption>
% OF
EQUITIES* EAFE
--------- -----
Japan 25.7% 25.6%
United Kingdom 24.0% 24.0%
France 9.4% 9.3%
Germany 6.8% 6.8%
Switzerland 6.7% 6.9%
Australia 5.3% 5.2%
Italy 3.9% 3.8%
Spain 3.8% 3.7%
Netherlands 3.4% 3.4%
Sweden 2.4% 2.4%
Hong Kong 1.7% 1.7%
Finland 1.5% 1.4%
Belgium 1.1% 1.2%
Singapore 0.8% 0.8%
Norway 0.7% 0.7%
Ireland 0.7% 0.8%
Denmark 0.7% 0.8%
Greece 0.6% 0.6%
Austria 0.4% 0.4%
Portugal 0.2% 0.3%
New Zealand 0.2% 0.2%
</Table>
* Percent of equity portion of Master International Index
Series
9
FUND EXPENSES
December 31, 2005 (unaudited)
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees if applicable, 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 a particular 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, 2005
through December 31, 2005.
ACTUAL EXPENSES
The following table provides information about actual account values and
actual expenses. You may use the information in this table, 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
"Expenses Paid During Period" row estimate the expenses you paid on your account
during this period. Shareholders of the PlanAhead and Institutional 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.
ACTUAL
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL S&P 500
INSTITUTIONAL CLASS INDEX INDEX EQUITY INDEX PLANAHEAD CLASS INDEX
- ------------------- --------- --------- ------------- --------------- ---------
Beginning Account Value
7/1/05....................... $1,000.00 $1,000.00 $1,000.00 Beginning Account Value 7/1/05............... $1,000.00
Ending Account Value
12/31/05..................... $1,052.02 $1,058.62 $1,148.02 Ending Account Value 12/31/05................ $1,054.80
Expenses Paid During Period*
7/1/05-12/31/05.............. $ 0.61 $ 0.79 $ 1.23 Expenses Paid During Period* $ 3.11
7/1/05-12/31/05..............................
Annualized Expense Ratio...... 0.12% 0.15% 0.23% Annualized Expense Ratio..................... 0.60%
</Table>
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The following table provides 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 a particular 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 and Institutional 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 a
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 "Expenses Paid During Period"
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.
HYPOTHETICAL
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL S&P 500
INSTITUTIONAL CLASS INDEX INDEX EQUITY VALUE PLANAHEAD CLASS INDEX
- ------------------- --------- --------- ------------- --------------- ---------
Beginning Account Value
7/1/05....................... $1,000.00 $1,000.00 $1,000.00 Beginning Account Value 7/1/05............... $1,000.00
Ending Account Value
12/31/05..................... $1,024.61 $1,024.44 $1,024.06 Ending Account Value 12/31/05................ $1,022.18
Expenses Paid During Period*
7/1/05-12/31/05.............. $ 0.60 $ 0.78 $ 1.16 Expenses Paid During Period* $ 3.06
7/1/05-12/31/05..............................
Annualized Expense Ratio...... 0.12% 0.15% 0.23% Annualized Expense Ratio..................... 0.60%
</Table>
- ---------------
* Expenses are equal to the Fund's annualized expense ratios for the six-month
period 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 (365) to reflect the half-year period.
10
AMERICAN BEACON FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Funds (formerly known as American AAdvantage Funds), comprised
of the American Beacon S&P 500 Index Fund, the American Beacon Small Cap Index
Fund, and the American Beacon International Equity Index Fund (collectively, the
"Funds") (formerly known as the American AAdvantage S&P 500 Index Fund, the
American AAdvantage Small Cap Index Fund, and the American AAdvantage
International Equity Index Fund, respectively) as of December 31, 2005, 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 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 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.
We were not engaged to perform an audit of the Funds' internal control over
financial reporting. Our audits included 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 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. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the Master
Portfolios. 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
American Beacon Funds at December 31, 2005, 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- ERNST & YOUNG LLP
Chicago, Illinois
February 28, 2006
11
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
(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................ $ 274,890 $ 46,184 $ 89,474
Receivable for fund shares sold......................... 394 1 758
----------- ---------- ----------
TOTAL ASSETS........................................ 275,284 46,185 90,232
----------- ---------- ----------
LIABILITIES:
Payable for fund shares redeemed........................ 359 51 --
Administrative service fees payable (Note 2)............ 20 2 3
Other liabilities....................................... 63 19 29
----------- ---------- ----------
TOTAL LIABILITIES................................... 442 72 32
----------- ---------- ----------
NET ASSETS.................................................. $ 274,842 $ 46,113 $ 90,200
=========== ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in capital......................................... $ 241,758 $ 41,281 $ 85,602
Undistributed net investment income..................... 11 -- (286)
Accumulated net realized gain (loss).................... (46,580) (334) (855)
Unrealized net appreciation (depreciation) of
investments and futures contracts..................... 79,653 5,166 5,739
----------- ---------- ----------
NET ASSETS.................................................. $ 274,842 $ 46,113 $ 90,200
=========== ========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 13,361,144 3,609,300 8,733,003
=========== ========== ==========
PlanAhead Class......................................... 2,935,711 N/A N/A
=========== ========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 16.90 $ 12.78 $ 10.33
=========== ========== ==========
PlanAhead Class......................................... $ 16.69 N/A N/A
=========== ========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
12
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Dividend income......................................... $5,011 $ 552 $1,665
Interest income......................................... 173 103 62
Securities lending income............................... 12 30 1
Portfolio expenses...................................... (124) (35) (61)
------- ------- ------
NET INVESTMENT INCOME ALLOCATED FROM MASTER
PORTFOLIO......................................... 5,072 650 1,667
------- ------- ------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................. 114 26 32
PlanAhead Class..................................... 118 -- --
Sub-administrative service fees
Institutional Class................................. -- 7 15
Transfer agency fees:
Institutional Class................................. 3 5 5
PlanAhead Class..................................... 12 -- --
Custody and Accounting fees............................. 6 6 9
Professional fees....................................... 7 2 6
Registration fees....................................... 31 1 1
Service fees - PlanAhead Class (Note 2)................. 118 -- --
Printing................................................ 53 10 17
Other expenses.......................................... 4 1 --
------- ------- ------
TOTAL FUND EXPENSES................................. 466 58 85
------- ------- ------
NET INVESTMENT INCOME....................................... 4,606 592 1,582
------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized gain (loss) from investment transactions... (855) 1,584 911
Net realized loss on foreign currency transactions...... -- -- (322)
Net realized loss from futures transactions............. 204 (532) --
Net change in unrealized appreciation of investments and
futures contracts..................................... 8,505 (3,264) 5,507
------- ------- ------
NET GAIN ON INVESTMENTS............................. 7,854 (2,212) 6,096
------- ------- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $12,460 $(1,620) $7,678
======= ======= ======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
13
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(in thousands)
<Table>
<Caption>
INTERNATIONAL
S&P 500 INDEX SMALL CAP INDEX EQUITY INDEX
------------------- --------------------- -------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------- --------------------- -------------------
2005 2004 2005 2004 2005 2004
-------- -------- --------- --------- -------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................... $ 4,606 $ 4,939 $ 592 $ 410 $ 1,582 $ 511
Net realized gain (loss) on investments, foreign currency
and futures transactions............................... (651) (2,744) 1,052 1,654 589 5,436
Change in net unrealized appreciation (depreciation) of
investments and futures contracts...................... 8,505 26,225 (3,264) 2,795 5,507 (739)
-------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 12,460 28,420 (1,620) 4,859 7,678 5,208
-------- -------- --------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class.................................. (4,029) (4,253) (606) (409) (2,005) (617)
PlanAhead Class...................................... (677) (670) -- -- -- --
Net realized gain from investments, foreign currency and
futures transactions:
Institutional Class.................................. -- -- (521) (1,785) -- --
Tax return of capital:
Institutional Class.................................. (59) -- (167) -- (778) --
PlanAhead Class...................................... (11) -- -- -- -- --
-------- -------- --------- --------- -------- --------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................. (4,776) (4,923) (1,294) (2,194) (2,783) (617)
-------- -------- --------- --------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares............................ 45,216 46,823 132,413 101,166 102,863 62,034
Reinvestments of dividends and distributions............. 4,749 4,893 1,291 2,194 2,783 617
Cost of shares redeemed.................................. (73,819) (64,181) (123,873) (134,585) (43,497) (54,129)
-------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS.................................. (23,854) (12,465) 9,831 (31,225) 62,149 8,522
-------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS....................... (16,170) 11,032 6,917 (28,560) 67,044 13,113
-------- -------- --------- --------- -------- --------
NET ASSETS:
Beginning of period...................................... 291,012 279,980 39,196 67,756 23,156 10,043
-------- -------- --------- --------- -------- --------
END OF PERIOD*........................................... $274,842 $291,012 $ 46,113 $ 39,196 $ 90,200 $ 23,156
======== ======== ========= ========= ======== ========
* Includes undistributed net investment income of........ $ 11 $ 128 $ -- $ 21 $ (286) $ (32)
======== ======== ========= ========= ======== ========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, 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, diversified, open-end management investment company. These financial
statements and notes to the financial statements relate to the American Beacon
S&P 500 Index Fund, the American Beacon Small Cap Index Fund and the American
Beacon International Equity Index Fund (each a "Fund" and collectively, the
"Funds"), each a series of the Trust.
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 BEACON: PORTFOLIOS: DECEMBER 31, 2005
- ---------------- ----------- -----------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 11.2%
Small Cap Index Fund Master Small Cap Index Series 12.4%
International Equity Index Fund Master International Index Series 17.1%
</Table>
The financial statements of the Portfolios are included elsewhere in this
report and should be read in conjunction with the Funds' financial statements.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., 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.
Class Disclosure
The S&P 500 Index Fund has two classes of shares designed to meet the needs
of different groups of investors. The following table sets forth the differences
between the classes:
<Table>
<Caption>
CLASS: OFFERED TO: SERVICE FEES:
- ------ ----------- -------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service 0.05%
Fee --
PLANAHEAD CLASS General public and investors investing through an Administrative Service 0.25%
intermediary Fee -- 0.25%
Service Fee --
</Table>
Investment income, net capital gains (losses) and all expenses incurred by
the S&P 500 Index Fund are allocated based on the relative net assets of each
class, except for service fees and certain other fees and expenses related
solely to one class of shares.
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.
- --------------------------------------------------------------------------------
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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.
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 compensa-
- --------------------------------------------------------------------------------
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
tion for performing the duties required under the Administrative Services
Agreement, the Manager receives an annualized fee of 0.05% of the average daily
net assets of the Institutional Class of the S&P 500 Index Fund, International
Equity Index Fund, and Small Cap Index Fund and an annualized fee of 0.25% of
the average daily net assets of the PlanAhead Class of the S&P 500 Index Fund.
Service Agreement
The Manager and the Trust entered into a Service Agreement 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.
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 S&P 500 Index Fund waived fees or reimbursed
expenses of $5,000 and are subject to potential recovery expiring in 2006. The
Funds have not recorded a liability for this potential reimbursement due to the
assessment that a reimbursement is unlikely.
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. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free transportation
on American, up to a maximum annual value of $40,000. 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. Mr. O'Sullivan, 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, 2005, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 88.2% of the Institutional Class of the S&P 500 Index
Fund, 98.4% of the Small Cap Index Fund and 50.8% 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 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.
- --------------------------------------------------------------------------------
17
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
The tax character of distributions during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 INDEX SMALL CAP INDEX EQUITY INDEX
--------------- --------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------- --------------- -------------
2005 2004 2005 2004 2005 2004
------ ------ ------ ------ ------ ----
Distributions paid from:
Ordinary Income:*
Institutional Class..................... $4,029 $4,253 $ 606 $1,104 $2,005 $617
PlanAhead Class......................... 677 670 -- -- -- --
Long-term capital gain
Institutional Class..................... -- -- 521 1,090 -- --
Return of capital
Institutional Class..................... 59 -- 167 -- 778 --
PlanAhead Class......................... 11 -- -- -- -- --
------ ------ ------ ------ ------ ----
TOTAL TAXABLE DISTRIBUTIONS.................. $4,776 $4,923 $1,294 $2,194 $2,783 $617
====== ====== ====== ====== ====== ====
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2005, 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... $215,193 $41,347 $84,384
Unrealized appreciation................................... 93,529 6,895 6,153
Unrealized depreciation................................... (33,832) (2,058) (1,063)
-------- ------- -------
Net unrealized appreciation/(depreciation)................ 59,697 4,837 5,090
Undistributed ordinary income............................. -- -- --
Undistributed long-term loss.............................. (26,530) -- (506)
-------- ------- -------
Distributable earnings...................................... $ 33,167 $ 4,837 $ 4,584
======== ======= =======
</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 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 tax treatment of income from real estate
- --------------------------------------------------------------------------------
18
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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, 2005 (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 SMALL CAP EQUITY INDEX
INDEX FUND INDEX FUND FUND
---------- ---------- -------------
Paid-in-capital............................................. $(834) $ 435 $(679)
Undistributed net investment income......................... 53 (7) 947
Accumulated net realized gain/(loss)........................ 781 (428) (268)
</Table>
At December 31, 2005, capital loss carryforward positions and expiration
dates for federal income tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL
- ---- ---- ---- ------ ------ ------- ---- ------ ------ -------
S&P 500 Index Fund............... $815 $45 $8,848 $1,300 $11,516 $635 $1,060 $2,311 $26,530
International Equity Index
Fund........................... -- -- -- -- 224 282 -- -- 506
</Table>
For the period ended December 31, 2005, the International Equity Index Fund
utilized $535 of net capital loss carryovers. The S&P 500 Index Fund had $23 of
expired capital loss carryovers.
Net capital and foreign currency losses incurred after October 31, 2005 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 December 31, 2005, International
Equity Index Fund deferred $58,742 of currency losses to January 1, 2006.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares of the Funds
(shares and dollars in thousands):
S&P 500 INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------- -------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------- --------- ------- ---------
Shares sold......................................... 1,805 $ 29,463 1,939 $ 29,855
Reinvestment of dividends........................... 248 4,086 270 4,245
Shares redeemed..................................... (3,587) (58,696) (3,552) (54,721)
------ -------- ------ --------
Net decrease in capital shares outstanding.......... (1,534) $(25,147) (1,343) $(20,621)
====== ======== ====== ========
</Table>
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------- -------------------
PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT
- --------------- ------- --------- ------- --------
Shares sold........................................... 978 $ 15,753 1,112 $16,968
Reinvestment of dividends............................. 41 663 41 648
Shares redeemed....................................... (938) (15,123) (619) (9,460)
---- -------- ----- -------
Net increase in capital shares outstanding............ 81 $ 1,293 534 $ 8,156
==== ======== ===== =======
</Table>
- --------------------------------------------------------------------------------
19
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
SMALL CAP INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------ -------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------ --------- ------- ---------
Shares sold..................................... 10,087 $ 132,413 8,578 $ 101,166
Reinvestment of dividends....................... 100 1,291 175 2,194
Shares redeemed................................. (9,695) (123,873) (11,649) (134,585)
------ --------- ------- ---------
Net decrease in capital shares outstanding...... 492 $ 9,831 (2,896) $ (31,225)
====== ========= ======= =========
</Table>
INTERNATIONAL EQUITY INDEX FUND
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
------------------- -------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------- --------- ------- ---------
Shares sold......................................... 10,624 $102,863 7,530 $ 62,034
Reinvestment of dividends........................... 268 2,783 67 617
Shares redeemed..................................... (4,624) (43,497) (6,385) (54,129)
------ -------- ------ --------
Net increase in capital shares outstanding.......... 6,268 $ 62,149 1,212 $ 8,522
====== ======== ====== ========
</Table>
- --------------------------------------------------------------------------------
20
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2005 2004 2003 2002 2001
----------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 16.43 $ 15.10 $ 11.96 $ 15.62 $ 17.99
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............... 0.29 0.29 0.21 0.20 0.20
Net gains (losses) on investments,
foreign currency and futures
transactions (both realized and
unrealized)....................... 0.47 1.32 3.14 (3.66) (2.38)
-------- -------- -------- -------- --------
Total from investment operations........ 0.76 1.61 3.35 (3.46) (2.18)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.29) (0.28) (0.21) (0.20) (0.19)
Tax return of capital............... --(B) -- -- -- --(B)
-------- -------- -------- -------- --------
Total distributions..................... (0.29) (0.28) (0.21) (0.20) (0.19)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 16.90 $ 16.43 $ 15.10 $ 11.96 $ 15.62
======== ======== ======== ======== ========
TOTAL RETURN............................ 4.74% 10.76% 28.26% (22.27%) (12.12%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $225,857 $244,668 $245,251 $195,368 $254,289
Ratios to average net assets
(annualized):(A)
Net investment income.......... 1.75% 1.85% 1.63% 1.47% 1.22%
Expenses, including expenses of
the master portfolio......... 0.13% 0.17% 0.14% 0.14% 0.15%
</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 State Street Equity 500 Index Portfolio.
(B) The tax return of capital is calculated based upon outstanding shares at the
time of distribution. Amounts are less than $0.01 per share.
- --------------------------------------------------------------------------------
21
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
----------- ------- ------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 16.23 $ 14.96 $ 11.85 $ 15.49 $ 17.99
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income.................. 0.21 0.21 0.15 0.14 0.14
Net gains (losses) on investments,
foreign currency and futures
transactions (both realized and
unrealized).......................... 0.48 1.31 3.12 (3.64) (2.39)
------- ------- ------- -------- --------
Total from investment operations........... 0.69 1.52 3.27 (3.50) (2.25)
------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.23) (0.25) (0.16) (0.14) (0.25)
Tax return of capital.................. --(B) -- -- -- --(B)
------- ------- ------- -------- --------
Total distributions........................ (0.23) (0.25) (0.16) (0.14) (0.25)
------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD............. $ 16.69 $ 16.23 $ 14.96 $ 11.85 $ 15.49
======= ======= ======= ======== ========
TOTAL RETURN............................... 4.32% 10.21% 27.65% (22.59%) (12.48%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................... $48,985 $46,344 $34,729 $ 24,885 $ 32,284
Ratios to average net assets
(annualized):(A)
Net investment income, net of
waivers......................... 1.28% 1.43% 1.16% 1.06% 0.89%
Net investment income, before
waivers......................... 1.28% 1.43% 1.15% 0.98% 0.84%
Expenses, including expenses of
the master portfolio, net of
waivers(C)...................... 0.61% 0.62% 0.63% 0.55% 0.56%
Expenses, including expenses of
the master portfolio, before
waivers......................... 0.61% 0.62% 0.64% 0.63% 0.61%
</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 State Street Equity 500 Index Portfolio.
(B) The tax return of capital is calculated based upon outstanding shares at the
time of distribution. Amounts are less than $0.01 per share.
(C) American Beacon Advisors, Inc. agreed to reimburse the Class for a portion
of its expenses through March 1, 2003.
- --------------------------------------------------------------------------------
22
AMERICAN BEACON SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2005 2004 2003 2002 2001
----------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 12.57 $ 11.27 $ 7.70 $ 9.79 $ 9.69
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income................ 0.16 0.14 0.04 0.11 0.09
Net gains (losses) on investments,
foreign currency and futures
transactions (both realized and
unrealized)........................ 0.42 1.87 3.57 (2.10) 0.11
-------- -------- -------- -------- --------
Total from investment operations......... 0.58 2.01 3.61 (1.99) 0.20
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................. (0.17) (0.13) (0.04) (0.10) (0.09)
Distributions from net realized gain
on investments..................... (0.15) (0.58) -- -- --
Tax return of capital................ (0.05)(B) -- -- -- (0.01)(B)
-------- -------- -------- -------- --------
Total distributions...................... (0.37) (0.71) (0.04) (0.10) (0.10)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........... $ 12.78 $ 12.57 $ 11.27 $ 7.70 $ 9.79
======== ======== ======== ======== ========
TOTAL RETURN............................. 4.51% 17.91% 46.90% (20.37%) 2.07%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)......................... $ 46,113 $ 39,196 $ 67,756 $ 11,227 $ 11,803
Ratios to average net assets
(annualized):(A)
Net investment income........... 1.12% 0.90% 1.04% 1.13% 1.36%
Expenses, including expenses of
the master portfolio.......... 0.18% 0.22% 0.24% 0.20% 0.19%
</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) The tax return of capital is calculated based upon outstanding shares at the
time of distribution.
- --------------------------------------------------------------------------------
23
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.39 $ 8.01 $ 5.86 $ 7.07 $ 9.21
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income..................... 0.21 0.17 0.14 0.11 0.10
Net gains (losses) on investments, foreign
currency and futures transactions (both
realized and unrealized)................ 1.06 1.44 2.13 (1.23) (2.12)
------- ------- ------- -------- --------
Total from investment operations.............. 1.27 1.61 2.27 (1.12) (2.02)
------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.24) (0.23) (0.12) (0.09) (0.09)
Tax return of capital..................... (0.09)(B) -- -- -- (0.03)(B)
------- ------- ------- -------- --------
Total distributions........................... (0.33) (0.23) (0.12) (0.09) (0.12)
------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD................ $ 10.33 $ 9.39 $ 8.01 $ 5.86 $ 7.07
======= ======= ======= ======== ========
TOTAL RETURN.................................. 13.58% 20.12% 38.87% (15.65%) (22.14%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $90,200 $23,156 $10,043 $ 4,912 $ 3,773
Ratios to average net assets
(annualized):(A)
Net investment income................ 2.49% 2.16% 2.71% 1.97% 1.49%
Expenses, including expenses of the
master portfolio................... 0.23% 0.26% 0.31% 0.25% 0.29%
</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) The tax return of capital is calculated based upon outstanding shares at the
time of distribution.
- --------------------------------------------------------------------------------
24
AMERICAN BEACON FUNDS
FEDERAL TAX INFORMATION (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, 2005, which is
designated as qualifying for the dividends-received deduction, is as follows
(unaudited):
<Table>
S&P 500 Index Fund 93.5%
Small Cap Index Fund 61.3%
</Table>
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended December 31, 2005, which is designated as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003, is
as follows (unaudited):
<Table>
S&P 500 Index Fund 100.0%
Small Cap Index Fund 75.2%
International Equity Index Fund 60.3%
</Table>
- --------------------------------------------------------------------------------
25
AMERICAN AADVANTAGE FUNDS
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the American Beacon Funds (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 Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon 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** (57) President and President (1986-Present) and Director (2003-Present),
Trustee since American Beacon Advisors, Inc.; Chairman (1989-2003) and
1987 Director (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
(2002-2004); Director, United Way of Metropolitan Tarrant
County (1988-2000, 2004-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American Beacon
Master Trust (11/95-Present)
Alan D. Feld** (69) 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 Beacon Select Funds
(1999-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Master Trust
(11/96-Present)
</Table>
- --------------------------------------------------------------------------------
26
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
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); President and CEO,
Allmerica Trust Company, N.A. (1996-1997); President and
CEO, Fidelity Investments Southwest Company (1983-1995);
Senior Vice President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present)
Brenda A. Cline (45) Trustee since 2004 Executive 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); Director, Christian Church
Foundation (1999-Present); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present)
Richard A. Massman (62) 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 Beacon Select Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present)
Stephen D. O'Sullivan (70) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon Select
Funds (1999-Present); Trustee, American Beacon Mileage Funds
(1995-Present); Trustee, American Beacon Master Trust
(1995-Present)
R. Gerald Turner (60) 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 Beacon Select Funds (2001-Present);
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present)
</Table>
- --------------------------------------------------------------------------------
27
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.)
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court and Chairman since equity firm) (1998-Present); Director, Burger King
Suite 1740 2005 Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 (1997-2005); 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, Dallas Employee Retirement
Fund (2004-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Master Trust
(1996-Present)
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004)
Nancy A. Eckl (43) VP since 1990 Vice President, Trust Investments, American Beacon Advisors,
Inc. (1990-Present)
Michael W. Fields (51) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present)
Rebecca L. Harris (39) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995- Present)
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since 2004 (2004- Present); Senior Compliance Analyst, American Beacon
and Secretary Advisors, Inc. (1998-2004)
since 2005
</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.
- --------------------------------------------------------------------------------
28
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 97.8%
CONSUMER DISCRETIONARY - 10.6%
Amazon.Com, Inc. (a)........... 65,300 $ 3,079
Apollo Group, Inc. (a)......... 31,175 1,885
AutoNation, Inc. (a)........... 38,400 834
AutoZone, Inc. (a)............. 11,887 1,091
Bed Bath & Beyond, Inc. (a).... 62,814 2,271
Best Buy Co., Inc. ............ 85,381 3,712
Big Lots, Inc. (a)............. 24,438 294
Black & Decker Corp. .......... 17,033 1,481
Brunswick Corp. ............... 20,829 847
Carnival Corp. ................ 91,719 4,904
CCE Spinco, Inc. (a)........... 14,308 187
Centex Corp. .................. 26,676 1,907
Circuit City Stores, Inc. ..... 35,039 792
Clear Channel Communications,
Inc. ........................ 114,465 3,600
Coach, Inc. (a)................ 80,700 2,691
Comcast Corp. (a).............. 463,067 12,021
Cooper Tire & Rubber Co. ...... 12,537 192
D.R. Horton, Inc. ............. 58,200 2,080
Dana Corp. .................... 32,949 237
Darden Restaurants, Inc. ...... 28,810 1,120
Dillard's, Inc. Class A........ 13,653 339
Dollar General Corp. .......... 68,615 1,309
Dow Jones & Co., Inc. ......... 12,526 445
Eastman Kodak Co. ............. 60,837 1,424
eBay, Inc. (a)................. 243,720 10,541
EW Scripps Co. ................ 18,000 864
Family Dollar Stores, Inc. .... 30,868 765
Federated Department Stores,
Inc. ........................ 56,690 3,760
Ford Motor Co. ................ 396,355 3,060
Fortune Brands, Inc. .......... 30,966 2,416
Gannett Co., Inc. ............. 51,438 3,116
Gap, Inc. ..................... 123,930 2,186
General Motors Corp. .......... 120,273 2,336
Genuine Parts Co. ............. 36,593 1,607
Goodyear Tire & Rubber Co.
(a).......................... 37,942 659
H&R Block, Inc. ............... 69,420 1,704
Harley-Davidson, Inc. ......... 58,538 3,014
Harrah's Entertainment,
Inc. ........................ 39,233 2,797
Hasbro, Inc. .................. 36,787 742
Hilton Hotels Corp. ........... 70,043 1,689
Home Depot, Inc. .............. 453,057 18,340
International Game Technology.. 72,352 2,227
Interpublic Group of Cos., Inc.
(a).......................... 88,477 854
JC Penney & Co., Inc. ......... 49,488 2,752
Johnson Controls, Inc. ........ 40,896 2,982
Jones Apparel Group, Inc. ..... 25,079 770
KB HOME........................ 16,562 1,203
Knight-Ridder, Inc. ........... 14,691 930
Kohl's Corp. (a)............... 73,710 3,582
Leggett & Platt, Inc. ......... 39,654 910
Lennar Corp. Class A........... 28,700 1,751
Limited Brands................. 74,469 1,664
Liz Claiborne, Inc. ........... 22,941 822
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Lowe's Cos., Inc. ............. 165,423 $ 11,027
Marriott International, Inc.
Class A...................... 35,139 2,353
Mattel, Inc. .................. 86,345 1,366
Maytag Corp. .................. 17,529 330
McDonald's Corp. .............. 268,453 9,052
McGraw-Hill, Inc. ............. 79,526 4,106
Meredith Corp. ................ 8,947 468
New York Times Co. Class A..... 30,745 813
Newell Rubbermaid, Inc. ....... 57,721 1,373
News Corp. Class A............. 520,500 8,094
NIKE, Inc. Class B............. 40,813 3,542
Nordstrom, Inc. ............... 47,176 1,764
Office Depot, Inc. (a)......... 66,770 2,097
OfficeMax, Inc. ............... 14,319 363
Omnicom Group, Inc. ........... 38,717 3,296
Pulte Homes, Inc. ............. 45,772 1,802
Radioshack Corp. .............. 28,653 603
Reebok International, Ltd. .... 11,271 656
Sears Holdings Corp. (a)....... 21,252 2,455
Sherwin-Williams Co. .......... 24,270 1,102
Snap-On, Inc. ................. 12,548 471
Stanley Works.................. 15,532 746
Staples, Inc. ................. 156,225 3,548
Starbucks Corp. (a)............ 162,252 4,869
Starwood Hotels & Resorts
Worldwide, Inc. Class B...... 46,212 2,951
Target Corp. .................. 187,657 10,316
Tiffany & Co. ................. 30,068 1,151
Time Warner, Inc. ............. 994,347 17,341
TJX Cos., Inc. ................ 99,413 2,309
Tribune Co. ................... 56,555 1,711
Univision Communications, Inc.
Class A (a).................. 49,218 1,447
V.F. Corp. .................... 19,088 1,056
Viacom, Inc. Class B........... 329,597 10,745
Walt Disney Co. ............... 410,273 9,834
Wendy's International, Inc. ... 24,567 1,358
Whirlpool Corp. ............... 14,166 1,187
Yum! Brands, Inc. ............. 61,022 2,861
----------
259,348
----------
CONSUMER STAPLES - 9.4%
Alberto Culver Co. Class B..... 16,058 735
Albertson's, Inc. ............. 78,113 1,668
Altria Group, Inc. ............ 444,064 33,180
Anheuser-Busch Cos., Inc. ..... 165,067 7,091
Archer-Daniels-Midland Co. .... 139,167 3,432
Avon Products, Inc. ........... 97,748 2,791
Brown-Forman Corp. Class B..... 17,682 1,226
Campbell Soup Co. ............. 39,583 1,178
Clorox Co. .................... 32,410 1,844
Coca-Cola Co. ................. 441,235 17,786
Coca-Cola Enterprises, Inc. ... 64,300 1,233
Colgate-Palmolive Co. ......... 110,535 6,063
ConAgra Foods, Inc. ........... 109,746 2,226
Constellation Brands, Inc.
Class A (a).................. 40,600 1,065
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
29
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Costco Wholesale Corp. ........ 100,651 $ 4,979
CVS Corp. ..................... 171,584 4,533
General Mills, Inc. ........... 75,764 3,737
H.J. Heinz Co. ................ 72,420 2,442
Hershey Foods Corp. ........... 39,308 2,172
Kellogg Co. ................... 54,829 2,370
Kimberly-Clark Corp. .......... 99,664 5,945
Kroger Co. (a)................. 153,822 2,904
McCormick & Co., Inc. ......... 28,600 884
Molson Coors Brewing Co., Class
B............................ 12,244 820
Pepsi Bottling Group, Inc. .... 29,553 845
PepsiCo, Inc. ................. 353,810 20,903
Procter & Gamble Co. .......... 714,857 41,376
Reynolds American, Inc. ....... 18,240 1,739
Safeway, Inc. ................. 95,193 2,252
Sara Lee Corp. ................ 162,017 3,062
SuperValu, Inc. ............... 29,060 944
Sysco Corp. ................... 132,281 4,107
Tyson Foods, Inc., Class A..... 53,800 920
UST Corp. ..................... 34,647 1,415
Wal-Mart Stores, Inc. ......... 532,728 24,932
Walgreen Co. .................. 216,810 9,596
Whole Foods Market, Inc. ...... 29,000 2,244
Wrigley Wm., Jr. Co. .......... 38,316 2,547
----------
229,186
----------
ENERGY - 9.1%
Amerada Hess Corp. ............ 17,002 2,156
Anadarko Petroleum Corp. ...... 49,854 4,724
Apache Corp. .................. 69,830 4,785
Baker Hughes, Inc. ............ 71,880 4,369
BJ Services Co. ............... 68,410 2,509
Burlington Resources, Inc. .... 80,656 6,952
ChevronTexaco Corp. ........... 477,488 27,107
ConocoPhillips................. 295,782 17,209
Devon Energy Corp. ............ 94,722 5,924
El Paso Corp. ................. 140,994 1,714
EOG Resources, Inc. ........... 51,068 3,747
ExxonMobil Corp. .............. 1,327,102 74,543
Halliburton Co. ............... 107,986 6,691
Kerr-McGee Corp. .............. 24,721 2,246
Kinder Morgan, Inc. ........... 22,338 2,054
Marathon Oil Corp. ............ 77,257 4,710
Murphy Oil Corp. .............. 34,900 1,884
Nabors Industries, Ltd. (a).... 33,715 2,554
National Oilwell Varco, Inc.
(a).......................... 36,200 2,270
Noble Corp. ................... 29,023 2,047
Occidental Petroleum Corp. .... 84,923 6,784
Rowan Cos., Inc. .............. 23,239 828
Schlumberger, Ltd. ............ 124,907 12,135
Sunoco, Inc. .................. 28,856 2,262
Transocean, Inc. (a)........... 69,395 4,836
Valero Energy Corp. ........... 129,800 6,698
Weatherford International Ltd.
(a).......................... 74,100 2,682
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Williams Cos., Inc. ........... 121,537 $ 2,816
XTO Energy, Inc. .............. 76,800 3,375
----------
222,611
----------
FINANCIALS - 20.8%
ACE, Ltd. ..................... 67,255 3,594
AFLAC, Inc. ................... 106,616 4,949
Allstate Corp. ................ 139,107 7,522
Ambac Financial Group, Inc. ... 23,047 1,776
American Express Co. .......... 263,673 13,569
American International Group,
Inc. ........................ 553,583 37,771
Ameriprise Financial, Inc. .... 53,294 2,185
AmSouth Bancorp................ 74,619 1,956
AON Corp. ..................... 67,623 2,431
Apartment Investment &
Management Co. Class A....... 20,500 776
Archstone-Smith Trust.......... 45,300 1,898
Bank of America Corp. ......... 836,500 38,604
Bank of New York Co., Inc. .... 165,379 5,267
BB&T Corp. .................... 116,318 4,875
Bear Stearns Cos., Inc. ....... 24,099 2,784
Capital One Financial Corp. ... 63,915 5,522
Charles Schwab Corp. .......... 222,293 3,261
Chubb Corp. ................... 41,839 4,086
Cincinnati Financial Corp. .... 37,405 1,671
CIT Group, Inc. ............... 43,200 2,237
Citigroup, Inc. ............... 1,078,971 52,362
Comerica, Inc. ................ 35,532 2,017
Compass Bancshares, Inc. ...... 26,100 1,260
Countrywide Financial Corp. ... 125,486 4,290
E*Trade Financial Corp. (a).... 86,300 1,800
Equity Office Properties
Trust........................ 87,841 2,664
Equity Residential............. 60,907 2,383
Fannie Mae..................... 205,329 10,022
Federal Home Loan Mortgage
Corp. ....................... 146,446 9,570
Federated Investors, Inc. Class
B............................ 18,100 670
Fifth Third Bancorp............ 118,200 4,458
First Horizon National
Corp. ....................... 26,117 1,004
Franklin Resources, Inc. ...... 31,744 2,984
Genworth Financial, Inc. ...... 80,000 2,766
Golden West Financial Corp. ... 54,622 3,605
Goldman Sachs Group, Inc. ..... 96,100 12,273
Hartford Financial Services
Group, Inc. ................. 63,588 5,462
Huntington Bancshares, Inc. ... 49,154 1,167
J.P. Morgan Chase & Co. ....... 744,919 29,566
Janus Capital Group, Inc. ..... 48,419 902
Jefferson-Pilot Corp. ......... 28,460 1,620
KeyCorp........................ 86,909 2,862
Lehman Brothers Holdings,
Inc. ........................ 57,118 7,321
Lincoln National Corp. ........ 36,431 1,932
Loews Corp. ................... 29,014 2,752
M & T Bank Corp. .............. 17,200 1,876
Marsh & McLennan Cos., Inc. ... 113,736 3,612
Marshall & Ilsley Corp. ....... 43,992 1,893
MBIA, Inc. .................... 28,458 1,712
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
30
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
MBNA Corp. .................... 307,902 $ 8,360
Mellon Financial Corp. ........ 89,423 3,063
Merrill Lynch & Co., Inc. ..... 195,927 13,270
MetLife, Inc. ................. 160,707 7,875
MGIC Investment Corp. ......... 19,362 1,274
Moody's Corp. ................. 52,930 3,251
Morgan Stanley................. 229,843 13,041
National City Corp. ........... 117,491 3,944
North Fork Bancorp, Inc. ...... 101,635 2,781
Northern Trust Corp. .......... 39,540 2,049
Plum Creek Timber Co., Inc. ... 38,580 1,391
PNC Financial Services Group,
Inc. ........................ 62,147 3,843
Principal Financial Group,
Inc. ........................ 59,650 2,829
Progressive Corp. ............. 41,947 4,899
ProLogis....................... 52,800 2,467
Prudential Financial, Inc. .... 107,700 7,883
Public Storage, Inc. .......... 17,700 1,199
Regions Financial Corp. ....... 97,709 3,338
SAFECO Corp. .................. 26,764 1,512
Simon Property Group, Inc. .... 39,163 3,001
SLM Corp. ..................... 88,842 4,894
Sovereign Bancorp, Inc. ....... 76,800 1,660
St. Paul Travelers Cos.,
Inc. ........................ 147,725 6,599
State Street Corp. (b)......... 70,325 3,899
SunTrust Banks, Inc. .......... 77,072 5,608
Synovus Financial Corp. ....... 64,704 1,748
T. Rowe Price Group, Inc. ..... 27,790 2,002
Torchmark Corp. ............... 22,276 1,239
U.S. Bancorp................... 387,861 11,593
UnumProvident Corp. ........... 62,935 1,432
Vornado Realty Trust 25,200 2,103
Wachovia Corp. ................ 331,286 17,512
Washington Mutual, Inc. ....... 210,413 9,153
Wells Fargo Co. ............... 356,611 22,406
XL Capital, Ltd. Class A....... 36,732 2,475
Zions Bancorp.................. 22,119 1,671
----------
510,803
----------
HEALTH CARE - 12.9%
Abbott Laboratories............ 330,267 13,022
Aetna, Inc. ................... 60,964 5,750
Allergan, Inc. ................ 27,791 3,000
AmerisourceBergen Corp. ....... 44,232 1,831
Amgen, Inc. (a)................ 262,175 20,675
Applera Corp. - Applied
Biosystems Group............. 40,067 1,064
Bausch & Lomb, Inc. ........... 11,325 769
Baxter International, Inc. .... 132,226 4,978
Becton, Dickinson & Co. ....... 53,429 3,210
Biogen Idec, Inc. (a).......... 72,473 3,285
Biomet, Inc. .................. 53,041 1,940
Boston Scientific Corp. (a).... 126,296 3,093
Bristol-Myers Squibb Co. ...... 415,617 9,551
C.R. Bard, Inc. ............... 22,094 1,456
Cardinal Health, Inc. ......... 90,866 6,247
Caremark Rx, Inc. (a).......... 95,708 4,957
Chiron Corp. (a)............... 23,344 1,038
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
CIGNA Corp. ................... 27,089 $ 3,026
Coventry Health Care, Inc.
(a).......................... 34,500 1,965
Eli Lilly & Co. ............... 240,897 13,632
Express Scripts, Inc. (a)...... 31,500 2,640
Fisher Scientific
International, Inc. (a)...... 25,900 1,602
Forest Laboratories, Inc.
(a).......................... 72,206 2,937
Genzyme Corp. (a).............. 54,105 3,830
Gilead Sciences, Inc. (a)...... 96,900 5,100
Guidant Corp. ................. 69,664 4,511
HCA, Inc. ..................... 89,759 4,533
Health Management Associates,
Inc. Class A................. 52,698 1,157
Hospira, Inc. (a).............. 33,936 1,452
Humana, Inc. (a)............... 34,425 1,870
IMS Health, Inc. .............. 48,381 1,206
Johnson & Johnson.............. 634,446 38,130
King Pharmaceuticals, Inc.
(a).......................... 52,332 885
Laboratory Corp. of America
Holdings (a)................. 28,600 1,540
Manor Care, Inc. .............. 16,651 662
McKesson Corp. ................ 65,931 3,401
Medco Health Solutions, Inc.
(a).......................... 65,072 3,631
MedImmune, Inc. (a)............ 51,965 1,820
Medtronic, Inc. ............... 257,302 14,813
Merck & Co., Inc. ............. 466,503 14,840
Millipore Corp. (a)............ 10,728 709
Mylan Laboratories Inc. ....... 46,100 920
Patterson Cos., Inc. (a)....... 27,600 922
Pfizer, Inc. .................. 1,572,074 36,661
Quest Diagnostics Inc. ........ 35,500 1,828
Schering-Plough Corp. ......... 313,724 6,541
St. Jude Medical, Inc. (a)..... 76,894 3,860
Stryker Corp. ................. 62,108 2,760
Tenet Healthcare Corp. (a)..... 99,009 758
Thermo Electron Corp. (a)...... 33,929 1,022
UnitedHealth Group, Inc. ...... 290,768 18,068
Watson Pharmaceuticals, Inc.
(a).......................... 22,003 715
Wellpoint, Inc. (a)............ 130,178 10,387
Wyeth.......................... 284,931 13,127
Zimmer Holdings, Inc. (a)...... 52,620 3,549
----------
316,876
----------
INDUSTRIALS - 11.1%
3M Co. ........................ 162,584 12,600
Allied Waste Industries, Inc.
(a).......................... 46,467 406
American Power Conversion
Corp. ....................... 36,667 807
American Standard Cos.,
Inc. ........................ 39,221 1,567
Avery Dennison Corp. .......... 23,670 1,308
Boeing Co. .................... 172,145 12,091
Burlington Northern Santa Fe
Corp. ....................... 79,450 5,627
Caterpillar, Inc. ............. 145,070 8,381
Cendant Corp. ................. 218,422 3,768
Cintas Corp. .................. 29,382 1,210
Cooper Industries, Ltd. ....... 19,521 1,425
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
CSX Corp. ..................... 45,824 $ 2,326
Cummins, Inc. ................. 9,973 895
Danaher Corp. ................. 50,826 2,835
Deere & Co. ................... 51,241 3,490
Dover Corp. ................... 42,713 1,729
Eaton Corp. ................... 30,878 2,072
Emerson Electric Co. .......... 87,735 6,554
Equifax, Inc. ................. 27,769 1,056
FedEx Corp. ................... 64,346 6,653
Fluor Corp. ................... 18,106 1,399
General Dynamics Corp. ........ 42,706 4,871
General Electric Co. .......... 2,253,423 78,982
Goodrich Co. .................. 25,755 1,058
Honeywell International,
Inc. ........................ 179,742 6,695
Illinois Tool Works, Inc. ..... 44,064 3,877
Ingersoll-Rand Co. Class A..... 71,600 2,890
ITT Industries, Inc. .......... 19,602 2,015
L-3 Communications Holdings,
Inc. ........................ 25,200 1,874
Lockheed Martin Corp. ......... 76,271 4,853
Masco Corp. ................... 91,274 2,756
Monster Worldwide, Inc. (a).... 25,792 1,053
Navistar International Corp.
(a).......................... 13,180 377
Norfolk Southern Corp. ........ 85,961 3,854
Northrop Grumman Corp. ........ 75,978 4,567
PACCAR, Inc. .................. 36,570 2,532
Pall Corp. .................... 26,774 719
Parker-Hannifin Corp. ......... 25,223 1,664
Pitney Bowes, Inc. ............ 48,439 2,047
R.R. Donnelley & Sons Co. ..... 45,660 1,562
Raytheon Co. .................. 96,014 3,855
Robert Half International,
Inc. ........................ 36,214 1,372
Rockwell Automation, Inc. ..... 38,820 2,297
Rockwell Collins, Inc. ........ 37,619 1,748
Ryder Systems, Inc. ........... 13,980 573
Southwest Airlines Co. ........ 147,740 2,427
Textron, Inc. ................. 28,375 2,184
Tyco International, Ltd. ...... 429,548 12,397
Union Pacific Corp. ........... 56,140 4,520
United Parcel Service, Inc.
Class B...................... 235,300 17,683
United Technologies Corp. ..... 217,514 12,161
W.W. Grainger, Inc. ........... 16,109 1,145
Waste Management, Inc. ........ 117,679 3,572
----------
272,379
----------
INFORMATION TECHNOLOGY - 14.8%
ADC Telecommunications, Inc.
(a).......................... 25,018 559
Adobe Systems, Inc. ........... 126,542 4,677
Advanced Micro Devices, Inc.
(a).......................... 82,884 2,536
Affiliated Computer Services,
Inc. (a)..................... 26,500 1,568
Agilent Technologies, Inc.
(a).......................... 87,697 2,919
Altera Corp. (a)............... 79,078 1,465
Analog Devices, Inc. .......... 78,261 2,807
Andrew Corp. (a)............... 34,827 374
Apple Computer, Inc. (a)....... 179,692 12,918
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Applied Materials, Inc. ....... 344,761 $ 6,185
Applied Micro Circuits Corp.
(a).......................... 68,042 175
Autodesk, Inc. ................ 48,430 2,080
Automatic Data Processing,
Inc. ........................ 123,538 5,669
Avaya, Inc. (a)................ 90,415 965
BMC Software, Inc. (a)......... 46,836 960
Broadcom Corp. (a)............. 60,246 2,841
CIENA Corp. (a)................ 126,088 375
Cisco Systems, Inc. (a)........ 1,310,059 22,428
Citrix Systems, Inc. (a)....... 35,753 1,029
Computer Associates
International, Inc. ......... 99,513 2,805
Computer Sciences Corp. (a).... 39,182 1,984
Compuware Corp. (a)............ 84,057 754
Comverse Technology, Inc. (a).. 42,838 1,139
Convergys Corp. (a)............ 30,805 488
Corning, Inc. (a).............. 324,985 6,389
Dell, Inc. (a)................. 501,991 15,055
Electronic Arts, Inc. (a)...... 64,600 3,379
Electronic Data Systems
Corp. ....................... 110,186 2,649
EMC Corp. (a).................. 512,241 6,977
First Data Corp. .............. 162,904 7,007
Fiserv, Inc. (a)............... 40,247 1,742
Freescale Semiconductor, Inc.
(a).......................... 85,908 2,162
Gateway, Inc. (a).............. 65,065 163
Hewlett-Packard Co. ........... 608,719 17,428
Intel Corp. ................... 1,285,703 32,091
International Business Machines
Corp. ....................... 336,818 27,686
Intuit, Inc. (a)............... 37,751 2,012
Jabil Circuit, Inc. (a)........ 36,613 1,358
JDS Uniphase Corp. (a)......... 352,519 832
KLA-Tencor Corp................ 41,864 2,065
Lexmark International Group,
Inc. Class A (a)............. 25,102 1,125
Linear Technology Corp......... 65,075 2,347
LSI Logic Corp. (a)............ 81,935 656
Lucent Technologies, Inc.
(a).......................... 944,472 2,512
Maxim Integrated Products,
Inc.......................... 69,656 2,524
Mercury Interactive Corp.
(a).......................... 18,248 507
Micron Technology, Inc. (a).... 129,932 1,729
Microsoft Corp................. 1,952,204 51,050
Molex, Inc..................... 30,910 802
Motorola, Inc.................. 531,198 12,000
National Semiconductor Corp.... 73,518 1,910
NCR Corp....................... 39,184 1,330
Network Appliance, Inc. (a).... 77,867 2,102
Novell, Inc. (a)............... 82,542 729
Novellus Systems, Inc. (a)..... 28,769 694
NVIDIA Corp. (a)............... 35,951 1,314
Oracle Corp. (a)............... 800,038 9,769
Parametric Technology Corp.
(a).......................... 58,241 355
Paychex, Inc................... 71,027 2,708
PerkinElmer, Inc............... 27,257 642
PMC-Sierra, Inc. (a)........... 38,624 298
QLogic Corp. (a)............... 17,145 557
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
32
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
QUALCOMM, Inc.................. 350,678 $ 15,107
Sabre Holdings Corp. Class A... 28,424 685
Sanmina-SCI Corp. (a).......... 112,858 481
Scientific-Atlanta, Inc........ 32,168 1,386
Siebel Systems, Inc............ 110,658 1,171
Solectron Corp. (a)............ 187,214 685
Sun Microsystems, Inc. (a)..... 724,488 3,036
Symantec Corp. (a)............. 229,834 4,022
Symbol Technologies, Inc....... 52,185 669
Tektronix, Inc................. 18,629 526
Tellabs, Inc. (a).............. 95,775 1,044
Teradyne, Inc. (a)............. 41,392 603
Texas Instruments, Inc......... 343,703 11,023
Unisys Corp. (a)............... 72,779 424
Waters Corp. (a)............... 23,557 891
Xerox Corp. (a)................ 203,742 2,985
Xilinx, Inc.................... 74,104 1,868
Yahoo!, Inc. (a)............... 269,280 10,550
----------
363,511
----------
MATERIALS - 2.9%
Air Products & Chemicals,
Inc.......................... 47,289 2,799
Alcoa, Inc..................... 185,346 5,481
Allegheny Technologies, Inc.... 18,029 650
Ashland, Inc................... 15,880 919
Ball Corp...................... 23,170 920
Bemis Co., Inc................. 23,128 645
Dow Chemical Co................ 204,999 8,983
E.I. Du Pont de Nemours & Co... 194,439 8,264
Eastman Chemical Co............ 16,862 870
Ecolab, Inc.................... 39,426 1,430
Engelhard Corp................. 25,130 758
Freeport-McMoRan Copper & Gold,
Inc. Class B................. 38,014 2,045
Hercules, Inc. (a)............. 24,698 279
International Flavors &
Fragrances, Inc.............. 17,504 586
International Paper Co......... 104,256 3,504
Louisiana-Pacific Corp......... 23,859 655
MeadWestvaco Corp.............. 39,188 1,098
Monsanto Co.................... 57,146 4,430
Newmont Mining Corp............ 94,942 5,070
Nucor Corp..................... 33,104 2,209
Pactiv Corp. (a)............... 32,164 708
Phelps Dodge Corp.............. 21,705 3,123
PPG Industries, Inc............ 36,090 2,090
Praxair, Inc................... 68,720 3,639
Rohm & Haas Co................. 31,096 1,506
Sealed Air Corp. (a)........... 18,036 1,013
Sigma-Aldrich Corp............. 14,493 917
Temple-Inland, Inc............. 23,828 1,069
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
United States Steel Corp....... 24,002 $ 1,154
Vulcan Materials Co............ 21,696 1,470
Weyerhaeuser Co................ 52,024 3,451
----------
71,735
----------
TELECOMMUNICATION SERVICES - 2.9%
ALLTEL Corp.................... 81,098 5,117
AT&T, Inc...................... 834,853 20,446
BellSouth Corp................. 388,628 10,532
CenturyTel, Inc. .............. 27,408 909
Citizens Communications Co. ... 72,677 889
Qwest Communications
International, Inc. (a)...... 325,122 1,837
Sprint Corp. (Fon Group)....... 630,100 14,719
Verizon Communications,
Inc. ........................ 587,498 17,695
----------
72,144
----------
UTILITIES - 3.3%
AES Corp. (a).................. 137,914 2,183
Allegheny Energy, Inc. (a)..... 33,899 1,073
Ameren Corp. .................. 43,242 2,216
American Electric Power Co.,
Inc. ........................ 84,054 3,118
CenterPoint Energy, Inc. ...... 63,893 821
Cinergy Corp. ................. 42,258 1,794
CMS Energy Corp. (a)........... 46,605 676
Consolidated Edison, Inc. ..... 51,022 2,364
Constellation Energy Group,
Inc. ........................ 37,803 2,177
Dominion Resources, Inc. ...... 74,087 5,720
DTE Energy Co. ................ 38,046 1,643
Duke Energy Corp. ............. 196,877 5,404
Dynegy Inc. Class A (a)........ 61,330 297
Edison International........... 69,262 3,021
Entergy Corp. ................. 44,143 3,030
Exelon Corp. .................. 142,478 7,571
FirstEnergy Corp. ............. 70,112 3,435
FPL Group, Inc. ............... 84,278 3,503
KeySpan Corp. ................. 37,006 1,321
Nicor, Inc. ................... 9,313 366
NiSource, Inc. ................ 57,867 1,207
Peoples Energy Corp. .......... 8,131 285
PG&E Corp. .................... 71,823 2,666
Pinnacle West Capital Corp. ... 20,581 851
PPL Corp. ..................... 80,536 2,368
Progress Energy, Inc. ......... 53,308 2,341
Public Service Enterprise
Group, Inc. ................. 53,422 3,471
Sempra Energy.................. 54,789 2,457
Southern Co. .................. 158,658 5,478
TECO Energy, Inc. ............. 43,276 744
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
33
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
TXU Corp. ..................... 102,096 $ 5,124
Xcel Energy, Inc. ............. 85,597 1,580
----------
80,305
----------
TOTAL COMMON STOCKS (COST
$1,716,590,222).......... 2,398,898
----------
<Caption>
PAR
AMOUNT
--------------
(IN THOUSANDS)
U.S. GOVERNMENT SECURITIES - 0.2%
United States Treasury Bill
3.89% due 03/09/06 (c)(d).... $ 4,299 4,268
----------
TOTAL U.S. GOVERNMENT
SECURITIES (COST
$4,267,876).............. 4,268
----------
<Caption>
SHARES
--------------
(IN THOUSANDS)
MONEY MARKET FUNDS - 1.8%
AIM Short Term Investment Prime
Portfolio.................... 45,503 45,503
Federated Money Market
Obligations Trust............ 502 502
----------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
TOTAL MONEY MARKET FUNDS
(COST $46,004,859)....... $ 46,005
----------
TOTAL INVESTMENTS - 99.8%
(IDENTIFIED COST
$1,766,862,957).............. 2,449,171
----------
OTHER ASSETS IN EXCESS OF
LIABILITIES - 0.2%........... 3,938
----------
NET ASSETS - 100%.............. $2,453,109
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
(DOLLARS IN THOUSANDS)
S&P 500 Financial Futures
Contracts (long) Expiration
Date 03/2006............... 613 $(766)
-----
Total unrealized depreciation
on open futures contracts
purchased.................. $(766)
=====
</Table>
- ---------------
(a) Non-income producing security.
(b) Affiliated issuer. See table that follows for more information.
(c) Security held as collateral in relation to initial margin requirements on
futures contracts.
(d) Rate represents annualized yield at date of purchase.
AFFILIATE TABLE
<Table>
<Caption>
INCOME EARNED
NUMBER OF SHARES PURCHASED SHARES SOLD FOR NUMBER OF FOR THE YEAR REALIZED GAIN
SHARES HELD FOR THE YEAR THE YEAR ENDED SHARES HELD AT ENDED 12/31/05 ON SHARES SOLD
SECURITY DESCRIPTION 12/31/2004 ENDED 12/31/05 12/31/05 12/31/05 (000) (000)
-------------------- ------------- ---------------- --------------- --------------- -------------- --------------
State Street Corp. ... 79,225 6,600 15,500 70,325 $ 53 $97
State Street Navigator
Securities Lending
Prime Portfolio..... 98,441,667 953,981,360 1,052,423,027 -- $103 --
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
34
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
ASSETS:
Investments in unaffiliated issuers at market
(identified cost $1,764,546)........................... $ 2,445,272
Investments in non-controlled affiliates at market
(identified cost $2,317) (Note 4)...................... 3,899
-----------
2,449,171
Receivables:
Investment securities sold.......................... 3,526
Dividends and interest.............................. 3,338
-----------
TOTAL ASSETS........................................ 2,456,035
-----------
LIABILITIES:
Payables:
Investment securities purchased..................... 2,574
Daily variation margin on futures contracts......... 244
Management fees (Note 4)............................ 95
Due to custodian.................................... 13
-----------
TOTAL LIABILITIES................................... 2,926
-----------
NET ASSETS.................................................. $ 2,453,109
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
35
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
(amounts in thousands)
<Table>
INVESTMENT INCOME:
Dividend income - unaffiliated issuers.................. $ 45,344
Dividend income - non-controlled affiliated issuer...... 53
Interest................................................ 1,561
Security lending income (Notes 2 and 4)................. 103
--------
TOTAL INVESTMENT INCOME............................. 47,061
EXPENSES:
Management fees (Note 4)................................ $ 1,125
--------
TOTAL EXPENSES...................................... 1,125
--------
NET INVESTMENT INCOME....................................... 45,936
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments - unaffiliated issuers.................. (808)
Investments - non-controlled affiliated issuer...... 97
In-kind transfers................................... (8,353)
Futures contracts................................... 1,878
--------
(7,186)
--------
Net change in net unrealized appreciation (depreciation)
on:
Investments 65,566
Futures contracts................................... (1,839)
--------
63,727
--------
Net realized and unrealized gain............................ 56,541
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $102,477
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
36
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS (amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net Investment Income......................... $ 45,936 $ 52,658
Net realized loss on investments and futures
contracts.................................... (7,186) (26,489)
Net change in net unrealized appreciation
(depreciation)............................ 63,727 249,898
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ 102,477 276,067
---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from contributions................... 278,352 331,241
Fair value of withdrawals..................... (457,339) (481,557)
Withdrawals in-kind........................... (237,848) (72,956)
---------- ----------
NET DECREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.............................. (416,835) (223,272)
---------- ----------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS....... (314,358) 52,795
NET ASSETS:
Beginning of year............................. 2,767,467 2,714,672
---------- ----------
END OF YEAR................................... $2,453,109 $2,767,467
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
37
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
FOR THE YEAR YEAR YEAR YEAR
YEAR ENDED ENDED ENDED ENDED ENDED
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands)...... $2,453,109 $2,767,467 $2,714,672 $1,992,548 $2,692,298
Ratios to average net assets:
Operating expenses....................... 0.045% 0.045% 0.045% 0.045% 0.045%
Net investment income.................... 1.84% 1.97% 1.74% 1.57% 1.34%
Portfolio turnover rate*...................... 8% 9% 12% 13% 14%
Total return (a).............................. 4.87% 10.86% 28.62% (22.16)% (11.94)%
</Table>
- ---------------
* The portfolio turnover rate excludes in-kind security transactions.
(a) Results represent past performance and are not indicative of future results.
See notes to financial statements.
- --------------------------------------------------------------------------------
38
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION
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
six 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 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,
2005, only the Portfolio and the State Street Money Market Portfolio were in
operation. 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. There is no assurance that the Portfolio will
achieve its objective.
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.
- --------------------------------------------------------------------------------
39
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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, had entered into a Securities
Lending Agreement (the "Agreement") with State Street Bank and Trust Company
("State Street") whereby the Portfolio would lend portfolio securities to
qualified borrowers in order to earn additional income. On September 27, 2005,
the Agreement was terminated and the Portfolio discontinued lending portfolio
securities. The Agreement required that loans be 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 was allocated as follows: 75% to the Portfolio
and 25% to State Street. For the year ended December 31, 2005, the earned income
for the Portfolio and State Street was $102,925 and $34,308, 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.
- --------------------------------------------------------------------------------
40
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
3. SECURITIES TRANSACTIONS
For the year ended December 31, 2005, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
withdrawals, aggregated to $205,795,356 and $324,324,748, respectively. The
aggregate value of in-kind withdrawals was $237,847,807.
At December 31, 2005, the tax cost of investments was $1,952,530,390. The
aggregate gross unrealized appreciation and gross unrealized depreciation was
$801,244,221 and $304,603,493, respectively, resulting in net appreciation of
$496,640,728 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" or the "Adviser"), 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), 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 were made in securities
affiliated with State Street and SSgA FM. Investments made with cash collateral
received from securities loaned were used to purchase shares of the State Street
Navigator Securities Lending 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, 2005
is listed in the Portfolio of Investments.
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
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 is unknown as this could involve future claims against
the Trust.
- --------------------------------------------------------------------------------
41
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, 2005, 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 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.
We were not engaged to perform an audit of the Portfolio's internal control over
financial reporting. Our audits included 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, 2005, 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, 2005, 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 five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
-s- ERNST & YOUNG LLP
Boston, Massachusetts
February 16, 2006
- --------------------------------------------------------------------------------
42
STATE STREET EQUITY 500 INDEX PORTFOLIO
GENERAL INFORMATION
December 31, 2005
- --------------------------------------------------------------------------------
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
are 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 by August 31 (i) without charge, upon request, by (i) 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 Forms N-Q are available on the SEC's website
at www.sec.gov. The Trust's Forms 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.
ADVISORY AGREEMENT RENEWAL
The Board of Trustees of the Trust met on November 16, 2005 (the "Meeting")
to consider the renewal of the investment advisory agreement for the Portfolio
(the "Advisory Agreement"). In preparation for considering the Advisory
Agreement, the Trustees had thoroughly reviewed the renewal materials provided
by the Adviser, which they had requested through independent counsel. In
deciding whether to renew the Advisory Agreement, the Trustees considered
various factors, including (i) the nature, extent and quality of the services
provided by the Adviser under the Advisory Agreement, (ii) the investment
performance of the Portfolio, (iii) the costs to the Adviser of its services and
the profits realized by the Adviser and its affiliates from the relationship
with the Portfolio and Trust, (iv) the extent to which economies of scale would
be realized if and as the Portfolio grows and whether the fee levels in the
Advisory Agreement reflect these economies of scale, and (v) any additional
benefits to the Adviser from its relationship with the Portfolio and Trust.
In considering the nature, extent and quality of the services provided by
the Adviser, the Trustees relied on their prior direct experience as Trustees of
the Trust as well as on the materials provided at the Meeting. The Board
reviewed the Adviser's responsibilities under the Advisory Agreement and noted
the experience and expertise that would be appropriate to expect of an adviser
to the Portfolio, which is an index fund. The Trustees reviewed the background
and experience of the Adviser's senior management, including those individuals
responsible for the investment and compliance operations relating to the
investments of the Portfolio, and the responsibilities of the latter with
respect to the Portfolio. They also considered the resources, operational
structures and practices of the Adviser in managing the Portfolio's investments,
in monitoring and securing the Portfolio's compliance with its investment
objective and policies with respect to its investments and with applicable laws
and regulations, and in seeking best execution of portfolio transactions. The
Trustees also considered information about the Adviser's overall investment
management business, noting that the Adviser manages assets for a variety of
institutional investors and that the Adviser and its affiliates had over $1.4
trillion in assets under management. They reviewed information regarding State
Street's business continuity and disaster recovery program. Drawing upon the
materials provided and their general knowledge of the business of the Adviser,
the Trustees determined that
- --------------------------------------------------------------------------------
43
STATE STREET EQUITY 500 INDEX PORTFOLIO
GENERAL INFORMATION -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
the experience, resources and strength of the Adviser in the management of index
products is exceptional. As discussed more fully below, they also determined
that the advisory fee for the Portfolio was fair and reasonable and that its
performance and expense ratio were satisfactory. On the basis of this review,
the Trustees determined that the nature and extent of the services provided by
the Adviser to the Portfolio were appropriate, had been of uniformly high
quality, and could be expected to remain so.
The Trustees noted that, in view of the investment objective of the
Portfolio, the investment performance was satisfactory. The Trustees noted that
the performance of the Portfolio in absolute terms was not of the importance
that normally attaches to that of actively-managed funds. Of more importance to
the Trustees was the extent to which the Portfolio achieved its objective of
replicating, before expenses, the total return of the S&P 500 Index. Drawing
upon information provided at the Meeting and upon reports provided to the
Trustees by the Adviser throughout the preceding year, they determined that the
Portfolio had in fact tracked the index within an acceptable range of tracking
error. Accordingly, they concluded that the performance the Portfolio was
satisfactory.
The Trustees considered the profitability to the Adviser and its affiliate,
State Street, of the advisory relationships with the Trust. The Trustees had
been provided with data regarding the profitability to the Adviser and its
affiliated service providers with respect to the Portfolio individually, and on
an aggregate basis, for the year ended September 30, 2005. They first discussed
with representatives of the Adviser the methodologies used in computing the
costs that formed the bases of the profitability calculations. Concluding that
these methodologies were reasonable, they turned to the data provided. After
discussion and analysis they concluded that, to the extent that the Adviser's
and State Street's relationships with the Trust had been profitable to either or
both of those entities, the profitability was in no case such as to render the
advisory fee excessive.
In order better to evaluate the Portfolio's advisory fee, the Trustees had
requested comparative information from Lipper Inc. with respect to fees paid by,
and expense ratios of, similar funds. The Trustees found that that the
Portfolio's advisory fee and total expense ratio were lower than the average for
its peer group. The Trustees concluded that the data available provided
confirmation of the reasonableness of the Adviser's fee. The Board determined
that the Adviser's fees were fair and reasonable.
In considering whether the Adviser benefits in other ways from its
relationship with the Trust, the Trustees also considered whether the Adviser's
affiliates may benefit from the Trust's relationship with State Street as fund
administrator, custodian and transfer agent and the Portfolio's use of State
Street Global Markets to perform certain brokerage services. They noted that the
Adviser utilizes no soft-dollar arrangements in connection with the Portfolio's
brokerage transactions. The Trustees concluded that, to the extent that the
Adviser or its affiliates derive other benefits from their relationships with
the Trust, those benefits are not so significant as to render the Adviser's fees
excessive.
The Board also considered the extent to which economies of scale may be
realized by the Portfolio as assets grow and whether the Portfolio's fee levels
reflect such economies of scale, if any, for the benefit of investors. In
considering the matter, the Board determined that, in view of the comparatively
small asset size of the Portfolio, the economies of scale actually realized, if
any, were minor and that, in any event, such economies of scale, if any, were
shared with the Portfolio by virtue of advisory fees of comparatively low levels
that subsumed economies of scale in the fees themselves.
- --------------------------------------------------------------------------------
44
STATE STREET EQUITY 500 INDEX PORTFOLIO
TRUSTEES AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The table below includes information about the Trustees and Executive
Officers of the State Street Master Funds, including their:
- business addresses and ages;
- principal occupations during the past five years; and
- other directorships of publicly traded companies or funds.
As of December 31, 2005, none of the Trustees were considered to be an
"interested person" of the Trust, as that term is defined in the Investment
Company Act of 1940, as amended (the "Independent Trustees").
<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 & 12 Trustee, State
Holland & Company, LLC Chairman of Elected: 2/00 Company L.L.C. (investment Street
375 Park Avenue the Board adviser) (1995-present). Institutional
New York, NY 10152 Investment
DOB: 07/07/44 Trust;
Director, the
Holland Series
Fund, Inc.; and
Director, the
China Fund,
Inc.
William L. Boyan Trustee Term: Indefinite Trustee of Old Mutual 12 Trustee, State
State Street Master Elected: 2/00 South Africa Master Trust Street
Funds (investments) (1995- 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.
</Table>
* The "Fund Complex" consists of six series of the Trust and six series of
State Street Institutional Investment Trust.
- --------------------------------------------------------------------------------
45
STATE STREET EQUITY 500 INDEX PORTFOLIO
TRUSTEES AND EXECUTIVE OFFICERS -- 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
- --------------------- ----------- ---------------- -------------------------- ------------- ---------------
Rina K. Spence Trustee Term: Indefinite President of SpenceCare 12 Trustee, State
7 Acacia Street Elected: 2/00 International LLC (1998- Street
Cambridge, MA 02138 present); Member of the Institutional
DOB: 10/24/48 Advisory Board, Ingenium Investment
Corp. (technology company) Trust;
(2001-present); Chief Director,
Executive Officer, Berkshire Life
IEmily.com (internet Insurance
company) (2000-2001); Company of
Chief Executive Officer of America; and
Consensus Pharmaceutical, Director,
Inc. (1998-1999); Founder, IEmily.com
President and Chief
Executive Officer of
Spence Center for Women's
Health (1994-1998);
Trustee, Eastern
Enterprise (utilities)
(1988-2000).
Douglas T. Williams Trustee Term: Indefinite Executive Vice President 12 Trustee, State
State Street Master Elected: 2/00 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>
* The "Fund Complex" consists of six series of the Trust and six series of
State Street Institutional Investment Trust.
- --------------------------------------------------------------------------------
46
STATE STREET EQUITY 500 INDEX PORTFOLIO
TRUSTEES AND EXECUTIVE OFFICERS -- 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
- --------------------- ----------- ---------------- -------------------------- ------------- ---------------
EXECUTIVE OFFICERS:
James E. Ross President Term: Indefinite President, SSgA Funds -- --
SSgA Funds Elected: 4/05 Management, Inc. (2005-
Management, Inc. present); Principal, SSgA
State Street Financial Funds Management, Inc.
Center One Lincoln (2001-present); Principal,
Street State Street Global
Boston, MA 02111 Advisers (March 2000-
DOB: 06/24/65 present); Vice President,
State Street Bank and
Trust Company (1998-March
2000).
Gary L. French Treasurer Term: Indefinite Senior Vice President of -- --
State Street Bank Elected: 5/05 State Street Bank and
and Trust Company Trust Company
2 Avenue de Lafayette (2002-present); Managing
Boston, MA 02111 Director, Deutsch Bank
DOB: 07/04/51 (including its
predecessor, Scudder
Investments), Fund
Operations Unit (2001-
2002); President, UAM Fund
Services (1995 to 2001).
Julie A. Tedesco Secretary Term: Indefinite Vice President and Senior -- --
State Street Bank Elected: 5/00 Counsel of State Street
and Trust Company Bank and Trust Company
225 Franklin Street (2000-present); Counsel of
Boston, MA 02110 First Data Investor
DOB: 09/30/57 Services Group, Inc.,
(1994-2000).
Peter A. Ambrosini Chief Term: Indefinite Senior Principal and Chief -- --
SSgA Funds Compliance Elected: 5/04 Compliance and Risk
Management, Inc. Officer Management Officer, SSgA
State Street Funds Management, Inc. and
Financial Center State Street Global
One Lincoln Street Advisors (2001-present);
Boston, MA 02111 Managing Director,
DOB: 12/17/43 PricewaterhouseCoopers LLP
(1986-2001).
</Table>
* Each officer may have served in various other capacities for the same
organization during the length of time served.
The Statement of Additional Information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(toll free) 877-521-4083.
- --------------------------------------------------------------------------------
47
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
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 Other Securities $ 2,329,661 0.6%
Aerospace Other Securities 1,887,049 0.5
Agriculture, Fishing & Ranching Other Securities 722,730 0.2
Air Transport 29,180 Continental Airlines, Inc. Class B
(a)(e) 621,534 0.2
Other Securities 2,985,813 0.8
------------ -----
3,607,347 1.0
------------ -----
Aluminum Other Securities 510,376 0.1
Auto Parts: After Market Other Securities 647,648 0.2
Auto Parts: Original Equipment Other Securities 1,257,089 0.3
Auto, Trucks & Parts Other Securities 585,740 0.2
Banks: New York City Other Securities 148,771 0.0
Banks: Outside New York City 13,900 Hudson United Bancorp 579,352 0.2
15,762 Pacific Capital Bancorp 560,812 0.1
Other Securities 27,372,288 7.4
------------ -----
28,512,452 7.7
------------ -----
Beverage: Brewers (Wineries) Other Securities 120,000 0.0
Beverage: Soft Drinks Other Securities 583,615 0.2
Biotechnology Research & Production 10,300 Neurocrine Biosciences, Inc. (a) 646,119 0.2
Other Securities 8,343,988 2.2
------------ -----
8,990,107 2.4
------------ -----
Building Materials 19,600 Hughes Supply, Inc. 702,660 0.2
Other Securities 2,073,399 0.6
------------ -----
2,776,059 0.8
------------ -----
Building: Air Conditioning Other Securities 387,327 0.1
Building: Cement 5,078 Eagle Materials, Inc. 621,344 0.2
Building: Heating & Plumbing Other Securities 285,691 0.1
Building: Miscellaneous Other Securities 553,884 0.2
Building: Roofing & Wallboard Other Securities 347,412 0.1
Cable Television Services Other Securities 243,282 0.1
Casinos & Gambling Other Securities 2,119,938 0.6
Chemicals Other Securities 4,334,656 1.2
Coal Other Securities 610,766 0.2
Commercial Information Services Other Securities 1,178,352 0.3
Communications & Media Other Securities 347,074 0.1
Communications Technology 18,800 Adtran, Inc. 559,112 0.1
Other Securities 9,141,596 2.5
------------ -----
9,700,708 2.6
------------ -----
Computer Services Software & Systems 24,300 Acxiom Corp. 558,900 0.1
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Other Securities $ 16,931,493 4.6%
------------ -----
17,490,393 4.7
------------ -----
Computer Technology 80,700 Maxtor Corp. (a) 560,058 0.1
Other Securities 6,234,300 1.7
------------ -----
6,794,358 1.8
------------ -----
Construction Other Securities 1,421,377 0.4
------------ -----
Consumer Electronics 42,900 CNET Networks, Inc (a) 630,201 0.2
Other Securities 2,862,967 0.7
------------ -----
3,493,168 0.9
------------ -----
Consumer Products 19,100 Jarden Corp. (a) 575,865 0.2
Other Securities 2,412,899 0.6
------------ -----
2,988,764 0.8
------------ -----
Containers & Packaging: Metals & Other Securities 690,408 0.2
Glass
Containers & Packaging: Paper & Other Securities 154,202 0.0
Plastic
Copper Other Securities 295,642 0.1
Cosmetics Other Securities 683,859 0.2
Diversified Financial Services Other Securities 2,038,269 0.6
Diversified Materials & Processing Other Securities 2,821,740 0.8
Drug & Grocery Store Chains Other Securities 1,871,114 0.5
Drugs & Pharmaceuticals 30,000 Alkermes, Inc. (a) 573,600 0.1
32,500 Amylin Pharmaceuticals, Inc. (a) 1,297,400 0.4
30,700 Vertex Pharmaceuticals, Inc. (a) 849,469 0.2
Other Securities 8,452,721 2.3
------------ -----
11,173,190 3.0
------------ -----
Education Services Other Securities 1,793,659 0.5
Electrical & Electronics Other Securities 1,282,106 0.3
Electrical Equipment & Components Other Securities 3,177,347 0.9
Electrical: Household Appliance Other Securities 536,689 0.1
Electronics Other Securities 1,768,819 0.5
Electronics: Instruments, Gauges & Other Securities 597,760 0.2
Meters
Electronics: Medical Systems 10,281 Intuitive Surgical, Inc. (a) 1,205,653 0.3
Other Securities 2,761,486 0.8
------------ -----
3,967,139 1.1
------------ -----
Electronics: Semi- 37,800 Fairchild Semiconductor
Conductors/Components International, Inc. (a) 639,198 0.2
55,730 Integrated Device Technology, Inc.
(a) 734,521 0.2
Other Securities 9,383,992 2.5
------------ -----
10,757,711 2.9
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Electronics: Technology Other Securities $ 2,580,909 0.7%
Energy Equipment Other Securities 135,901 0.0
Energy Miscellaneous Other Securities 2,181,084 0.6
Engineering & Contracting Services Other Securities 1,499,490 0.4
Entertainment Other Securities 823,858 0.2
Fertilizers Other Securities 193,200 0.1
Finance Companies Other Securities 644,746 0.2
Finance: Small Loan Other Securities 396,853 0.1
Financial Data Processing Services & Other Securities 3,355,909 0.9
Systems
Financial Information Services Other Securities 891,550 0.2
Financial Miscellaneous 29,200 MoneyGram International, Inc. 761,536 0.2
Other Securities 2,751,350 0.7
------------ -----
3,512,886 0.9
------------ -----
Foods Other Securities 3,300,993 0.9
Forest Products Other Securities 1,220,009 0.3
Forms & Bulk Printing Services Other Securities 274,416 0.1
Funeral Parlors & Cemeteries Other Securities 410,651 0.1
Glass Other Securities 188,152 0.1
Gold Other Securities 377,282 0.1
Health Care Facilities Other Securities 3,286,010 0.9
Health Care Management Services 7,000 Pediatrix Medical Group, Inc. (a) 619,990 0.2
Other Securities 2,014,572 0.5
------------ -----
2,634,562 0.7
------------ -----
Health Care Services Other Securities 2,119,851 0.6
Homebuilding Other Securities 809,161 0.2
Hotel/Motel Other Securities 210,916 0.1
Household Furnishings Other Securities 1,693,731 0.5
Identification Control & Filter 17,900 Crane Co. 631,333 0.2
Devices
15,300 Flowserve Corp. (a) 605,268 0.1
Other Securities 2,258,853 0.6
------------ -----
3,495,454 0.9
------------ -----
Industrial Producers Other Securities 72,275 0.0
Insurance: Life Other Securities 1,620,874 0.4
Insurance: Multi-Line Other Securities 2,074,866 0.6
Insurance: Property-Casualty 21,415 Ohio Casualty Corp. 606,473 0.1
Other Securities 4,691,006 1.3
------------ -----
5,297,479 1.4
------------ -----
Investment Management Companies 26,400 Waddell & Reed Financial, Inc. Class
A 553,608 0.1
Other Securities 1,758,862 0.5
------------ -----
2,312,470 0.6
------------ -----
Jewelry, Watches & Gemstones Other Securities 547,856 0.1
Leisure Time Other Securities 1,482,378 0.4
Machine Tools Other Securities 507,331 0.1
Machinery & Engineering Other Securities 295,124 0.1
Machinery: Agricultural Other Securities 665,318 0.2
Machinery: Construction & Handling Other Securities 1,200,314 0.3
Machinery: Engines 15,100 Briggs & Stratton Corp. 585,729 0.2
Machinery: Industrial/Specialty Other Securities 2,698,579 0.7
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Machinery: Oil Well 22,074 Cal Dive International, Inc. (a) $ 792,236 0.2%
Equipment & Services Other Securities 4,948,199 1.4
------------ -----
5,740,435 1.6
------------ -----
Machinery: Specialty 15,998 JLG Industries, Inc. 730,469 0.2
Other Securities 1,248,009 0.3
------------ -----
1,978,478 0.5
------------ -----
Manufactured Housing Other Securities 448,680 0.1
Manufacturing Other Securities 354,674 0.1
Medical & Dental Other Securities 10,082,586 2.7
Instruments & Supplies
Medical Services Other Securities 864,723 0.2
Metal Fabricating 19,156 Commercial Metals Co. 719,116 0.2
9,947 Reliance Steel & Aluminum Co. 607,961 0.2
22,000 The Shaw Group, Inc. (a) 639,980 0.2
Other Securities 3,118,514 0.8
------------ -----
5,085,571 1.4
------------ -----
Metals & Minerals Miscellaneous 7,218 Cleveland-Cliffs, Inc. (e) 639,298 0.2
Other Securities 1,441,952 0.4
------------ -----
2,081,250 0.6
------------ -----
Milling: Fruit & Grain Processing 23,378 Corn Products International, Inc. 558,500 0.2
Miscellaneous Consumer Staples Other Securities 71,973 0.0
Miscellaneous Materials & Commodities Other Securities 716,958 0.2
Miscellaneous Materials & Processing Other Securities 882,213 0.2
Miscellaneous Producer Durables 25,000 BE Aerospace, Inc. (a) 550,000 0.1
Other Securities 186,381 0.1
------------ -----
736,381 0.2
------------ -----
Miscellaneous Technology Other Securities 96,444 0.0
Multi-Sector Companies 12,002 Walter Industries, Inc. 596,739 0.1
Other Securities 1,401,615 0.4
------------ -----
1,998,354 0.5
------------ -----
Office Furniture & Business Equipment Other Securities 224,975 0.1
Offshore Drilling Other Securities 379,932 0.1
Oil: Crude Producers 16,111 Cabot Oil & Gas Corp. Class A 726,606 0.2
15,300 Cheniere Energy, Inc. (a) 569,466 0.1
24,693 Cimarex Energy Co. 1,062,046 0.3
15,930 Frontier Oil Corp. 597,853 0.2
17,952 St. Mary Land & Exploration Co. 660,813 0.2
Other Securities 7,393,347 2.0
------------ -----
11,010,131 3.0
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Oil: Integrated Domestic Other Securities $ 798,044 0.2%
Paints & Coatings Other Securities 523,639 0.1
Paper Other Securities 1,698,910 0.5
Plastics Other Securities 273,365 0.1
Pollution Control & Environmental Other Securities 672,354 0.2
Services
Power Transmission Equipment Other Securities 327,485 0.1
Printing & Copying Services Other Securities 457,104 0.1
Production Technology Equipment Other Securities 5,261,383 1.4
Publishing: Miscellaneous Other Securities 1,803,519 0.5
Publishing: Newspapers Other Securities 731,941 0.2
Radio & TV Broadcasters Other Securities 2,653,230 0.7
Railroad Equipment Other Securities 606,155 0.2
Railroads 22,876 Kansas City Southern (a) 558,861 0.2
Other Securities 808,664 0.2
------------ -----
1,367,525 0.4
------------ -----
Real Estate Other Securities 1,013,237 0.3
Real Estate Investment Trusts (REIT) 7,156 Alexandria Real Estate Equities, Inc. 576,058 0.1
9,978 Kilroy Realty Corp. 617,638 0.2
63,600 LaQuinta Corp. (a) 708,504 0.2
17,408 Taubman Centers, Inc. 604,928 0.1
Other Securities 20,986,688 5.7
------------ -----
23,493,816 6.3
------------ -----
Recreational Vehicles & Boats Other Securities 1,226,456 0.3
Rental & Leasing Services: Commercial Other Securities 1,225,174 0.3
Rental & Leasing Services: Consumer Other Securities 1,261,400 0.3
Restaurants Other Securities 5,383,158 1.5
Retail 11,200 Tractor Supply Co. (a) 592,928 0.2
Other Securities 15,581,894 4.2
------------ -----
16,174,822 4.4
------------ -----
Savings & Loan 39,553 First Niagara Financial Group, Inc. 572,332 0.2
39,100 NewAlliance Bancshares, Inc. 568,514 0.1
Other Securities 6,627,274 1.8
------------ -----
7,768,120 2.1
------------ -----
Scientific Equipment & Suppliers Other Securities 630,056 0.2
Securities Brokerage & Services Other Securities 2,694,536 0.7
Services: Commercial 12,394 Corrections Corp. of America (a) 557,358 0.1
15,300 Regis Corp. 590,121 0.2
Other Securities 11,202,530 3.0
------------ -----
12,350,009 3.3
------------ -----
Shipping Other Securities 662,562 0.2
Shoes Other Securities 1,658,413 0.4
Steel Other Securities 2,666,480 0.7
Synthetic Fibers Other Securities 29,276 0.0
Telecommunications Equipment Other Securities 3,326,141 0.9
Textile Products Other Securities 237,491 0.1
Textiles Apparel Manufacturers Other Securities 2,188,816 0.6
Tires & Rubber Other Securities 449,633 0.1
Tobacco Other Securities 827,081 0.2
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Toys Other Securities $ 297,403 0.1%
Transportation Miscellaneous Other Securities 822,220 0.2
Truckers Other Securities 2,148,656 0.6
Utilities: Cable TV & Radio Other Securities 99,369 0.0
Utilities: Electrical 53,177 Sierra Pacific Resources (a) 693,428 0.2
Other Securities 4,335,165 1.2
------------ -----
5,028,593 1.4
------------ -----
Utilities: Gas Distributors Other Securities 3,011,220 0.8
Utilities: Gas Pipelines Other Securities 96,565 0.0
Utilities: Miscellaneous Other Securities 458,640 0.1
Utilities: Telecommunications 227,400 Level 3 Communications, Inc. (a)(e) 652,638 0.2
Other Securities 3,865,062 1.0
------------ -----
4,517,700 1.2
------------ -----
Utilities: Water Other Securities 590,947 0.2
Wholesale & International Trade Other Securities 258,903 0.1
Wholesalers Other Securities 996,813 0.3
------------ -----
TOTAL COMMON STOCKS
(COST - $291,937,655) 368,885,577 99.7
------------ -----
<Caption>
PERCENT OF
INDUSTRY* MUTUAL FUNDS VALUE NET ASSETS
- --------- ------------ ------------ ----------
Investment Management Companies Other Securities $ 100,486 0.0%
------------ -----
TOTAL MUTUAL FUNDS (COST - $99,942) 100,486 0.0
------------ -----
<Caption>
RIGHTS
------
RETAIL Other Securities 777 0.0
------------ -----
TOTAL RIGHTS (COST - $0) 777 0.0
------------ -----
<Caption>
OTHER INTERESTS (B)
-------------------
Oil: Crude Producers Other Securities 0 0.0
------------ -----
TOTAL OTHER INTERESTS (COST - $0) 0 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
----------- ---------------------
$ 641,675 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) 641,675 0.2
13,465,055 Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(d) 13,465,055 3.6
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST - $14,106,730) 14,106,730 3.8
------------ -----
TOTAL INVESTMENTS (COST - $306,144,327*) 383,093,570 103.5
LIABILITIES IN EXCESS OF OTHER ASSETS (12,948,221) (3.5)
------------ -----
NET ASSETS $370,145,349 100.0%
============ =====
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
- ---------------
* The cost and unrealized appreciation (depreciation) of investments, as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $309,875,971
------------
Gross unrealized appreciation............................... $ 98,880,176
Gross unrealized depreciation............................... (25,662,577)
------------
Net unrealized appreciation................................. $ 73,217,599
============
</Table>
(a) Non-income producing security.
(b) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(c) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
INTEREST
AFFILIATE NET ACTIVITY INCOME
--------- ------------ --------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I..... $(8,347,915) $464,626
Merrill Lynch Liquidity Series, LLC Money Market Series..... $ 1,812,667 $210,148
</Table>
(d) Security was purchased with the cash proceeds from securities loans.
(e) Security, or a portion of security, is on loan.
-- "Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
-- For Series compliance purposes, the Series' industry classifications refer
to 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 the purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets. These industry
classifications are unaudited.
-- Financial futures contracts purchased as of December 31, 2005 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE DEPRECIATION
--------- ----- ---------- ---------- ------------
4 Russell 2000 Index March 2006 $1,357,448 $(848)
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2005
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value
(including securities loaned of $12,774,919)
(identified cost - $292,037,597)....................... $368,986,840
Investments in affiliated securities, at value
(identified cost - $14,106,730)........................ 14,106,730
Cash.................................................... 199,136
Cash on deposit for financial futures contracts......... 94,500
Receivables:
Contributions......................................... $ 615,677
Dividends............................................. 477,368
Securities sold....................................... 122,941
Securities lending.................................... 21,552
Investment adviser.................................... 6,551 1,244,089
----------
Prepaid expenses and other assets....................... 4,599
------------
TOTAL ASSETS........................................ 384,635,894
------------
LIABILITIES:
Collateral on securities loaned, at value............... 13,465,055
Payables:
Withdrawals........................................... 535,268
Securities purchased.................................. 387,861
Variation margin...................................... 13,114
Other affiliates...................................... 4,415 940,658
----------
Accrued expenses and other liabilities.................. 84,832
------------
TOTAL LIABILITIES................................... 14,490,545
------------
NET ASSETS.................................................. $370,145,349
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $293,196,954
Unrealized appreciation - net........................... 76,948,395
------------
NET ASSETS.................................................. $370,145,349
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $2,753 foreign withholding tax)....... $ 3,913,033
Interest from affiliates................................ 464,626
Securities lending - net................................ 210,148
------------
TOTAL INCOME........................................ 4,587,807
------------
EXPENSES:
Professional fees....................................... $ 95,082
Custodian fees.......................................... 89,720
Accounting services..................................... 54,323
Investment advisory fees................................ 37,012
Trustees' fees and expenses............................. 4,438
Printing and shareholder reports........................ 4,430
Pricing fees............................................ 18
Other................................................... 9,219
------------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 294,242
Reimbursement of expenses............................... (32,038)
------------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 262,204
------------
INVESTMENT INCOME - NET..................................... 4,325,603
------------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain (loss) on:
Investments - net..................................... 16,040,394
Futures contracts - net............................... (2,490,898) 13,549,496
------------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... (5,044,498)
Futures contracts - net............................... (107,043) (5,151,541)
------------ ------------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 8,397,955
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 12,723,558
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
56
MASTER SMALL CAP INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
2005 2004
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 4,325,603 $ 3,882,942
Realized gain - net..................................... 13,549,496 14,493,934
Change in unrealized appreciation/depreciation - net.... (5,151,541) 37,873,933
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 12,723,558 56,250,809
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 267,164,255 309,457,896
Fair value of withdrawals............................... (275,403,741) (335,706,893)
------------- -------------
NET DECREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS........................................... (8,239,486) (26,248,997)
------------- -------------
NET ASSETS:
Total increase in net assets............................ 4,484,072 30,001,812
Beginning of year....................................... 365,661,277 335,659,465
------------- -------------
END OF YEAR............................................. $ 370,145,349 $ 365,661,277
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
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,
----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN....................... 4.63% 18.15% 47.11% (20.19%) 2.37%
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement............ .07% .08% .09% .08% .08%
-------- -------- -------- -------- --------
Expenses.................................. .08% .08% .10% .14% .13%
-------- -------- -------- -------- --------
Investment income - net................... 1.17% 1.11% 1.13% 1.26% 1.45%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).... $370,145 $365,661 $335,659 $181,915 $182,968
-------- -------- -------- -------- --------
Portfolio turnover........................ 36.63% 37.74% 28.57% 39.00% 48.50%
-------- -------- -------- -------- --------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
58
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Master Small Cap Index Series (the "Series"), a non-diversified investment
company, 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 asked 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 asked 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 asked 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 based upon quoted fair
valuations received daily by the Series from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their last sale price as of the close of such exchanges.
Obligations with remaining maturities of 60 days or less are valued at amortized
cost unless the Investment Adviser believes that this method no longer produces
fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Series
employs pricing services to provide certain securities prices for the Series.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Series, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision 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, money market instruments and certain fixed income securities, 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
- --------------------------------------------------------------------------------
59
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
currency exchange rates also are generally determined prior to the close of
business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Series' net assets. If events (for example, a company
announcement, market volatility or a natural disaster) occur during such periods
that are expected to materially affect the value of such securities, those
securities may be valued at their fair value as determined in good faith by the
Board of Trustees of the Trust or by the Investment Adviser using a pricing
service and/or procedures approved by the Board of Trustees of the Trust.
(b) Derivative Financial Instruments
The Series may engage in various portfolio investment strategies both to
increase the return of the Series and to hedge, or protect, its exposure to
interest rate movements and movements in the securities markets. Losses may
arise due to changes in the value of the contract or if the counterparty does
not perform under the contract.
- Financial futures contracts - The Series may purchase or sell financial
futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specified price or yield. Upon entering into a
contract, the Series deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Series agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Series as unrealized gains or losses. When the contract
is closed, the Series records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened
and the value at the time it was closed.
- Options - The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Series enters into a closing
transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income Taxes
The Series is classified as a partnership for federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends and capital gains at various rates. It is intended that the
Series' assets will be managed so an investor in the Series can satisfy the
requirements of Subchapter M of the Internal Revenue Code.
- --------------------------------------------------------------------------------
60
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
(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 finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series could experience
delays and costs in gaining access to the collateral. The Series also could
suffer a loss where the value of the collateral falls below the market value of
the borrowed securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
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 $32,038.
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"), an affiliate of FAM, or its affiliates.
As of December 31, 2005, the Series lent securities with a value of $127,122 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
- --------------------------------------------------------------------------------
61
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
loans, among other things, in a private investment company managed by MLIM, LLC
or in registered money market funds advised by FAM or its affiliates. For the
year ended December 31, 2005, MLIM, LLC received $90,653 in securities lending
agent fees from the Series.
For the year ended December 31, 2005, the Series reimbursed FAM $8,536 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors
of FAM, PSI, MLTC, ML & Co., and/or MLIM, LLC.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for
the year ended December 31, 2005 were $131,186,567 and $130,499,691,
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, 2005. On November
23, 2005 the credit agreement was renewed for one year under substantially the
same terms.
- --------------------------------------------------------------------------------
62
MASTER SMALL CAP INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2005
- --------------------------------------------------------------------------------
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, 2005, 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included 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, 2005, 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, 2005, 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, 2006
- --------------------------------------------------------------------------------
63
MASTER SMALL CAP INDEX SERIES
SECTOR REPRESENTATION (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF TOTAL
AS OF DECEMBER 31, 2005 INVESTMENTS
----------------------- ----------------
Financial Services.......................................... 22.5%
Consumer Discretionary...................................... 17.5
Technology.................................................. 13.3
Health Care................................................. 11.3
Materials & Processing...................................... 9.2
Producer Durables........................................... 7.6
Other Energy................................................ 5.3
Utilities................................................... 3.6
Auto & Transportation....................................... 3.5
Consumer Staples............................................ 1.8
Other....................................................... 0.5
Integrated Oils............................................. 0.2
Short-Term Investments...................................... 3.7
</Table>
For Series compliance purposes, the Series' sector classifications refer to
any one or more of the sector 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 the purposes of this report, which
may combine sector sub-classifications for reporting ease.
- --------------------------------------------------------------------------------
64
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Robert C. Doll, Jr.* President 2005 President of the MLIM/FAM- 131 Funds None
P.O. Box 9011 and to advised funds since 2005; 177 Portfolios
Princeton, NJ 08543-9011 Trustee President of MLIM and FAM since
Age: 51 present 2001; Co-Head (Americas Region)
thereof from 2000 to 2001 and
Senior Vice President from 1999
to 2001; President and Director
of Princeton Services, Inc.
("Princeton Services") since
2001; President of Princeton
Administrators, L.P.
("Princeton Administrators")
since 2001; Chief Investment
Officer of Oppenheimer-Funds,
Inc. in 1999 and Executive Vice
President thereof from 1991 to
1999.
</Table>
* Mr. Doll 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. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his current positions with MLIM, FAM, Princeton
Services and Princeton Administrators. Trustees serve until their
resignation, removal or death, or until December 31 of the year in which
they turn 72. As Fund President, Mr. Doll serves at the pleasure of the
Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ------------------------------- -------------- -------------
INDEPENDENT TRUSTEES*
Donald W. Burton Trustee 2002 General Partner of The Burton 23 Funds Knology, Inc.
P.O. Box 9095 to Partnership, Limited 42 Portfolios (telecommuni-
Princeton, NJ 08543-9095 Partnership (an investment cations) and
Age: 61 present partnership) since 1979; Symbion, Inc.
Managing General Partner of The (health care)
South Atlantic Venture Funds
since 1983; Member of the
Investment Advisory Council of
the Florida State Board of
Administration since 2001.
Laurie Simon Hodrick Trustee 1999 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: 43 present since 1998.
</Table>
- --------------------------------------------------------------------------------
65
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ------------------------------- -------------- -------------
John Francis O'Brien Trustee 2005 President and Chief Executive 23 Funds ABIOMED (medical
P.O. Box 9095 to Officer of Allmerica Financial 42 Portfolios device
Princeton, NJ 08543-9095 Corporation (financial services manufacturer),
Age: 62 present holding company) from 1995 to Cabot
2002 and Director from 1995 to Corporation
2003; President of Allmerica (chemicals), LKQ
Investment Management Co., Inc. Corporation
(investment adviser) from 1989 (auto parts
to 2002, Director from 1989 to manufacturing)
2002 and Chairman of the Board and TJX Com-
from 1989 to 1990; President, panies, Inc.
Chief Executive Officer and (retailer)
Director of First Allmerica
Financial Life Insurance
Company from 1989 to 2002 and
Director of various other
Allmerica Financial companies
until 2002; Director since
1989, Member of the Governance
Nominating Committee since
2004, Member of the
Compensation Committee of
ABIOMED since 1989 and Member
of the Audit Committee of
ABIOMED from 1990 to 2004;
Director and Member of the
Governance and Nomination
Committee of Cabot Corporation
and Member of the Audit
Committee since 1990; Director
and Member of the Audit
Committee and Compensation
Committee of LKQ Corporation
since 2003; Lead Director of
TJX Companies, Inc. since 1999;
Trustee of the Woods Hole
Oceanographic Institute since
2003.
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: 64 present capacities therewith from 1973
to 1992; Director, The National
Audubon Society since 1998;
Director, The American Museum
of Fly Fishing since 1997.
</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
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ------------------------------- -------------- -------------
Fred G. Weiss** Trustee 1998 Managing Director of FGW 23 Funds Watson Pharma-
P.O. Box 9095 to Associates since 1997; Vice 42 Portfolios ceuticals, Inc.
Princeton, NJ 08543-9095 President, Planning, Investment (pharma-
Age: 64 present and Development of Warner ceutical
Lambert Co. from 1979 to 1997; company)
Director of the Michael J. Fox
Foundation for Parkinson's
Research since 2000; Director
of BTG International PLC (a
global technology
commercialization company)
since 2001.
</Table>
* Trustees serve until their resignation, removal or death, or until December
31 of the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
<Table>
<Caption>
POSITION(S)
HELD WITH LENGTH OF
NAME, ADDRESS & 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: 45 Treasurer present since 2004; Vice President of FAM Distributors, Inc.
("FAMD") since 1999 and Director since 2004; Vice President
of MLIM and FAM from 1990 to 1997; Director of Taxation of
MLIM from 1990 to 2001; Vice President, Treasurer and
Secretary of the IQ Funds since 2004.
Vincent J. Costa Vice 2005 to Managing Director of MLIM since 2005; Director of MLIM from
P.O. Box 9011 President present 1999 to 2005.
Princeton, NJ 08543-9011
Age: 43
Debra L. Jelilian Vice 2005 to Director of MLIM since 1999.
P.O. Box 9011 President present
Princeton, NJ 08543-9011
Age: 38
Jeffrey L. Russo Vice 2005 to Director of MLIM since 2004; Vice President of MLIM from
P.O. Box 9011 President present 1994 to 2004.
Princeton, NJ 08543-9011
Age: 38
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 (Americas Region) since 2004; Chief Compliance Officer of
Age: 54 the IQ Funds since 2004; Global Director of Compliance at
Morgan Stanley 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; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
</Table>
- --------------------------------------------------------------------------------
67
MASTER SMALL CAP INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S)
HELD WITH LENGTH OF
NAME, ADDRESS & AGE TRUST TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------- ----------- ------------ -------------------------------------------
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President
P.O. Box 9011 present of MLIM from 1999 to 2002; Attorney associated with MLIM
Princeton, NJ 08543-9011 since 1997; Secretary of MLIM, FAM, FAMD and Princeton
Age: 45 Services since 2004.
</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 1-800-637-3863.
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT
- --------- --------------
Merrill Lynch Trust Company, FSB Financial Data Services, Inc.
1300 Merrill Lynch Drive 4800 Deer Lake Drive East
3rd Floor -- MSC 0303 Jacksonville, FL 32246-6484
Pennington, NJ 08534 800-637-3863
</Table>
- --------------------------------------------------------------------------------
68
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
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
- --------- ----------- ------------- ------------ ----------
Aerospace & Defense Other Securities $ 3,090,959 0.6%
Air Freight & Logistics Other Securities 2,088,445 0.4
Airlines Other Securities 1,183,321 0.2
Auto Components Other Securities 3,976,795 0.8
Automobiles 41,217 DaimlerChrysler AG 2,097,362 0.4
35,000 Honda Motor Co., Ltd. 1,995,679 0.4
137,300 Toyota Motor Corp. 7,119,173 1.4
Other Securities 3,279,523 0.6
------------ -----
14,491,737 2.8
------------ -----
Beverages 151,553 Diageo Plc 2,191,990 0.4
Other Securities 3,733,849 0.7
------------ -----
5,925,839 1.1
------------ -----
Biotechnology Other Securities 789,825 0.1
Building Products Other Securities 3,160,287 0.6
Capital Markets 61,454 Credit Suisse Group 3,124,108 0.6
23,327 Deutsche Bank AG Registered Shares 2,253,511 0.4
52,538 UBS AG Registered Shares 4,986,914 1.0
Other Securities 7,087,917 1.3
------------ -----
17,452,450 3.3
------------ -----
Chemicals Other Securities 14,924,022 2.8
Commercial Banks 82,104 ABN AMRO Holding NV 2,139,325 0.4
38,994 BNP Paribas 3,143,787 0.6
160,382 Banco Bilbao Vizcaya Argentaria SA 2,852,816 0.5
275,554 Banco Santander Central Hispano SA 3,624,085 0.7
329,477 Barclays Plc 3,455,973 0.7
185,053 HBOS Plc 3,154,637 0.6
539,814 HSBC Holdings Plc 8,646,291 1.7
274,279 Lloyds TSB Group Plc 2,300,177 0.4
Mitsubishi Tokyo Financial Group,
350 Inc. 4,744,556 0.9
453 Mizuho Financial Group, Inc. 3,592,375 0.7
154,077 Royal Bank of Scotland Group Plc 4,642,148 0.9
16,795 Societe Generale 2,058,318 0.4
219 Sumitomo Mitsui Financial Group, Inc. 2,319,326 0.4
366,124 UniCredito Italiano SpA 2,512,141 0.5
Other Securities 27,634,150 5.3
------------ -----
76,820,105 14.7
------------ -----
Commercial Services & Supplies Other Securities 4,067,749 0.8
Communications Equipment 214,049 Nokia Oyj 3,900,843 0.7
709,013 Telefonaktiebolaget LM Ericsson 2,432,093 0.5
Other Securities 1,309,553 0.3
------------ -----
7,642,489 1.5
------------ -----
Computers & Peripherals Other Securities 2,905,930 0.6
Construction & Engineering Other Securities 4,456,490 0.8
Construction Materials Other Securities 4,718,334 0.9
Consumer Finance Other Securities 2,721,675 0.5
Containers & Packaging Other Securities 562,749 0.1
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
69
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Distributors Other Securities $ 384,981 0.1%
Diversified Consumer Services Other Securities 69,982 0.0
Diversified Financial Services 85,166 ING Groep NV CVA 2,943,410 0.6
Other Securities 4,377,821 0.8
------------ -----
7,321,231 1.4
------------ -----
Diversified Telecommunication 124,627 Deutsche Telekom AG 2,069,815 0.4
Services 212,112 Telefonica SA 3,180,004 0.6
Other Securities 12,638,675 2.4
------------ -----
17,888,494 3.4
------------ -----
Electric Utilities 28,635 E.On AG (a) 2,951,724 0.5
Other Securities 11,351,132 2.2
------------ -----
14,302,856 2.7
------------ -----
Electrical Equipment Other Securities 4,262,708 0.8
Electronic Equipment & Instruments Other Securities 5,647,343 1.1
Energy Equipment & Services Other Securities 508,101 0.1
Food & Staples Retailing 388,059 Tesco Plc 2,208,439 0.4
Other Securities 7,440,399 1.4
------------ -----
9,648,838 1.8
------------ -----
Food Products 20,490 Nestle SA Registered Shares 6,109,921 1.2
Other Securities 7,689,566 1.4
------------ -----
13,799,487 2.6
------------ -----
Gas Utilities Other Securities 1,718,485 0.3
Health Care Equipment & Supplies Other Securities 2,324,767 0.4
Health Care Providers & Services Other Securities 782,920 0.1
Hotels, Restaurants & Leisure Other Securities 5,312,649 1.0
Household Durables 49,200 Sony Corp. 2,009,184 0.4
Other Securities 8,040,997 1.5
------------ -----
10,050,181 1.9
------------ -----
Household Products Other Securities 1,978,162 0.4
IT Services Other Securities 1,983,517 0.4
Independent Power Producers & Energy Other Securities
Traders 615,727 0.1
Industrial Conglomerates 36,780 Siemens AG 3,140,994 0.6
Other Securities 2,939,130 0.6
------------ -----
6,080,124 1.2
------------ -----
Insurance 66,599 AXA 2,141,462 0.4
17,193 Allianz AG Registered Shares 2,594,626 0.5
Other Securities 16,724,037 3.2
------------ -----
21,460,125 4.1
------------ -----
Internet & Catalog Retail Other Securities 936,137 0.2
Internet Software & Services Other Securities 2,156,536 0.4
Leisure Equipment & Products Other Securities 1,827,363 0.3
Machinery Other Securities 9,228,917 1.8
Marine Other Securities 2,043,436 0.4
Media Other Securities 10,786,072 2.1
Metals & Mining 70,654 Anglo American Plc 2,400,417 0.5
162,763 BHP Billiton Ltd. 2,716,239 0.5
55,854 Rio Tinto Plc Registered Shares 2,545,792 0.5
Other Securities 10,182,333 1.9
------------ -----
17,844,781 3.4
------------ -----
Multi-Utilities Other Securities 6,585,401 1.3
Multiline Retail Other Securities 2,295,126 0.4
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
70
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* SHARES HELD COMMON STOCKS VALUE NET ASSETS
- --------- ----------- ------------- ------------ ----------
Office Electronics 34,800 Canon, Inc. $ 2,034,398 0.4%
Other Securities 1,107,007 0.2
------------ -----
3,141,405 0.6
------------ -----
Oil, Gas & Consumable Fuels 197,100 BG Group Plc 1,943,930 0.4
985,820 BP Plc 10,475,924 2.0
3,849 BP Plc(b) 247,183 0.0
116,248 ENI SpA 3,212,733 0.6
192,586 Royal Dutch Shell Plc 5,855,276 1.1
131,492 Royal Dutch Shell Plc Class B 4,194,200 0.8
26,228 Total SA 6,564,889 1.3
4,140 Total SA "VVPR strip" (a) 49 0.0
Other Securities 6,626,209 1.3
------------ -----
39,120,393 7.5
------------ -----
Paper & Forest Products Other Securities 1,874,663 0.4
Personal Products Other Securities 1,444,354 0.3
Pharmaceuticals 81,162 AstraZeneca Plc 3,941,756 0.7
281,413 GlaxoSmithKline Plc 7,096,922 1.4
800 GlaxoSmithKline Plc (b) 40,384 0.0
117,458 Novartis AG Registered Shares 6,153,856 1.2
36,591 Roche Holding AG 5,477,753 1.0
48,928 Sanofi-Aventis 4,270,768 0.8
45,300 Takeda Pharmaceutical Co., Ltd. 2,448,649 0.5
Other Securities 5,612,825 1.1
------------ -----
35,042,913 6.7
------------ -----
Real Estate Other Securities 12,501,826 2.4
Road & Rail Other Securities 4,930,294 0.9
Semiconductors & Semiconductor Other Securities
Equipment 3,728,932 0.7
Software Other Securities 3,754,116 0.7
Specialty Retail Other Securities 4,126,037 0.8
Textiles, Apparel & Luxury Goods Other Securities 4,220,334 0.8
Thrifts & Mortgage Finance Other Securities 299,017 0.1
Tobacco Other Securities 5,019,825 1.0
Trading Companies & Distributors Other Securities 5,131,112 1.1
Transportation Infrastructure Other Securities 2,947,685 0.6
Water Utilities Other Securities 513,634 0.1
Wireless Telecommunication 2,928,868 Vodafone Group Plc 6,310,265 1.2
Services 12,490 Vodafone Group Plc (b) 268,160 0.0
Other Securities 2,594,314 0.5
------------ -----
9,172,739 1.7
------------ -----
TOTAL COMMON STOCKS
(COST - $386,849,112) 487,792,927 93.2
------------ -----
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
Other Securities 356,760 0.1
------------ -----
TOTAL EXCHANGE-TRADED FUNDS
(COST - $232,840) 356,760 0.1
------------ -----
<Caption>
PREFERRED STOCKS
----------------
Automobiles Other Securities 596,539 0.1
Chemicals Other Securities 283,541 0.1
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
71
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY* PREFERRED STOCKS VALUE NET ASSETS
- --------- ---------------- ------------ ----------
Health Care Providers & Services Other Securities $ 50,410 0.0%
Media Other Securities 106,303 0.0
Multi-Utilities Other Securities 130,549 0.0
------------ -----
TOTAL PREFERRED STOCKS
(COST - $918,283) 1,167,342 0.2
------------ -----
<Caption>
RIGHTS
------
Industrial Conglomerates Other Securities 19,635 0.0
------------ -----
TOTAL INVESTMENTS IN RIGHTS
(COST - $9,286) 19,635 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
----------- ---------------------
Merrill Lynch Liquidity Series, LLC
$20,328,875.. Cash Sweep Series I (c).............. 20,328,875 3.9
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST - $20,328,875)................. 20,328,875 3.9
------------ -----
TOTAL INVESTMENTS (COST - $408,338,396*) 509,665,539 97.4
OTHER ASSETS LESS LIABILITIES 13,489,756 2.6
------------ -----
NET ASSETS $523,155,295 100.0%
============ =====
</Table>
- ---------------
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $413,870,049
------------
Gross unrealized appreciation............................... $105,929,208
Gross unrealized depreciation............................... (10,133,718)
------------
Net unrealized appreciation................................. $ 95,795,490
============
</Table>
(a) Non-income producing security.
(b) Depositary Receipts.
(c) Investments in companies considered to be an affiliate of the Series, for
purposes of 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..... $17,567,968 $318,391
</Table>
"Other Securities" represents issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
For Series compliance purposes, the Series' industry classifications refer
to 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.
Industries are shown as a percent of net assets. These industry
classifications are unaudited.
See notes to financial statements.
- --------------------------------------------------------------------------------
72
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
Financial futures contracts purchased as of December 31, 2005 were as
follows:
<Table>
<Caption>
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION
CONTRACTS ISSUE EXCHANGE DATE FACE VALUE (DEPRECIATION)
--------- ----- -------- ------------ ---------- --------------
1 DAX Index 25 Euro Future Eurex March 2006 $ 161,643 $ (1,283)
238 DJ Euro Stoxx 50 Eurex March 2006 $9,967,799 104,909
57 FTSE 100 Index Future LIFFE March 2006 $5,422,304 73,181
22 Hang Seng Index Future Hong Kong January 2006 $2,171,898 (66,823)
66 OMX Stock Index Future Tokyo January 2006 $ 788,615 9,163
1 S&P/MIB Index Eurex March 2006 $ 206,779 4,331
35 SPI 200 Index Future Sydney March 2006 $2,954,551 79,511
74 TOPIX Index Future Tokyo March 2006 $9,941,069 363,006
--------
TOTAL UNREALIZED APPRECIATION - NET $565,995
========
</Table>
Forward foreign exchange contracts as of December 31, 2005 were as follows:
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
PURCHASED DATE (DEPRECIATION)
---------------- ------------ --------------
AUD 1,705,000 January 2006 $(16,989)
CHF 2,710,000 January 2006 (20,958)
EUR 7,065,000 January 2006 (17,042)
GBP 3,200,000 January 2006 (74,021)
JPY 693,000,000 January 2006 70,653
SEK 5,945,000 January 2006 1,362
--------
TOTAL UNREALIZED DEPRECIATION ON FORWARD FOREIGN
EXCHANGE
CONTRACTS - NET (USD
COMMITMENT - $23,829,444) $(56,995)
========
</Table>
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
SOLD DATE (DEPRECIATION)
---------------- ------------ --------------
AUD 480,000 January 2006 $ (1,561)
EUR 320,000 January 2006 6,285
GBP 320,000 January 2006 7,334
JPY 161,000,000 January 2006 (27,800)
SEK 1,415,000 January 2006 (110)
--------
TOTAL UNREALIZED DEPRECIATION ON FORWARD FOREIGN
EXCHANGE
CONTRACTS - NET (USD
COMMITMENT - $2,807,661) $(15,852)
========
</Table>
CURRENCY DENOMINATIONS
<Table>
AUD Australian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
JPY Japanese Yen
SEK Swedish Krona
USD U.S. Dollar
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
73
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2005
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value
(including securities loaned of $74,384) (identified
cost - $388,009,521)................................... $489,336,664
Investments in affiliated securities, at value
(identified cost - $20,328,875)............................. 20,328,875
Cash held as collateral for loaned securities........... 78,400
Cash on deposit for financial futures contracts......... 622,669
Cash.................................................... 6,658
Foreign cash (cost - $6,082,731)........................ 6,052,305
Unrealized appreciation on forward foreign exchange
contracts................................................... 85,634
Receivables:
Variation margin...................................... $4,932,251
Contributions......................................... 1,696,105
Dividends............................................. 977,334
Securities sold....................................... 4,886 7,610,576
----------
Prepaid expenses........................................ 5,708
------------
TOTAL ASSETS........................................ 524,127,489
------------
LIABILITIES:
Collateral on securities loaned, at value............... 78,400
Unrealized depreciation on forward foreign exchange
contracts................................................... 158,481
Payables:
Withdrawals........................................... 655,768
Other affiliates...................................... 4,614
Investment adviser.................................... 3,943
Securities purchased.................................. 2,481 666,806
----------
Accrued expenses........................................ 68,507
------------
TOTAL LIABILITIES................................... 972,194
------------
NET ASSETS.................................................. $523,155,295
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $421,553,043
Unrealized appreciation - net........................... 101,602,252
------------
NET ASSETS.................................................. $523,155,295
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
74
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $796,050 foreign withholding tax)..... $10,691,033
Interest (including $318,391 from affiliates)........... 387,256
Securities lending - net................................ 6,099
-----------
TOTAL INCOME........................................ 11,084,388
-----------
EXPENSES:
Custodian fees.......................................... $ 164,413
Professional fees....................................... 76,568
Accounting services..................................... 56,945
Pricing fees............................................ 56,444
Investment advisory fees................................ 42,127
Printing and shareholder reports........................ 3,947
Trustees' fees and expenses............................. 3,807
Other................................................... 16,922
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 421,173
Reimbursement of expenses............................... (13,001)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 408,172
-----------
INVESTMENT INCOME - NET..................................... 10,676,216
-----------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain (loss) on:
Investments - net..................................... 1,590,130
Futures contracts - net............................... 4,106,864
Foreign currency transactions - net................... (2,142,915) 3,554,079
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... 44,394,212
Futures contracts - net............................... 437,394
Foreign currency transactions - net................... (395,256) 44,436,350
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 47,990,429
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $58,666,645
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
75
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
2005 2004
------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 10,676,216 $ 12,027,122
Realized gain - net..................................... 3,554,079 51,628,797
Change in unrealized appreciation/depreciation - net.... 44,436,350 3,768,597
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 58,666,645 67,424,516
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 274,141,104 167,759,330
Fair value of withdrawals............................... (131,719,318) (466,245,952)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL TRANSACTIONS................................... 142,421,786 (298,486,622)
------------- -------------
NET ASSETS:
Total increase (decrease) in net assets................. 201,088,431 (231,062,106)
Beginning of year....................................... 322,066,864 553,128,970
------------- -------------
END OF YEAR............................................. $ 523,155,295 $ 322,066,864
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
76
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,
----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN................................... 13.64% 20.32% 38.97% (15.81%) (21.77%)
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement........................ .10% .09% .09% .08% .08%
-------- -------- -------- -------- --------
Expenses.............................................. .10% .10% .10% .16% .39%
-------- -------- -------- -------- --------
Investment income - net............................... 2.53% 2.55% 2.23% 2.21% 1.20%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)................ $523,155 $322,067 $553,129 $166,820 $195,512
-------- -------- -------- -------- --------
Portfolio turnover.................................... 11.33% 13.50% 8.55% 19.52% 30.19%
-------- -------- -------- -------- --------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
77
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Master International Index Series (the "Series"), a non-diversified
investment company, 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 asked 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 asked 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 asked 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 and forward foreign exchange
contracts are valued daily based upon quoted fair valuations received daily by
the Fund from a pricing service or counterparty. 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
- --------------------------------------------------------------------------------
78
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
79
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
(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. The Series invests in foreign
securities, which may involve a number of risk factors and special
considerations, not present with investments in securities of U.S. corporations.
(d) Income Taxes
The Series is classified as a partnership for federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends and capital gains at various rates. It is intended that the
Series' assets will be managed so an investor in the Series can satisfy the
requirements of Subchapter M of the Internal Revenue Code.
(e) Security Transactions And Investment Income
Security transactions are accounted for on the date the securities are
purchased or sold (the trade dates).Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the Series has
determined the ex-dividend date. Interest income is recognized on the accrual
basis.
(f) Securities Lending
The Series may lend securities to financial institutions that provide cash
or securities issued or guaranteed by the U.S. government as collateral, which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Series and any
additional required collateral is delivered to the Series on the next business
day. Where the Series receives securities as collateral for the loaned
securities, it collects a fee from the borrower. The Series typically receives
the income on the loaned securities but does not receive the income on the
collateral. Where the Series receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Series may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Series also could suffer a
loss where the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the event of losses
on investments made with cash collateral.
- --------------------------------------------------------------------------------
80
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P.("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."),which is the limited partner.
FAM is responsible for the management of the Series' portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Series. For such services, the Series pays a
monthly fee at an annual rate of .01% of the average daily value of the Series'
net assets. FAM has entered into a contractual arrangement with the Series under
which the expenses incurred by the Series will not exceed .12%. This arrangement
has a one-year term and is renewable. For the year ended December 31, 2005, FAM
reimbursed the Series in the amount of $13,001.
For the year ended December 31, 2005, the Series reimbursed FAM $9,236 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, 2005 were $170,663,540 and $45,344,153,
respectively.
4. COMMITMENTS:
At December 31, 2005, the Series had entered into foreign exchange
contracts, in addition to the contracts listed in the Schedule of Investments,
under which it had agreed to sell a foreign currency with an approximate value
of $64,000.
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, 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, 2005. On November 23,
2005, the credit agreement was renewed for one year under substantially the same
terms.
- --------------------------------------------------------------------------------
81
MASTER INTERNATIONAL INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
December 31, 2005
- --------------------------------------------------------------------------------
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, 2005, 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.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included 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, 2005, 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, 2005, 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, 2006
- --------------------------------------------------------------------------------
82
MASTER INTERNATIONAL INDEX SERIES
GEOGRAPHIC ALLOCATION (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF TOTAL
AS OF DECEMBER 31, 2005 INVESTMENTS
----------------------- ----------------
Japan....................................................... 24.2%
United Kingdom.............................................. 23.4
France...................................................... 8.9
Switzerland................................................. 6.9
Germany..................................................... 6.4
Australia................................................... 4.8
Italy....................................................... 3.7
Spain....................................................... 3.6
Netherlands................................................. 3.2
Sweden...................................................... 2.3
Finland..................................................... 1.5
Hong Kong................................................... 1.3
Belgium..................................................... 1.1
Singapore................................................... 0.8
Ireland..................................................... 0.8
Denmark..................................................... 0.8
Norway...................................................... 0.7
Greece...................................................... 0.6
Austria..................................................... 0.4
Portugal.................................................... 0.2
New Zealand................................................. 0.2
South Africa................................................ 0.1
United States............................................... 0.1
Bermuda..................................................... --*
Other**..................................................... 4.0
</Table>
- ---------------
* Amount is less than 0.1%.
** Includes portfolio holdings in short-term investments.
- --------------------------------------------------------------------------------
83
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ----------------------- -------------- -------------
INTERESTED TRUSTEE
Robert C. Doll, Jr.* President 2005 President of the MLIM/FAM- 131 Funds None
P.O. Box 9011 and to advised funds since 2005; 177 Portfolios
Princeton, NJ 08543-9011 Trustee President of MLIM and FAM since
Age: 51 present 2001; Co-Head (Americas Region)
thereof from 2000 to 2001 and
Senior Vice President from 1999
to 2001; President and Director
of Princeton Services, Inc.
("Princeton Services") since
2001; President of Princeton
Administrators, L.P.
("Princeton Administrators")
since 2001; Chief Investment
Officer of Oppenheimer-Funds,
Inc. in 1999 and Executive Vice
President thereof from 1991 to
1999.
</Table>
* Mr. Doll is a trustee or member of an advisory board of certain other
investment companies for which MLIM or FAM acts as investment adviser. Mr.
Doll is an "interested person," as defined in the Investment Company Act, of
the Fund based on his current positions with MLIM, FAM, Princeton Services
and Princeton Administrators. Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72. As
Fund President, Mr. Doll serves at the pleasure of the Board of Trustees.
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ----------------------- -------------- -------------
INDEPENDENT
TRUSTEES*
Donald W. Burton Trustee 2002 General Partner of The Burton 23 Funds Knology, Inc.,
P.O. Box 9095 to Partnership, Limited 42 Portfolios (telecommuni-
Princeton, NJ 08543-9095 Partnership (an investment cations) and
Age: 61 present partnership) since 1979; Symbion, Inc.
Managing General Partner of the (health care)
South Atlantic Venture Funds
since 1983; Member of the
Investment Advisory Council of
the Florida State Board of
Administration since 2001.
Laurie Simon Hodrick Trustee 1999 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: 43 present since 1998.
</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
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ----------------------- -------------- -------------
John Francis O'Brien Trustee 2005 President and Chief Executive 23 Funds ABIOMED
P.O. Box 9095 to Officer of Allmerica Financial 42 Portfolios (medical device
Princeton, NJ 08543-9095 Corporation (financial services manufacturer),
Age:62 present holding company) from 1995 to Cabot
2002 and Director from 1995 to Corporation
2003; President of Allmerica (chemicals), LKQ
Investment Management Co., Inc. Corporation
(investment adviser) from 1989 (auto parts
to 2002, Director from 1989 to manufacturing)
2002 and Chairman of the Board and TJX
from 1989 to 1990; President, Companies, Inc.
Chief Executive Officer and (retailer)
Director of First Allmerica
Financial Life Insurance
Company from 1989 to 2002 and
Director of various other
Allmerica Financial companies
until 2002; Director since
1989, Member of the Governance
Nominating Committee since
2004, Member of the
Compensation Committee of
ABIOMED since 1989 and Member
of the Audit Committee of
ABIOMED from 1990 to 2004;
Director and Member of the
Governance and Nomination
Committee of Cabot Corporation
and Member of the Audit
Committee since 1990; Director
and Member of the Audit
Committee and Compensation
Committee of LKQ Corporation
since 2003; Lead Director of
TJX Companies, Inc. since 1999;
Trustee of the Woods Hole
Oceanographic Institute since
2003.
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: 64 present capacities therewith from 1973
to 1992; Director, The National
Audubon Society since 1998;
Director, The American Museum
of Fly Fishing since 1997.
</Table>
- --------------------------------------------------------------------------------
85
MASTER INTERNATIONAL INDEX SERIES
OFFICERS AND TRUSTEES (unaudited) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER PUBLIC
POSITION(S) LENGTH FUND COMPLEX DIRECTORSHIPS
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS & AGE TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEE
- ------------------- ----------- ------- ----------------------- -------------- -------------
Fred G. Weiss** Trustee 1998 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: 64 and Development of Warner (pharmaceutical
Lambert Co. from 1979 to 1997; company)
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>
* Trustees serve until their resignation, removal or death, or until December
31 of the year in which they turn 72.
** Chairman of the Board and the Audit Committee
<Table>
<Caption>
POSITION(S)
NAME, ADDRESS, AND HELD WITH LENGTH OF
AGE TRUST TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ ----------- ----------- -------------------------------------------
FUND/TRUST OFFICERS*
Donald C. Burke Vice 1997 to First Vice President of MLIM and FAM since 1997 and
P.O. Box 9011 President present Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-9011 and and 1999 Treasurer of Princeton Services since 1999 and Director
Age: 45 Treasurer to present since 2004; Vice President of FAM Distributors, Inc.
("FAMD") since 1999 and Director since 2004; Vice President
of MLIM and FAM from 1990 to 1997; Director of Taxation of
MLIM from 1990 to 2001; Vice President, Treasurer and
Secretary of the IQ Funds since 2004.
Vincent J. Costa Vice 2005 to Managing Director of MLIM since 2005; Director of MLIM from
P.O. Box 9011 President present 1999 to 2005.
Princeton, NJ 08543-9011
Age: 43
Debra L. Jelilian Vice 2005 to Director of MLIM since 1999.
P.O. Box 9011 President present
Princeton, NJ 08543-9011
Age: 38
Jeffrey L. Russo Vice 2005 to Director of MLIM since 2004; Vice President of MLIM from
P.O. Box 9011 President present 1994 to 2004.
Princeton, NJ 08543-9011
Age: 38
</Table>
- --------------------------------------------------------------------------------
86
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
- ------------------ ----------- ----------- -------------------------------------------
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 (Americas Region) since 2004; Chief Compliance Officer of
Age: 54 the IQ Funds since 2004; Global Director of Compliance at
Morgan Stanley 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; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President
P.O. Box 9011 present of MLIM from 1999 to 2002; Attorney associated with MLIM
Princeton, NJ 08543-9011 since 1997; Secretary of MLIM, FAM, FAMD and Princeton
Age: 45 Services since 2004.
</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 1-800-637-3863.
<Table>
CUSTODIAN TRANSFER AGENT
JPMorgan Chase Bank, N.A. Financial Data Services, Inc.
3 Chase MetroTech Center 4800 Deer Lake Drive East
Brooklyn, NY 11245 Jacksonville, FL 32246-6484
800-637-3863
</Table>
- --------------------------------------------------------------------------------
87
(This page intentionally left blank)
(This page intentionally left blank)
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
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 Fund's 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>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american-beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American Beacon 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 free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at 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. A complete also be obtained by calling 1-800-967-9009.
schedule of each Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each fiscal
quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
This report is prepared for shareholders of the American Beacon 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
Beacon Funds. American Beacon Funds is a registered service mark of AMR
Corporation. American Beacon Small Cap Index Fund and American Beacon
International Equity Index Fund are service marks of American Beacon Advisors,
Inc.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
DECEMBER 31, 2005
TREASURY INFLATION PROTECTED SECURITIES FUND
Formerly known as the
American AAdvantage Funds
About American Beacon Advisors
- --------------------------------
Since 1986, American Beacon
Advisors has offered a variety
of products and investment
advisory services to numerous
institutional and retail
clients, including a variety of
mutual funds, corporate cash
management, and separate account
management.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations,
financial planners, and other
institutional investors. With
American Beacon Advisors, you
can put the experience of a
multi-billion dollar asset
management firm to work for your
company.
Contents
-----------------------------------------------
President's Message........... 1
Schedule of Investments....... 7
Financial Highlights.......... 16
Additional Information........ Back Cover
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each advisor'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, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Funds December 31, 2005
(BILL QUINN PHOTO)
FELLOW SHAREHOLDERS:
Enclosed please find the
Annual Report for the
American Beacon Treasury
Inflation Protected
Securities Fund for the
year ended December 31,
2005.
The year started with
a short-term interest rate
of 2.25%; however, the
Federal Reserve Board
subsequently raised the
rate several times
throughout the year
resulting in a Fed Funds
target rate of 4.25% at
year end. As the year
concluded, the Federal
Open Market Committee
indicated that it no
longer sees monetary
policy as "accommodative." In its December statement, the Fed reflected that
inflation remained contained but that "some further measured policy firming is
likely to be needed to keep the risks to the attainment of both sustainable
economic growth and price stability roughly in balance." Although there is much
debate as to the proper definition of "some," one thing is clear -- the Fed is
nearing the end of its tightening cycle.
Rising interest rates offset coupon rates to some extent, resulting in
modest but positive returns. The American Beacon Treasury Inflation Protected
Securities Fund realized a return of 1.86% for the twelve-month period. 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.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
(/s/ WILLIAM F. QUINN)
William F. Quinn
President, American Beacon Funds
1
MARKET OVERVIEW
(Unaudited)
- --------------------------------------------------------------------------------
The U.S. economy proved resilient in 2005 despite Hurricane Katrina, higher
energy prices, worries about a housing bubble, and eight Fed rate hikes.
Employment trends remained supportive, personal consumption continued as the
engine of growth, and important measures of industrial production, and capacity
utilization all displayed strength throughout the course of the year. The FOMC
continued to remove policy accommodation at a "measured" pace and ended the year
with a more neutral policy stance. Headline inflation, as measured by year-
over-year CPI, surprised the market to the upside in 2005. In September, the CPI
recorded a 4.7% increase before receding to 3.5% in December. Although energy
prices continued to be the primary source of volatility in most headline
measures of inflation, core prices were much more contained at 2.1% in December.
Treasury inflation protected securities (TIPS) once again proved to be an
important part of the fixed income landscape in 2005, as evidenced by the more
than $60 billion of new issuance and a total market value that is approaching
$350 billion. Many factors contributed to the volatility of the TIPS market in
2005, but it was primarily driven by firm energy prices and the Fed. At times,
TIPS were heavily influenced by the directionality of energy market movements.
This correlation was responsible for some of the volatility in inflation
expectations and temporary spikes in breakeven inflation rates (the yield
differential between conventional Treasuries and TIPS), especially at the front
end of the TIPS curve. As the Fed continued on its tightening path, the market
gradually lowered its inflation expectations by the end of the year. The general
level of break-even rates finished the year approximately 10-15 basis points
(0.10%-0.15%) below where they ended in 2004. Reflecting movements in the
nominal bond markets, the TIPS yield curve flattened to the point of inversion
in 2005. The spread between 5-year TIPS and 10-year TIPS flattened 58 basis
points (0.58%) while the full curve (2-year to 28-year) flattened by more than
213 basis points (2.13%). As the year ended, 5-year, 10-year, and 28-year TIPS
were yielding 2.08%, 2.06%, and 1.90% respectively. Although real yields on
average increased by 40 basis points (0.40%), price losses on TIPS were more
than offset by coupon income and the inflation accrual. For the full year of
2005, the Lehman U.S. TIPS Index returned 2.84%. Intermediate TIPS, as measured
by the Lehman 1-10 Year TIPS Index, delivered a return for the year of 1.88%.
Falling break-even inflation rates led to TIPS underperformance against their
nominal Treasury counterparts by approximately 1.36%.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
The Institutional Class of the Fund returned 1.86% for the twelve months
ended December 31, 2005, falling slightly short of the Lehman Brothers 1-10 Yr.
U.S. TIPS Index (the "Index") return of 1.88%. The Fund trailed the Lipper TIPS
Index return of 2.73% for the same time period.
The Fund underperformed the Index for the year by 2 basis points. All of
the underperformance can be attributed to Fund expenses. Before the impact of
Fund expenses, the Fund modestly outperformed the Index. Three strategies in
place at various times during the year added most of the value in 2005. First,
the Fund maintained a small allocation to nominal bonds as break-even rates
narrowed. Second, it reduced its exposure to areas of the yield curve where new
supply was auctioned. Finally, it established small positions in foreign
inflation linked debt fully hedged to the U.S. dollar.
The Fund remains focused on investing primarily in Treasury inflation
protected securities to provide inflation protection and income to its
shareholders.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 06/30/04 THROUGH 12/31/05
(LINE GRAPH)
<Table>
LEHMAN BROS. 1-10 LEHMAN BROS. U.S.
INSTITUTIONAL CLASS YR. U.S. TIPS INDEX TIPS INDEX LIPPER TIPS INDEX
------------------- ------------------- ----------------- -----------------
6/30/04 10000.00 10000.00 10000.00 10000.00
12/04 10394.00 10496.00 10645.00 10690.00
12/05 10587.00 10693.00 10947.00 10982.00
</Table>
TOTAL RETURNS
-----------------------
PERIODS ENDED VALUE OF
12/31/05 $10,000
----------------------- 6/30/04-
3 MOS. 6 MOS. 1 YR. 12/31/05
------ ------ ----- --------
Institutional Class(1)...... (0.29)% 0.21% 1.86% $10,587
Lehman Bros. 1-10 Yr. U.S.
TIPS Index................. (0.20)% 0.33% 1.88% $10,693
Lehman Bros. U.S. TIPS
Index...................... 0.11% 0.13% 2.84% $10,947
Lipper TIPS Index........... 0.00% (0.05)% 2.73% $10,982
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 current performance may be
lower or higher than the performance data quoted. To obtain performance
information as of the most recent month-end, please visit
www.americanbeaconfunds.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.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION
% OF
RATING FIXED INCOME
- ------ ------------
A 0.7%
AA 0.3%
AAA 99.0%
(Bar Chart)
U.S. Government Sponsored Agency
Instruments 0.7%
Corporate Obligations.................... 1.0%
U.S. Government Treasury Obligations..... 98.3%
The bar chart above represents the Fund's portfolio as of December 31,
2005. 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.
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, 2005 through December
31, 2005.
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.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
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 EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
--------- --------- --------------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,002.11 $2.08
Hypothetical (5%
return before
expenses) $1,000.00 $1,023.13 $2.10
* Expenses are equal to the Fund's annualized expense ratio
for the six-month period of 0.41%, 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 (365) to
reflect the half-year period.
5
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Treasury Inflation Protected Securities Fund
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the American Beacon Treasury Inflation
Protected Securities Fund (the "Fund") (formerly known as the American
AAdvantage Treasury Inflation Protected Securities Fund), a separate fund
comprising the American Beacon Funds, (formerly known as the American AAdvantage
Funds) as of December 31, 2005, and the related statement of operations for the
year then ended and the statements of changes in net assets and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included 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, 2005, 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 Beacon Treasury Inflation Protected Securities Fund at December 31,
2005, the results of its operations for the year then ended and the changes in
its net assets 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 21, 2006
6
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. GOVERNMENT SPONSORED AGENCY INSTRUMENTS - 0.65%
Federal Home Loan Bank, 7.507%, Due 2/20/2007............... $ 100 $ 101
Federal National Mortgage Association, 5.83%, Due
2/17/2009................................................. 100 97
-------
TOTAL U.S. GOVERNMENT SPONSORED AGENCY INSTRUMENTS...... 198
-------
U.S. GOVERNMENT SECURITIES - 95.64%
U.S. Treasury Inflation-Indexed Notes,
0.875%, Due 4/15/2010..................................... 3,853 3,663
1.625%, Due 1/15/2015..................................... 1,455 1,402
1.875%, Due 7/15/2013..................................... 4,550 4,487
1.875%, Due 7/15/2015..................................... 737 725
2.00%, Due 1/15/2014...................................... 2,145 2,133
2.00%, Due 7/15/2014...................................... 2,050 2,039
3.00%, Due 7/15/2012...................................... 2,858 3,022
3.375%, Due 1/15/2007..................................... 949 956
3.375%, Due 1/15/2012..................................... 1,907 2,051
3.50%, Due 1/15/2011...................................... 2,403 2,569
3.625%, Due 1/15/2008..................................... 425 437
3.875%, Due 1/15/2009..................................... 3,716 3,906
4.25%, Due 1/15/2010...................................... 1,125 1,219
U.S. Treasury Notes,
4.25%, Due 8/15/2015...................................... 650 642
-------
TOTAL U.S. GOVERNMENT SECURITIES........................ 29,251
-------
VARIABLE RATE CORPORATE OBLIGATIONS - 1.05% (NOTE B)
FINANCIAL - 1.05%
Allstate Life Global Funding, 5.74%, Due 3/1/2010........... 100 95
Lehman Brothers Holdings, Incorporated, 5.62%, Due
6/2/2009.................................................. 80 77
SLM Corporation, 6.81%, Due 1/31/2014....................... 150 148
-------
TOTAL FINANCIAL......................................... 320
-------
TOTAL VARIABLE RATE CORPORATE OBLIGATIONS............... 320
-------
SHORT TERM INVESTMENTS - 3.50%
SHARES
----------
American Beacon Money Market Select Fund (Note A)........... 1,071,309 $ 1,071
-------
TOTAL SHORT TERM INVESTMENTS............................ 1,071
-------
TOTAL INVESTMENTS - 100.84% (COST $31,441).................. 30,840
-------
LIABILITIES, NET OF OTHER ASSETS - (0.84%).................. (256)
-------
TOTAL NET ASSETS - 100%..................................... $30,584
=======
</Table>
- ---------------
(A) The Fund is affiliated by having the same investment advisor.
(B) Variable rate instrument. Interest rates change on specific dates (such as a
coupon or interest payment date). The rate shown represents the December 31,
2005 coupon rate.
See accompanying notes
- --------------------------------------------------------------------------------
7
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005 (in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
ASSETS:
Investments in unaffiliated securities, at value(A)..... $ 29,769
Investments in affiliated securities, at value(B)....... 1,071
Dividends and interest receivable....................... 340
Receivable for investments sold......................... 257
Receivable for fund shares sold......................... 4
----------
TOTAL ASSETS........................................ 31,441
----------
LIABILITIES:
Payable for investments purchased....................... 782
Payable for fund shares redeemed........................ 32
Payable under excess expense reimbursement plan......... 19
Dividends payable....................................... 1
Management and investment advisory fees payable (Note
2)..................................................... 12
Administrative service fees payable..................... 2
Other liabilities....................................... 9
----------
TOTAL LIABILITIES................................... 857
----------
NET ASSETS.................................................. $ 30,584
==========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 31,639
Undistributed net investment income (loss).............. 25
Accumulated net realized gain (loss).................... (479)
Unrealized appreciation (depreciation) of investments
and foreign currency................................... (601)
----------
NET ASSETS.................................................. $ 30,584
==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 3,137,618
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 9.75
==========
- ---------------
(A) Cost of investments in unaffiliated securities.......... $ 30,370
(B) Cost of investments in affiliated securities............ $ 1,071
See accompanying notes
- --------------------------------------------------------------------------------
8
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF OPERATIONS
Year Ended December 31, 2005 (in thousands)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income......................................... $ 1,657
Dividend income from affiliated securities.............. 32
-------
TOTAL INVESTMENT INCOME............................. 1,689
-------
EXPENSES:
Management and investment advisory fees (Note 2)........ 61
Administrative service fees (Note 2).................... 29
Transfer agent fees..................................... 7
Custodian and fund accounting fees...................... 5
Professional fees....................................... 4
Registration fees and expenses.......................... 2
Other expenses.......................................... 5
-------
TOTAL EXPENSES...................................... 113
-------
Net (fees waived and expenses reimbursed)/recouped by
Manager (Note 2)....................................... 15
-------
NET EXPENSES........................................ 128
-------
NET INVESTMENT INCOME....................................... 1,561
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments........................................... (416)
Foreign currency transactions......................... 3
Change in net unrealized appreciation or depreciation
of:
Investments........................................... (698)
Foreign currency contracts............................ (1)
-------
NET GAIN (LOSS) ON INVESTMENTS...................... (1,112)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 449
=======
See accompanying notes
- --------------------------------------------------------------------------------
9
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2005 2004(A)
------------ ------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 1,561 $ 292
Net realized gain (loss) on investments................. (413) 247
Change in net unrealized appreciation or depreciation of
investments and foreign currency contracts............. (699) 98
-------- -------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 449 637
-------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................... (1,588) (292)
Net realized gain on investments........................ (147) (114)
-------- -------
NET DISTRIBUTIONS TO SHAREHOLDERS................... (1,735) (406)
-------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................... 44,770 28,766
Reinvestment of dividends and distributions............. 1,735 405
Cost of shares redeemed................................. (35,578) (8,459)
-------- -------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS........................................ 10,927 20,712
-------- -------
NET INCREASE IN NET ASSETS.................................. 9,641 20,943
NET ASSETS:
Beginning of period..................................... 20,943 --
-------- -------
END OF PERIOD*.......................................... $ 30,584 $20,943
======== =======
* Includes undistributed net investment income (loss)
of..................................................... $ 25 $ --
======== =======
</Table>
- ---------------
(A) The American Beacon Treasury Inflation Protected Securities Fund commenced
active operations on June 30, 2004.
See accompanying notes
- --------------------------------------------------------------------------------
10
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, no load, open-end management investment company. The American
Beacon Treasury Inflation Protected Securities Fund (the "Fund") is a series of
the Trust and commenced active operations on June 30, 2004. The Fund's
investment objective is to provide inflation protection and income.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., 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 p.m. 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 market prices are not readily available or are not
reflective of the fair value of the security, will be priced at a fair value
following procedures approved by the Board of Trustees (the "Board"). Issuer
specific events, market trends, valuations of similar securities and other
market data may be reviewed in the course of making a good faith determination
of a security's fair value. In light of the judgement involved in fair value
decisions, there can be no assurance that a fair value assigned to a particular
security is accurate.
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.
Inflation-indexed bonds are fixed-income securities whose principal value
is periodically adjusted to the rate of inflation. Interest is accrued based on
the principal value, which is adjusted for inflation. Any increase in the
principal amount of an inflation-indexed bond is recorded as interest income,
even though principal is not received until maturity.
- --------------------------------------------------------------------------------
11
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
Dividends to Shareholders
From January 1, 2005 through February 28, 2005, the Fund declared dividends
from net investment income daily, payable monthly. Beginning March 1, 2005, the
Fund declares and pays dividends from net investment income quarterly.
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 Exchange Contracts
The Fund may enter into forward foreign currency contracts to hedge the
exchange rate risk on investment transactions or to hedge the value of Fund
securities denominated in foreign currencies. Forward foreign currency contracts
are valued at the forward exchange rate prevailing on the day of valuation. 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.
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.
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
- --------------------------------------------------------------------------------
12
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
advisors 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 advisors of the Fund. During the year ended December 31, 2005, the
management fee range, including fees paid to investment advisors, was from 0.15%
to 0.25%, depending upon assets under management. Total management fees were
$60,555, of which $31,940 was paid to investment advisors and $28,615 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
0.10% of the average daily net assets of the Fund.
Investment in Affiliated Fund
The Fund may invest in the American Beacon Money Market Select Fund (the
"Select Fund"). The Manager serves as investment advisor 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 $1,006.
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. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided unlimited air transportation on
American. Retired Trustees and their spouses are provided free transportation on
American, up to a maximum annual value of $40,000. 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. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. Mr. O'Sullivan receives an annual retainer of
$40,000 plus $1,250 for each Board meeting attended.
Reimbursement of Expenses
The Manager contractually agreed to reimburse the Fund for a portion of its
fees through February 28, 2006 to the extent total annual Fund operating
expenses exceeded 0.46%. During the year ended December 31, 2005, the manager
reimbursed the Fund $4,096.
Expense Reimbursement Plan
The Fund has adopted an expense reimbursement Plan whereby the Manager may
seek recoupment of fees waived or expenses reimbursed for a period of up to
three years. However, recoupment will only occur if the Funds' average net
assets have grown or expenses have declined sufficiently to allow recoupment
without causing its expense ratio to exceed the previously agreed upon
contractual expense limit. During the year ended December 31, 2005, due to asset
growth and
- --------------------------------------------------------------------------------
13
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
a reduction of expenses in the latter part of the year, the Manager recouped
$4,096 for expenses previously waived earlier in the year and $14,537 for
expenses waived during 2004.
Interfund Lending Program
Pursuant to an Exemptive Order by the SEC, the Fund, 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 Fund to borrow from, or lend money to,
other participating Funds. The Fund did not utilize the credit facility during
the year ended December 31, 2005.
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.
The tax character of distributions during the years ended December 31, 2005
and December 31, 2004 were as follows (in thousands):
<Table>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
DISTRIBUTIONS PAID FROM:
Ordinary income*............................................ $1,735 $406
* For tax purposes, short-term capital gains distributions are considered
ordinary income distributions.
For the year ended December 31, 2005, the components of distributable
earnings were as follows (in thousands):
Cost basis of investments for federal income tax purposes... $31,656
Unrealized appreciation..................................... 5
Unrealized depreciation..................................... (821)
-------
Net unrealized appreciation (depreciation).................. (816)
Undistributed ordinary income............................... 26
Undistributed long-term gain (loss)......................... (144)
-------
Distributable earnings...................................... $ (934)
=======
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.
</Table>
- --------------------------------------------------------------------------------
14
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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.
Accordingly, the following amounts represent current year permanent
differences that have been reclassified as of December 31, 2005 (in thousands):
Paid-in-capital............................................. $ --
Undistributed net investment income......................... 52
Accumulated net realized gain (loss)........................ (52)
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency.................... --
At December 31, 2005, the Fund had a capital loss carryover of $144,311
expiring in 2013.
Net capital and foreign currency losses incurred after October 31, 2005 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, 2005, the Fund
deferred $120,015 of capital losses to January 1, 2006.
4. INVESTMENT TRANSACTIONS
Purchases and redemptions of investments for the year ended December 31,
2005, excluding short-term investments, were $107,890,850 and $98,011,957,
respectively. The Fund had purchases and sales of U.S. government securities of
$106,150,983 and $95,889,471, respectively.
A summary of the Fund's direct transactions in the Select Fund for the year
ended December 31, 2005 is as follows:
DECEMBER 31, 2004 DECEMBER 31, 2005
SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- ------------------- --------- ----- -------------------
$754,424 $44,953,701 $44,636,816 $1,071,309
5. CAPITAL SHARE TRANSACTIONS
The table below summarizes the activity in capital shares (in thousands):
Year ended December 31, 2005
SHARES AMOUNT
------ --------
Shares sold................................................. 4,421 $ 44,770
Reinvestment of dividends................................... 175 1,735
Shares redeemed............................................. (3,520) (35,578)
------ --------
Net increase in shares outstanding.......................... 1,076 $ 10,927
====== ========
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
===== =======
- --------------------------------------------------------------------------------
15
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2005 2004(A)
------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.16 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.56 0.18(B)
Net gains (loss) on securities (both realized and
unrealized)............................................ (0.37) 0.21
------- -------
Total income from investment operations..................... 0.19 0.39
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.................... (0.55) (0.23)
Distributions from net realized gains on securities..... (0.05) --(D)
------- -------
Total distributions......................................... (0.60) (0.23)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.75 $ 10.16
======= =======
TOTAL RETURN................................................ 1.86% 3.94%(C)
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $30,584 $20,943
Ratios to average net assets (annualized):
Expenses, after expense reimbursements
(recoupments)........................................ 0.44% 0.46%
Expenses, before expense reimbursements
(recoupments)........................................ 0.39% 0.62%
Net investment income, after expense reimbursements
(recoupments)........................................ 5.45% 3.34%
Net investment income, before expense reimbursements
(recoupments)........................................ 5.50% 3.18%
Portfolio turnover rate................................. 355% 190%(C)
</Table>
- ---------------
(A) The American Beacon Treasury Inflation Protected Securities Fund commenced
active operations on June 30, 2004.
(B) Based on average shares outstanding.
(C) Not annualized.
(D) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
16
AMERICAN BEACON FUNDS
FEDERAL TAX INFORMATION
(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 $146,813 of short-term
capital gains.
- --------------------------------------------------------------------------------
17
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 Trust, the American Beacon Master
Trust, the American Beacon Mileage Funds, and the American Beacon 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>
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** (57) President and President (1986-Present) and Director (2003-Present),
Trustee since American Beacon Advisors, Inc.; Chairman (1989-2003) and
1987 Director (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
(2002-2004); Director, United Way of Metropolitan Tarrant
County (1988-2000, 2004-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American Beacon
Master Trust (1195-Present).
Alan D. Feld** (69) 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 Beacon Select Funds (1999-
Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Master Trust
(1196-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); President and CEO,
Allmerica Trust Company, N.A. (1996-1997); President and
CEO, Fidelity Investments Southwest Company (1983-1995);
Senior Vice President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
- --------------------------------------------------------------------------------
18
TRUSTEES AND OFFICERS OF THE TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
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 (45) Trustee since 2004 Executive 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); Director, Christian Church
Foundation (1999-Present); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Richard A. Massman (62) 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 Beacon Select Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Stephen D. O'Sullivan (70) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon Select
Funds (1999-Present); Trustee, American Beacon Mileage Funds
(1995-Present); Trustee, American Beacon Master Trust
(1995-Present).
R. Gerald Turner (60) 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 Beacon Select Funds (2001-Present);
Trustee, American Beacon Mileage Funds (2001-Present);
Trustee, American Beacon Master Trust (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court and Chairman equity firm) (1998- Present); Director, Burger King
Suite 1740 since 2005 Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 (1997-2005); 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, Dallas Employee Retirement
Fund (2004-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Master Trust
(1996-Present).
- --------------------------------------------------------------------------------
19
TRUSTEES AND OFFICERS OF THE TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
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
- --------------------- ----------------- -------------------------------------------
OFFICERS
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004).
Nancy A. Eckl (43) VP since 1990 Vice President, Trust Investments, American Beacon Advisors,
Inc. (1990-Present).
Michael W. Fields (51) VP since 1989 Vice President, Fixed Income Investments, American Beacon
Advisors, Inc. (1988-Present).
Rebecca L. Harris (39) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004-Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</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 subadvisers.
- --------------------------------------------------------------------------------
20
AMERICAN BEACON FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon 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 customers
or former customers 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.
- --------------------------------------------------------------------------------
21
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
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 institutions name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
American-Beacon.Funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
- --------------------------------------------------------------------------------
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
Call (800) 658-5811 American Beacon Funds
P.O. Box 219643
Kansas City, MO 64121-9643
- --------------------------------------------------------------------------------
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 free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at 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. A complete also be obtained by calling 1-800-967-9009.
schedule of each Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each quarter.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
This report is prepared for shareholders of the American Beacon 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
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
American Beacon Treasury Inflation Protected Securities Fund is a service mark
of American Beacon Advisors, Inc.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
DECEMBER 31, 2005
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
Formerly known as the
American AAdvantage Funds
About American Beacon Advisors
- --------------------------------
Since 1986, American Beacon
Advisors has offered a variety
of products and investment
advisory services to numerous
institutional and retail
clients, including a variety of
mutual funds, corporate cash
management, and separate account
management.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations,
financial planners, and other
institutional investors. With
American Beacon Advisors, you
can put the experience of a
multi-billion dollar asset
management firm to work for your
company.
<Table>
<Caption>
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..... 32
Municipal
Money Market Portfolio..... 33
Additional Information...............Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each advisor'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, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Funds December 31, 2005
(BILL QUINN PHOTO)
FELLOW SHAREHOLDERS:
Enclosed please find the
Annual Report for the
American Beacon Funds for
the year ended December
31, 2005. During this
time, the money market
series of the American
Beacon Funds performed
well against their
respective peer groups.
The year started with
a short-term interest rate
of 2.25%; however, the
Federal Reserve Board
subsequently raised the
rate several times
throughout the year
resulting in a Fed Funds target rate of 4.25% at year end. As the year
concluded, the Federal Open Market Committee (FOMC) indicated that it no longer
sees monetary policy as "accommodative." In its December statement, the Fed
reflected that inflation remained contained but that "some further measured
policy firming is likely to be needed to keep the risks to the attainment of
both sustainable economic growth and price stability roughly in balance."
Although there is much debate as to the proper definition of "some," one thing
is clear -- the Fed is nearing the end of its tightening cycle.
Despite rising interest rates, the Cash Management Class of the American
Beacon Funds produced strong relative returns for the period. The Money Market
Fund-Cash Management Class returned 3.19% for the twelve months, outperforming
the Lipper Institutional Money Market Average return of 2.84%. The U.S.
Government Money Market Fund -- Cash Management Class outpaced the Lipper
Institutional U.S. Government Money Market Average with a return of 3.12% versus
2.85% for the Average. Both Funds surpassed their respective Lipper peer groups
over all time periods.
Looking forward, the market is pricing in a 100% chance of a 0.25% increase
at the January 31st FOMC meeting; however, the likelihood of additional
increases at the March and/or May meetings are less certain. Rather than simply
having a conviction that the Fed Funds rate is too low, the FOMC now appears to
be entering into a phase where future rate hikes will hinge more on economic
data developments.
We will continue to monitor economic trends and will adjust the Funds'
characteristics accordingly. Additionally, we expect to remain conservative on
credit risk given the tight credit spread environment.
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.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
1
ECONOMIC OVERVIEW
(Unaudited)
- --------------------------------------------------------------------------------
The year began with the U.S. economy growing at a solid pace as first quarter
gross domestic product (GDP) came in at a strong 3.8%. GDP continued to show
solid growth at a 3.3% annual rate during the second quarter and 4.1% annual
rate during the third quarter, fueled by robust consumer spending and home
building. However, late in the third quarter, hurricanes Katrina and Rita blew
ashore, leaving wind, rain, and economic uncertainty in their wake. Crude oil
prices, already trading in the mid $60 range before the hurricanes, hit a high
of $70 per barrel on September 1st. These surging fuel costs dampened consumer
sentiment, causing concerns of reduced consumer spending and lower corporate
profit margins. As a result, fourth quarter GDP growth did not fare as well.
Economists had expected fourth quarter GDP growth would slow as a result of
reduced discounts from automakers and moderating home sales. In addition, rising
home-heating costs threatened to dampen consumer spending. The consensus
estimate of 2.8% GDP growth missed the mark as the initial estimate of fourth
quarter GDP came in at 1.1%, raising questions as to the strength of the
economy. However, fiscal spending is expected to spur economic growth during the
first half of 2006 as the government works to rebuild areas impacted by the
hurricanes.
On the employment front, nonfarm payroll growth showed some volatility in
2005. However, the monthly average jobs created during the year came in at a
respectable 165,000. In addition, the unemployment rate hit 4.9% in August
before backing up to 5.1% in September due to job losses from the hurricanes.
This drop in jobs was much less than economists had forecasted, suggesting that
underlying job growth during this time remained strong. Labor market conditions
continued to improve as U.S. employers added over 500,000 new jobs during the
fourth quarter and the unemployment rate dropped back to its pre-hurricane level
of 4.9%. Business activity also remained strong as the U.S. services sector,
which makes up almost 90% of the U.S. economy, expanded for the thirty-third
consecutive month.
Despite talk of a pause in the aftermath of Katrina and Rita, the Federal
Open Market Committee (FOMC) continued to raise overnight rates by 25 basis
points at each of their remaining meetings for the year. This made it a total of
eight 25 basis point tightenings during 2005, resulting in a Fed Funds target
rate of 4.25% at year end. In addition, the "measured" policy adjustment
language remained part of the Fed's statement throughout 2005. In the minutes of
the September meeting, the Fed stated "upside risks to inflation appeared to
have increased" and "further rate increases probably would be required." It was
not until the December meeting that the Fed made reference to no longer seeing
monetary policy as "accommodative." In its December statement, the Fed reflected
that inflation remained contained but that "some further measured policy firming
is likely to be needed to keep the risks to the attainment of both sustainable
economic growth and price stability roughly in balance." Although there is much
debate as to the proper definition of "some," it appears that the Fed is nearing
the end of its tightening cycle. The actual number of rate hikes left, however,
will ultimately be determined by future economic trends and inflation
expectations.
Though core consumer and wholesale inflation are running close to the Fed
target level of 2%, high energy prices continue to drive up headline inflation
numbers. So the question remains, will businesses begin to pass these elevated
energy costs on to the consumer in the form of higher prices for goods and
services? If so, the Fed can be expected to adjust future monetary policy
accordingly.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
As the economy continued to show signs of strength throughout the year, the
Fed maintained its stance of tightening monetary policy at a measured pace
during all of 2005. In response, the American Beacon Money Market Fund's
weighted-average maturity was maintained below 45 days throughout the year. The
Fed raised the overnight target at each of the eight FOMC meetings in 2005,
resulting in a 4.25% Fed Funds target by year end. This was a move of 25 basis
points (0.25%) per meeting, after starting the year at 2.25%. The primary
strategy of the Fund was to buy variable rate securities, short-dated commercial
paper and overnight investments. Maintaining short duration in a rising interest
rate environment resulted in the Fund outperforming its Lipper peer group. This
strategy will stay in place until economic data suggest the Fed is about to end
its current tightening cycle.
For the twelve months ended December 31, 2005, the total return of the Cash
Management Class of the American Beacon Money Market Fund was 3.19%. The Fund
outperformed the Lipper Institutional Money Market Average return of 2.84% by 35
basis points. Lipper Inc. ranked the Cash Management Class of the Fund 18th
among 303 and 17th among 262 Institutional Money Market Funds for the one-year
and three-years ended December 31, 2005, respectively(1). The Lipper
Institutional Money Market Average is calculated by taking an arithmetic average
of the returns of the mutual funds in the Lipper Institutional Money Market
Funds category. Lipper is an independent mutual fund research and ranking
service that ranks mutual funds in various categories by making comparative
calculations using total returns.
(CHART)
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2005
<Table>
<Caption>
LIPPER
AMERICAN INSTITUTIONAL
BEACON MONEY MONEY MARKET
MARKET FUND FUND AVERAGE
--------------- ----------------
1 Year............... 3.19% 2.84%
3 Years*............. 1.85% 1.54%
5 Years*............. 2.29% 2.03%
10 Years*............ 3.96% 3.75%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 12/31/05
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class(1,2)......... 3.19% 2.29% 3.96%
Institutional Class(1)............. 3.06% 2.21% 3.92%
PlanAhead Class(1)................. 2.82% 1.92% 3.62%
Platinum Class(1).................. 2.33% 1.49% 3.19%
</Table>
1 Past performance is not indicative of future performance.
An investment in the American Beacon 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 five and ten-year periods
represents the total returns achieved by the Institutional Class from 1/1/96 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 1/1/96.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM) -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2005
<Table>
<Caption>
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
---------- ------------- --------- --------
7-day Current Yield* 4.20% 4.00% 3.77% 3.36%
7-day Effective
Yield* 4.29% 4.08% 3.85% 3.42%
30-day Yield* 4.11% 3.93% 3.70% 3.27%
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
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the
Funds' current seven day yield. Yield is a more accurate reflection of the
Funds' current earnings than total returns.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
HSBC Bank USA 5.4%
SunTrust Bank 5.1%
Wells Fargo and Company 5.0%
General Electric Capital Corporation 4.8%
American Honda Finance Corporation 4.6%
Goldman Sachs Group 4.4%
Morgan Stanley Group, Incorporated 4.2%
Toyota Motor Credit Corporation 3.8%
Halifax Bank of Scotland plc 3.6%
Stanfield Victoria 3.2%
</Table>
* Percent of net assets portion of American Beacon Master
Money Market Portfolio.
ASSET ALLOCATION AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Corporate Notes 41.1%
Bank CDs, TDs, and Notes 34.5%
Commercial Paper 11.1%
Repurchase Agreements 10.8%
Funding Agreements 2.2%
Net Other Assets 0.3%
</Table>
* Percent of net assets portion of American Beacon Master
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, 2005
through December 31, 2005.
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
4
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM) -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
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 EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,018.49 $0.76
Hypothetical (5% return
before expenses) $1,000.00 $1,024.45 $0.76
INSTITUTIONAL CLASS
Actual $1,000.00 $1,017.77 $1.47
Hypothetical (5% return
before expenses) $1,000.00 $1,023.75 $1.48
PLANAHEAD CLASS
Actual $1,000.00 $1,016.57 $2.67
Hypothetical (5% return
before expenses) $1,000.00 $1,022.56 $2.68
PLATINUM CLASS
Actual $1,000.00 $1,014.20 $5.03
Hypothetical (5% return
before expenses) $1,000.00 $1,020.22 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.15%, 0.29%, 0.52%, and 0.99% 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 (365) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM)
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
With the Fed maintaining its policy of raising the Fed Funds target at a
measured pace during 2005, the American Beacon U.S. Government Money Market
Fund's weighted-average maturity was maintained below 20 days throughout the
year. The Fed raised the overnight target at each of the eight FOMC meetings in
2005, resulting in a 4.25% Fed Funds target by year end. This was a move of 25
basis points (0.25%) per meeting, after starting the year at 2.25%. The primary
strategy of the Fund was to buy short-dated and variable rate agencies along
with overnight repurchase agreements. Maintaining short duration in a rising
interest rate environment resulted in the Fund outperforming its Lipper peer
group. This strategy will stay in place until economic data suggest an end to
the current tightening cycle.
For the twelve months ended December 31, 2005, the total return of the Cash
Management Class of the American Beacon U.S. Government Money Market Fund was
3.12%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 2.85% by 27 basis points. Lipper Inc. ranked the Cash
Management Class of the Fund 10th among 137, 11th among 102, and 12th among 61
Institutional U.S. Government Money Market Funds for the one-year, five-years
and ten-years ended December 31, 2005, respectively(1). The Lipper Institutional
U.S. Government Money Market Average is calculated by taking an arithmetic
average of the returns of the mutual funds in the Lipper Institutional U.S.
Government Money Market Funds category. Lipper is an independent mutual fund
research and ranking service that ranks mutual funds in various categories by
making comparative calculations using total returns.
(CHART)
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2005
<Table>
<Caption>
AMERICAN BEACON LIPPER INSTITUTIONAL
U.S. GOVERNMENT U.S. GOVERNMENT
MONEY MARKET MONEY MARKET FUND
FUND AVERAGE
--------------- --------------------
1 Year............... 3.12% 2.85%
3 Years*............. 1.79% 1.54%
5 Years*............. 2.22% 1.99%
10 Years* 3.84% 3.67%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 12/31/05
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class(1,2)......... 3.12% 2.22% 3.84%
PlanAhead Class(1)................. 2.71% 1.84% 3.47%
Platinum Class(1).................. 2.30% 1.44% 3.06%
</Table>
1 Past performance is not indicative of future performance.
An investment in the American Beacon 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 Prior to December 1, 2001, the Cash Management Class of
the Fund was known as the Institutional Class.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM) -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2005
<Table>
<Caption>
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
---------- --------- --------
7-day Current Yield* 4.15% 3.69% 3.35%
7-day Effective Yield* 4.23% 3.76% 3.40%
30-day Yield* 4.05% 3.59% 3.25%
Weighted Average
Maturity 9 Days 9 Days 9 Days
Moody's Rating Aaa N/A N/A
S&P Rating AAAm N/A N/A
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the
Funds' current seven day yield. Yield is a more accurate reflection of the
Funds' current earnings than total returns.
ASSET ALLOCATION AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Repurchase Agreements 87.4%
Government Securities 12.5%
Net Other Assets 0.1%
</Table>
* Percent of net assets portion of American Beacon Master
U.S. Government 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, 2005
through December 31, 2005.
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.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM) -- CONTINUED
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,018.17 $0.97
Hypothetical (5% return
before expenses) $1,000.00 $1,024.25 $0.97
PLANAHEAD CLASS
Actual $1,000.00 $1,015.94 $3.16
Hypothetical (5% return
before expenses) $1,000.00 $1,022.07 $3.17
PLATINUM CLASS
Actual $1,000.00 $1,014.08 $5.03
Hypothetical (5% return
before expenses) $1,000.00 $1,020.21 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.19%, 0.62%, and 0.99% 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 (365) to reflect the half-year period.
8
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM)
December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Given the rising interest rate environment of 2005, the investment manager
to the American Beacon Municipal Money Market Fund targeted a shorter
weighted-average maturity during the year. The Fund maintained a high
concentration in daily and weekly variable rate demand notes (VRDNs) backed by
either bond insurance or a bank letter of credit. The investment manager will
continue to focus purchases on the VRDN market and may buy selective fixed rate
instruments when evidence emerges that the Fed has completed its current
tightening cycle.
For the twelve months ended December 31, 2005, the total return of the
PlanAhead Class of the American Beacon Municipal Money Market Fund was 1.49% as
compared to the Lipper Tax-Exempt Money Market Average return of 1.76%. The
Lipper Tax-Exempt Money Market Average is calculated by taking an arithmetic
average of the returns of the mutual funds in the Lipper Tax-Exempt Money Market
Funds category. Lipper is an independent mutual fund research and ranking
service that ranks mutual funds in various categories by making comparative
calculations using total returns.
PLANAHEAD CLASS TOTAL RETURNS AS OF DECEMBER 31, 2005
<Table>
<Caption>
AMERICAN
BEACON LIPPER TAX-
MUNICIPAL EXEMPT MONEY
MONEY MARKET MARKET FUND
FUND AVERAGE
--------------- ----------------
1 Year............... 1.49% 1.76%
3 Years*............. 0.71% 0.93%
5 Years*............. 1.06% 1.19%
10 Years*............ 2.11% 2.14%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 12/31/05
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class(1).............. 1.49% 1.06% 2.11%
Platinum Class(1)............... 1.49% 0.86% 1.81%
</Table>
1 Past performance is not indicative of future performance.
An investment in the American Beacon 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.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2005
<Table>
<Caption>
PLANAHEAD PLATINUM
CLASS CLASS
--------- --------
7-day Current Yield* 2.46% 2.46%
7-day Effective Yield* 2.49% 2.49%
30 day Yield* 2.11% 2.11%
Weighted Average Maturity 4 Days 4 Days
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the
Funds' current seven day yield. Yield is a more accurate reflection of the
Funds' current earnings than total returns.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Alachua County, Florida Housing Financial
Authority 6.0%
Village of Richton Park,
Illinois -- Industrial Development 5.9%
Michigan State Housing Development Authority 5.8%
Ohio Water Development Authority 5.6%
Montgomery County, Maryland Variable Rate
Housing 5.5%
Colorado Educational and Cultural Facilities
Authority 5.2%
New York State Housing Finance Agency 5.2%
New York City, General Obligation Bonds 4.9%
Sweetwater County, Wyoming Pollution Control 4.9%
Breckinridge County, Kentucky Lease Program 4.2%
</Table>
* Percent of net assets portion of American Beacon Master
Municipal Money Market Portfolio.
ASSET ALLOCATION AS OF DECEMBER 31, 2005
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Municipal Obligations 96.4%
Other Investments 3.4%
Net Other Assets 0.2%
</Table>
* Percent of net assets portion of American Beacon Master
Municipal Money Market Portfolio.
9
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM) -- CONTINUED
December 31, 2005 (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 in each Class and held for the entire period from July 1, 2005
through December 31, 2005.
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/05-
7/1/05 12/31/05 12/31/05
--------- --------- --------------
PLANAHEAD CLASS
Actual $1,000.00 $1,008.44 $5.01
Hypothetical (5% return
before expenses) $1,000.00 $1,020.21 $5.04
PLATINUM CLASS
Actual $1,000.00 $1,008.44 $5.01
Hypothetical (5% return
before expenses) $1,000.00 $1,020.21 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios
for the six-month period of 0.99% and 0.99% 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 (365) to reflect
the half-year period.
10
AMERICAN BEACON FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Funds (formerly known as American AAdvantage Funds), comprised
of the American Beacon Money Market Fund, the American Beacon U.S. Government
Money Market Fund, and the American Beacon Municipal Money Market Fund
(collectively, the "Funds") (formerly known as the American AAdvantage Money
Market Fund, the American AAdvantage U.S. Government Money Market Fund, and the
American AAdvantage Municipal Money Market Fund, respectively) as of December
31, 2005, 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 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.
We were not engaged to perform an audit of the Funds' internal control over
financial reporting. Our audits included 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 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
American Beacon Funds at December 31, 2005, 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 21, 2006
- --------------------------------------------------------------------------------
11
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value....................... $ 514,287 $ 28,427 $ 4,407
Receivable for fund shares sold......................... 18 -- --
Receivable from Manager for expense reimbursement (Note
2).................................................... 35 7 3
Prepaid expenses........................................ 19 18 11
------------ ----------- ----------
TOTAL ASSETS........................................ 514,359 28,452 4,421
------------ ----------- ----------
LIABILITIES:
Payable for fund shares redeemed........................ 16 -- --
Dividends payable....................................... 298 60 --
Administrative service and service fees payable (Note
2).................................................... 111 3 2
Distribution fees payable (Note 2)...................... 10 1 --
Other liabilities....................................... 102 22 6
------------ ----------- ----------
TOTAL LIABILITIES................................... 537 86 8
------------ ----------- ----------
NET ASSETS.................................................. $ 513,822 $ 28,366 $ 4,413
============ =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 513,822 28,366 4,413
------------ ----------- ----------
NET ASSETS.................................................. $ 513,822 $ 28,366 $ 4,413
============ =========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Cash Management Class................................... 200,009,920 22,517,744 N/A
============ =========== ==========
Institutional Class..................................... 36,421,050 N/A N/A
============ =========== ==========
PlanAhead Class......................................... 236,903,527 1,933,180 1,646,524
============ =========== ==========
Platinum Class.......................................... 40,487,845 3,914,892 2,766,193
============ =========== ==========
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
============ =========== ==========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
12
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income......................................... $22,982 $969 $160
Portfolio expenses...................................... (780) (36) (7)
------- ---- ----
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO...... 22,202 933 153
------- ---- ----
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class................................. 247 15 --
Institutional Class................................... 50 -- --
PlanAhead Class....................................... 253 4 2
Platinum Class........................................ 290 36 29
Transfer agent fees:
Cash Management Class................................. 29 6 --
Institutional Class................................... 14 -- --
PlanAhead Class....................................... 32 -- 4
Platinum Class........................................ 6 4 3
Professional fees....................................... 29 1 --
Registration fees and expenses.......................... 84 36 26
Distribution fees -- Platinum Class (Note 2)............ 111 14 11
Service Fees -- PlanAhead Class (Note 2)................ 632 11 5
Other expenses.......................................... 141 11 6
------- ---- ----
TOTAL FUND EXPENSES................................. 1,918 138 86
------- ---- ----
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2).......... 293 55 30
------- ---- ----
NET FUND EXPENSES................................... 1,625 83 56
------- ---- ----
NET INVESTMENT INCOME....................................... 20,577 850 97
------- ---- ----
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments........................ 2 1 --
------- ---- ----
NET GAIN ON INVESTMENTS............................. 2 1 --
------- ---- ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $20,579 $851 $ 97
======= ==== ====
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
13
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET
-------------------------
YEAR ENDED
DECEMBER 31,
-------------------------
2005 2004
----------- -----------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 20,577 $ 4,352
Net realized gain on investments........................ 2 15
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 20,579 4,367
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class................................. (10,861) (1,707)
Institutional Class................................... (1,545) (883)
PlanAhead Class....................................... (7,158) (1,553)
Platinum Class........................................ (1,013) (209)
Net realized gain on investments:
Cash Management Class................................. (1) (5)
Institutional Class................................... -- (3)
PlanAhead Class....................................... (1) (5)
Platinum Class........................................ -- (2)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:...................... (20,579) (4,367)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........................... 4,429,630 2,055,052
Reinvestment of dividends and distributions............. 18,064 4,040
Cost of shares redeemed................................. (4,580,001) (1,865,342)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS.................................. (132,307) 193,750
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS....................... (132,307) 193,750
NET ASSETS:
Beginning of period..................................... 646,129 452,379
----------- -----------
END OF PERIOD........................................... $ 513,822 $ 646,129
=========== ===========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MARKET
--------------------- -------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- -------------------
2005 2004 2005 2004
--------- --------- -------- --------
(IN THOUSANDS)
$ 850 $ 418 $ 97 $ 19
1 3 -- --
--------- --------- -------- --------
851 421 97 19
--------- --------- -------- --------
(619) (297) -- --
-- -- -- --
(108) (93) (30) (7)
(123) (28) (67) (12)
(1) (2) -- --
-- -- -- --
-- (1) -- --
-- -- -- --
--------- --------- -------- --------
(851) (421) (97) (19)
--------- --------- -------- --------
144,480 163,517 15,294 16,442
162 48 97 19
(156,852) (178,586) (16,156) (17,626)
--------- --------- -------- --------
(12,210) (15,021) (765) (1,165)
--------- --------- -------- --------
(12,210) (15,021) (765) (1,165)
40,576 55,597 5,178 6,343
--------- --------- -------- --------
$ 28,366 $ 40,576 $ 4,413 $ 5,178
========= ========= ======== ========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), formerly known as the American
AAdvantage Funds, is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a diversified, no-load, open-end management investment company with separate
series. The following series are included in this report: American Beacon Money
Market, American Beacon U.S. Government Money Market and American Beacon
Municipal Money Market Funds (each a "Fund" and collectively, the "Funds").
Each Fund invests all of its investable assets in the corresponding
portfolio of the American Beacon Master Trust, an open-end diversified
management investment company, as follows:
<Table>
<Caption>
AMERICAN BEACON: AMERICAN BEACON MASTER TRUST:
- ---------------- (RT ARROW) INVESTS ASSETS IN (RT ARROW) -----------------------------
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
</Table>
Each Fund has the same investment objectives as its corresponding American
Beacon Master Trust Portfolio. The value of such investment reflects each Fund's
proportionate interest in the net assets of the corresponding portfolio (7.58%,
11.87% and 14.45% at December 31, 2005 of the American Beacon Master 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.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., 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.
Class Disclosure
Each Fund has multiple classes of shares designed to meet the needs of
different groups of investors. Please note that not all Funds offer all classes.
The following table sets forth the differences amongst the classes:
<Table>
<Caption>
CLASS OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ----- ----------- ------------------------------
CASH MANAGEMENT CLASS Investors making an initial Administrative Service Fee -- 0.07%
investment of $10 million for Money
Market and $2 million for U.S.
Government Money Market, or investors
investing through an intermediary
INSTITUTIONAL CLASS Investors making an initial Administrative Service Fee -- 0.10%
investment of $2 million
PLANAHEAD CLASS General public and investors Administrative Service Fee -- 0.10%
investing through an intermediary Service Fee -- 0.25%
PLATINUM CLASS Investors investing through selected Administrative Service Fee -- 0.65%
financial institutions (such as banks Distribution Fee -- 0.25%
and broker-dealers)
</Table>
- --------------------------------------------------------------------------------
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
Valuation of Investments
The Funds record their investment in the Portfolios at fair value.
Valuation of securities by the Portfolios is discussed in Note 1 of the
Portfolios' Notes to Financial Statements, which are included elsewhere in this
report.
Investment Income and Dividends to Shareholders
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
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 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.
- --------------------------------------------------------------------------------
17
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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 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 the
Platinum class of each Fund. 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 the Cash Management Class of
each Fund for other expenses through February 28, 2006 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.
- --------------------------------------------------------------------------------
18
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
The Manager contractually agreed to reimburse the PlanAhead Class of the
Municipal Money Market Fund for other expenses through February 28, 2006 to the
extent that total annual fund operating expenses exceed 0.99%. In addition, the
Manager voluntarily agreed to reimburse the PlanAhead Class of the U.S.
Government Money Market Fund for other expenses through February 28, 2006 to the
extent that total annual fund operating expenses exceed 0.58%.
The Manager contractually agreed to reimburse the Platinum Class of each
Fund for distribution fees and other expenses through February 28, 2006 to the
extent that total annual fund operating expenses exceed 0.99%. During the year
ended December 31, 2005, the Manager waived or reimbursed expenses as follows:
<Table>
<Caption>
FUND AMOUNT
- ---- --------
Money Market Fund
Cash Management Class..................................... $261,462
Platinum Class............................................ 32,025
U.S. Government Money Market Fund
Cash Management Class..................................... 38,743
PlanAhead Class........................................... 1,386
Platinum Class............................................ 14,717
Municipal Money Market Fund
PlanAhead Class........................................... 4,770
Platinum Class............................................ 24,782
</Table>
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek recoupment of fees waived or expenses reimbursed for a period of up to
three years. However, recoupment will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow recoupment
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:
<Table>
<Caption>
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
2008........................................................ 293,487 54,846 29,552
</Table>
The Funds have not recorded a liability for this potential reimbursement
due to the current assessment that a reimbursement is unlikely.
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. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free transportation
on American, up to a maximum annual value of $40,000. 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.
- --------------------------------------------------------------------------------
19
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
Mr. O'Sullivan, 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. 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.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent
book-to-tax differences. To the extent these differences are permanent,
reclassifications are made to the appropriate equity accounts in the period that
the differences arise. Temporary differences are not reflected in the financial
records.
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, 2005
and December 31, 2004 were as follows (in thousands):
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
--------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004 2005 2004
------------ ------------ ------------ ------------ ------------ ------------
Distributions paid from:
Ordinary Income:*
Cash Management Class....... $10,862 $1,712 $620 $299 $-- $--
Institutional Class......... 1,545 886 -- -- -- --
PlanAhead Class............. 7,159 1,558 108 94 -- --
Platinum Class.............. 1,013 211 123 28 -- --
Tax-Exempt Income:**
Cash Management Class....... -- -- -- -- -- --
Institutional Class......... -- -- -- -- -- --
PlanAhead Class............. -- -- -- -- 30 7
Platinum Class.............. -- -- -- -- 67 12
------- ------ ---- ---- --- ---
TOTAL DISTRIBUTIONS
PAID.................. $20,579 $4,367 $851 $421 $97 $19
------- ------ ---- ---- --- ---
</Table>
- ---------------
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
** Approximately 19% of interest earned was derived from investments in
certain private activity bonds for purposes of the federal alternative
minimum tax calculation.
As of December 31, 2005 the components of taxable distributable earnings
were the same as book. The cost basis of investments for federal income tax
purposes was also the same as the book basis.
- --------------------------------------------------------------------------------
20
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
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, 2005
<Table>
<Caption>
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold............................ 3,192,463 215,369 962,664 59,134
Reinvestment of dividends.............. 10,515 957 5,579 1,013
Shares redeemed........................ (3,437,555) (214,050) (863,779) (64,617)
---------- -------- -------- -------
Net increase (decrease) in shares
outstanding.......................... (234,577) 2,276 104,464 (4,470)
========== ======== ======== =======
</Table>
<Table>
<Caption>
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
Shares sold............................ 82,100 57,385 4,995
Reinvestment of dividends.............. -- 39 123
Shares redeemed........................ (88,173) (60,861) (7,818)
---------- -------- -------
Net decrease in shares outstanding..... (6,073) (3,437) (2,700)
========== ======== =======
</Table>
<Table>
<Caption>
MUNICIPAL MONEY MARKET FUND PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- --------------- --------------
Shares sold............................ 4,267 11,027
Reinvestment of dividends.............. 30 67
Shares redeemed........................ (4,356) (11,800)
-------- -------
Net decrease in shares outstanding..... (59) (706)
======== =======
</Table>
Year Ended December 31, 2004
<Table>
<Caption>
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)
========== ======== ======== =======
</Table>
<Table>
<Caption>
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)
========== ======== =======
</Table>
<Table>
<Caption>
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
======== =======
</Table>
- --------------------------------------------------------------------------------
21
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CASH MANAGEMENT CLASS
----------------------------------------------------------------------
ONE MONTH
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001(B)
-------- -------- -------- ------ ------------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)....... 0.03 0.01 0.01 0.02 --(D)
Net realized gain on
investments................... --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- ------ -------
Total income from investment
operations....................... 0.03 0.01 0.01 0.02 --
-------- -------- -------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.03) (0.01) (0.01) (0.02) --(D)
Distributions from net realized
gain on investments........... --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- ------ -------
Total distributions............... (0.03) (0.01) (0.01) (0.02) --
-------- -------- -------- ------ -------
NET ASSET VALUE, END OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ====== =======
TOTAL RETURN...................... 3.19% 1.30% 1.08% 1.73% 0.19%(C)
======== ======== ======== ====== =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................... $200,010 $434,587 $117,395 $6,641 $15,006
Ratios to average net assets
(annualized)(A):
Expenses, net of waivers...... 0.15% 0.15% 0.16% 0.19% 0.19%
Expenses, before waivers...... 0.23% 0.23% 0.24% 0.22% 0.19%
Net investment income, net of
waivers..................... 3.08% 1.34% 1.03% 1.73% 1.96%
Net investment income, before
waivers..................... 3.00% 1.26% 0.95% 1.70% 1.96%
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
------- ------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)....... 0.03 0.01 0.01 0.02 0.04
Net realized gain on
investments................... --(D) --(D) --(D) --(D) --(D)
------- ------- -------- -------- --------
Total income from investment
operations....................... 0.03 0.01 0.01 0.02 0.04
------- ------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.03) (0.01) (0.01) (0.02) (0.04)
Distributions from net realized
gain on investments........... --(D) --(D) --(D) --(D) --(D)
------- ------- -------- -------- --------
Total distributions............... (0.03) (0.01) (0.01) (0.02) (0.04)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======== ========
TOTAL RETURN...................... 3.06% 1.20% 0.97% 1.67% 4.15%
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................... $36,421 $34,146 $159,092 $474,922 $805,843
Ratios to average net assets
(annualized)(A):
Expenses, net of waivers...... 0.28% 0.24% 0.27% 0.24% 0.25%
Expenses, before waivers...... 0.28% 0.24% 0.27% 0.24% 0.25%
Net investment income, net of
waivers..................... 3.07% 1.05% 1.00% 1.68% 4.13%
Net investment income, before
waivers..................... 3.07% 1.05% 1.00% 1.68% 4.13%
</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 American Beacon Master 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
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS PLATINUM CLASS
- -------------------------------------------------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------- -------------------------
2005 2004 2003 2002 2001 2005 2004
- -------- -------- -------- -------- -------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- -------- ------- -------
0.03 0.01 0.01 0.01 0.04 0.02 --(D)
--(D) --(D) --(D) --(D) --(D) --(D) --(D)
- -------- -------- -------- -------- -------- ------- -------
0.03 0.01 0.01 0.01 0.04 0.02 --
- -------- -------- -------- -------- -------- ------- -------
(0.03) (0.01) (0.01) (0.01) (0.04) (0.02) --(D)
--(D) --(D) --(D) --(D) --(D) --(D) --(D)
- -------- -------- -------- -------- -------- ------- -------
(0.03) (0.01) (0.01) (0.01) (0.04) (0.02) --
- -------- -------- -------- -------- -------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= =======
2.82% 0.93% 0.70% 1.37% 3.83% 2.33% 0.46%
======== ======== ======== ======== ======== ======= =======
$236,903 $132,438 $126,972 $155,535 $163,825 $40,488 $44,958
0.51% 0.51% 0.54% 0.54% 0.55% 0.99% 0.99%
0.51% 0.51% 0.54% 0.54% 0.55% 1.06% 1.06%
2.83% 0.94% 0.71% 1.36% 3.83% 2.27% 0.43%
2.83% 0.94% 0.71% 1.36% 3.83% 2.20% 0.36%
<Caption>
PLATINUM CLASS
- -------------------------------------
YEAR ENDED DECEMBER 31,
- -------------------------------------
2003 2002 2001
- ------- -------- --------
$ 1.00 $ 1.00 $ 1.00
- ------- -------- --------
--(D) 0.01 0.03
--(D) --(D) --(D)
- ------- -------- --------
-- 0.01 0.03
- ------- -------- --------
--(D) (0.01) (0.03)
--(D) --(D) --(D)
- ------- -------- --------
-- (0.01) (0.03)
- ------- -------- --------
$ 1.00 $ 1.00 $ 1.00
======= ======== ========
0.25% 0.98% 3.45%
======= ======== ========
$48,920 $913,240 $868,395
0.96% 0.93% 0.93%
1.09% 0.94% 0.93%
0.38% 0.97% 3.36%
0.25% 0.96% 3.36%
</Table>
- --------------------------------------------------------------------------------
23
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CASH MANAGEMENT CLASS
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2005 2004 2003 2002 2001(B)
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)................................ 0.03 0.01 0.01 0.02 0.04
Net realized gain on investments........................ --(C) --(C) --(C) --(C) --(C)
------- ------- ------- ------- -------
Total income from investment operations..................... 0.03 0.01 0.01 0.02 0.04
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.................... (0.03) (0.01) (0.01) (0.02) (0.04)
Distributions from net realized gain on investments..... --(C) --(C) --(C) --(C) --(C)
------- ------- ------- ------- -------
Total distributions......................................... (0.03) (0.01) (0.01) (0.02) (0.04)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN................................................ 3.12% 1.22% 1.04% 1.67% 4.09%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $22,518 $28,591 $22,060 $38,310 $66,302
Ratios to average net assets (annualized)(A):
Expenses, net of waivers.............................. 0.19% 0.19% 0.19% 0.19% 0.25%
Expenses, before waivers.............................. 0.38% 0.29% 0.37% 0.23% 0.25%
Net investment income, net of waivers................. 2.99% 1.21% 1.04% 1.69% 3.74%
Net investment income, before waivers................. 2.80% 1.11% 0.86% 1.65% 3.74%
</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 American Beacon Master U.S. Government Money Market Portfolio.
(B) Prior to December 1, 2001, the Cash Management Class of the American Beacon
U.S. Government Money Market Fund was known as the Institutional Class of
the American Beacon 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
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------------------------------- -----------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
- --------------------------------------------------------- -----------------------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002 2001
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
0.03 --(C) 0.01 0.01 0.04 0.02 --(C) --(C) 0.01 0.03
--(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C)
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
0.03 -- 0.01 0.01 0.04 0.02 -- -- 0.01 0.03
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
(0.03) --(C) (0.01) (0.01) (0.04) (0.02) --(C) --(C) (0.01) (0.03)
--(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C)
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
(0.03) -- (0.01) (0.01) (0.04) (0.02) -- -- (0.01) (0.03)
-------- ------- ------- -------- ------- ------- ------- ------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======== ======= ======= ======= ======= ======== ========
2.71% 0.85% 0.61% 1.30% 3.79% 2.30% 0.42% 0.24% 0.90% 3.37%
======== ======= ======= ======== ======= ======= ======= ======= ======== ========
$ 1,933 $ 5,370 $26,785 $175,115 $78,934 $ 3,915 $ 6,615 $ 6,752 $119,833 $112,670
0.58% 0.56% 0.58% 0.55% 0.55% 0.99% 0.98% 1.00% 0.95% 0.95%
0.61% 0.57% 0.62% 0.55% 0.55% 1.25% 1.15% 1.20% 0.98% 0.95%
2.47% 0.68% 0.72% 1.25% 3.59% 2.19% 0.40% 0.31% 0.88% 3.20%
2.44% 0.67% 0.68% 1.25% 3.59% 1.93% 0.23% 0.11% 0.85% 3.20%
</Table>
- --------------------------------------------------------------------------------
25
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income(A)................................ 0.02 --(B) --(B) 0.01 0.02
Less dividends from net investment income............... (0.02) --(B) --(B) (0.01) (0.02)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
TOTAL RETURN................................................ 1.49% 0.31% 0.32% 0.93% 2.25%
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands):............... $1,647 $1,706 $3,072 $7,346 $3,669
Ratios to average net assets (annualized)(A):
Expenses, net of waivers.............................. 0.98% 0.94% 0.81% 0.57% 0.58%
Expenses, before waivers.............................. 1.22% 1.04% 0.93% 0.57% 0.58%
Net investment income, net of waivers................. 1.52% 0.24% 0.36% 0.94% 2.30%
Net investment income (loss), before waivers.......... 1.28% 0.14% 0.24% 0.94% 2.30%
</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 American Beacon Master Municipal Money Market Portfolio.
(B) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLATINUM CLASS
- -----------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------
2005 2004 2003 2002 2001
---- ------ ------ ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ ------ ------ ------- -------
0.02 --(B) --(B) --(B) 0.02
(0.02) --(B) --(B) --(B) (0.02)
- ------ ------ ------ ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======= =======
1.49% 0.31% 0.20% 0.51% 1.82%
====== ====== ====== ======= =======
$2,766 $3,472 $3,271 $71,132 $59,427
0.99% 0.97% 1.01% 0.99% 1.00%
1.55% 1.58% 1.35% 1.01% 1.00%
1.51% 0.29% 0.21% 0.52% 1.87%
0.95% (0.32)% (0.13)% 0.50% 1.87%
</Table>
- --------------------------------------------------------------------------------
27
AMERICAN BEACON MASTER TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Master Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of American Beacon Master Trust
(formerly known as AMR Investment Services Trust), comprised of the American
Beacon Money Market Portfolio, the American Beacon U.S. Government Money Market
Portfolio, and the American Beacon Municipal Money Market Portfolio,
(collectively, the "Portfolios") (formerly known as 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,
respectively) as of December 31, 2005, 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 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.
We were not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audits included 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 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, 2005, 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
American Beacon Master Trust at December 31, 2005, 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- ERNST & YOUNG LLP
Chicago, Illinois
February 21, 2006
- --------------------------------------------------------------------------------
28
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 10.79%
Banc of America Securities, LLC, 4.27%, Due 1/3/2006........ $497,281 $ 497,281
UBS Securities, LLC, 4.28%, Due 1/3/2006.................... 235,000 235,000
----------
TOTAL REPURCHASE AGREEMENTS............................. 732,281
----------
EURODOLLAR TIME DEPOSITS - 10.68%
Rabobank Nederland, 4.188%, Due 1/3/2006.................... 300,000 300,000
Societe Generale, 4.13%, Due 1/3/2006....................... 225,000 225,000
UBS AG, 4.063%, Due 1/3/2006................................ 200,000 200,000
----------
TOTAL EURODOLLAR TIME DEPOSITS.......................... 725,000
----------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 23.87%
CERTIFICATES OF DEPOSIT - U.S. BANKS - 9.00%
JP Morgan Chase Bank, NA, (Note D)
4.35%, Due 5/1/2006....................................... 15,000 15,007
4.391%, Due 5/5/2006...................................... 54,375 54,399
SouthTrust Bank, 4.44%, Due 6/1/2006 (Note D)............... 20,000 20,005
State Street Bank and Trust Company, 4.461%, Due 12/15/2006
(Note D).................................................. 15,750 15,747
SunTrust Bank, (Note D)
4.519%, Due 3/24/2006..................................... 100,000 100,003
4.282%, Due 5/12/2006..................................... 150,000 150,000
4.35%, Due 5/17/2006...................................... 94,100 94,111
US Bank, NA, (Note D)
4.422%, Due 3/8/2006...................................... 30,000 30,000
4.23%, Due 7/28/2006...................................... 131,385 131,405
----------
TOTAL CERTIFICATES OF DEPOSIT - U.S. BANKS.............. 610,677
----------
YANKEE CERTIFICATES OF DEPOSIT - U.S. BRANCHES - 14.87%
Barclays Bank, 4.313%, Due 6/21/2006 (Note D)............... 47,500 47,497
BNP Paribas, 4.158%, Due 1/30/2006 (Note D)................. 88,000 87,997
Canadian Imperial Bank of Commerce, 4.47%, Due 6/2/2006
(Note D).................................................. 50,000 50,011
Credit Suisse First Boston, (Note D)
4.271%, Due 2/3/2006...................................... 25,000 24,999
4.311%, Due 2/6/2006...................................... 10,000 10,000
4.33%, Due 5/10/2006...................................... 172,000 172,021
HSBC Bank USA,
4.509%, Due 12/14/2006.................................... 268,700 268,819
4.29%, Due 5/4/2006 (Note D).............................. 98,000 98,014
Royal Bank of Scotland, 4.34%, Due 11/21/2006, 144A (Notes C
and D).................................................... 150,000 150,000
Societe Generale, 4.158%, Due 1/30/2006 (Note D)............ 50,000 49,997
UBS AG, 4.143%, Due 1/30/2006 (Note D)...................... 50,000 49,997
----------
TOTAL YANKEE CERTIFICATES OF DEPOSIT - U.S. BRANCHES.... 1,009,352
----------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES............ 1,620,029
----------
VARIABLE RATE PROMISSORY NOTES (NOTE D) - 4.42%
Goldman Sachs Group, 4.364%, Due 11/9/2006.................. 300,000 300,000
----------
TOTAL VARIABLE RATE PROMISSORY NOTES.................... 300,000
----------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
29
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND D) - 2.21%
Metropolitan Life Insurance Company, 4.42%, Due
11/21/2006................................................ $150,000 $ 150,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS.................. 150,000
----------
ASSET-BACKED COMMERCIAL PAPER (NOTE E) - 11.08%
Clipper Receivables Corporation, 4.30%, Due 1/26/2006, 144A
(Note C).................................................. 47,000 46,860
FCAR Owner Trust, Series I,
4.32%, Due 1/26/2006...................................... 50,000 49,850
4.29%, Due 1/17/2006...................................... 50,000 49,905
4.22%, Due 2/6/2006....................................... 75,000 74,684
Fountain Square Commercial Funding, 4.29%, Due 2/8/2006,
144A (Note C)............................................. 35,000 34,842
GOVCO Incorporated, 4.415%, Due 1/23/2006, 144A (Note C).... 50,000 49,873
Jupiter Asset Securitization Corporation, 4.16%, Due
1/11/2006, 144A (Note C).................................. 50,000 49,942
K2 USA LLC, 4.27%, Due 2/8/2006, 144A (Note C).............. 50,000 49,775
Long Lane Master Trust IV, 144A (Note C)
4.29%, Due 2/1/2006....................................... 50,000 49,815
4.245%, Due 1/23/2006..................................... 81,661 81,449
Stanfield Victoria, 144A (Note C)
4.30%, Due 1/20/2006...................................... 22,000 21,950
4.18%, Due 1/25/2006...................................... 42,000 41,883
4.19%, Due 1/27/2006...................................... 30,800 30,707
4.20%, Due 1/30/2006...................................... 27,000 26,909
4.21%, Due 2/1/2006....................................... 59,744 59,528
4.31%, Due 2/21/2006...................................... 34,000 33,792
----------
TOTAL ASSET-BACKED COMMERCIAL PAPER..................... 751,764
----------
VARIABLE RATE MEDIUM-TERM NOTES (NOTE D) - 36.64%
Abbey National Treasury Services, PLC, 4.19%, Due 1/13/2006,
144A (Note C)............................................. 102,000 102,001
American Honda Finance Corporation, 144A (Note C)
4.541%, Due 2/6/2006...................................... 13,000 13,003
4.292%, Due 2/13/2006..................................... 25,000 25,000
4.34%, Due 2/16/2006...................................... 25,000 25,001
4.42%, Due 2/21/2006...................................... 35,120 35,124
4.285%, Due 7/11/2006..................................... 20,150 20,168
4.145%, Due 10/10/2006.................................... 30,000 30,009
4.159%, Due 10/18/2006.................................... 47,000 47,001
4.251%, Due 11/7/2006..................................... 55,000 55,000
4.44%, Due 12/12/2006..................................... 63,000 62,994
Bank One, NA, 4.173%, Due 1/12/2007......................... 63,000 63,047
Bayerische Landesbank Girozentrale, 4.50%, Due 2/1/2006..... 24,000 24,006
Citigroup, Incorporated,
4.625%, Due 3/20/2006..................................... 105,975 106,012
4.495%, Due 5/19/2006..................................... 40,000 40,022
Citigroup Global Markets Holdings, Incorporated,
4.587%, Due 6/6/2006...................................... 25,000 25,018
4.325%, Due 7/25/2006..................................... 100,000 100,086
4.59%, Due 12/12/2006..................................... 13,178 13,196
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
30
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
General Electric Capital Corporation,
4.461%, Due 2/3/2006...................................... $107,544 $ 107,566
4.491%, Due 2/6/2006...................................... 30,275 30,282
4.502%, Due 5/12/2006..................................... 10,983 10,991
4.47%, Due 1/17/2007...................................... 180,000 180,000
Halifax Bank of Scotland plc, 144A (Note C)
4.153%, Due 1/12/2006..................................... 106,000 106,002
4.236%, Due 1/26/2006..................................... 23,000 23,001
4.547%, Due 6/30/2006..................................... 76,600 76,624
4.40%, Due 8/28/2006...................................... 40,000 40,011
Metropolitan Life Global Funding I, 144A (Note C)
4.517%, Due 3/17/2006..................................... 22,000 22,003
4.55%, Due 8/28/2006...................................... 32,620 32,652
Morgan Stanley Group, Incorporated, 4.799%, Due 3/27/2006... 284,100 284,297
PACCAR Financial Corporation,
4.42%, Due 9/20/2006...................................... 33,000 32,982
4.36%, Due 12/4/2006...................................... 125,000 124,942
Toyota Motor Credit Corporation,
4.11%, Due 7/14/2006...................................... 175,000 175,018
4.436%, Due 9/15/2006..................................... 84,200 84,202
Wachovia Bank, NA, 4.37%, Due 12/4/2006..................... 27,000 27,000
Wells Fargo and Company,
4.54%, Due 3/3/2006....................................... 88,613 88,634
4.57%, Due 6/12/2006...................................... 75,500 75,545
4.581%, Due 9/15/2006..................................... 27,775 27,799
4.359%, Due 1/15/2007, 144A (Note C)...................... 150,000 150,000
----------
TOTAL VARIABLE RATE MEDIUM-TERM NOTES................... 2,486,239
----------
TOTAL INVESTMENTS - 99.69% (COST $6,765,313)................ 6,765,313
----------
OTHER ASSETS, NET OF LIABILITIES - 0.31%.................... 20,728
----------
TOTAL NET ASSETS - 100%..................................... $6,786,041
==========
</Table>
- ---------------
Based on the cost of investments of $6,765,313 for federal income tax purposes
at December 31, 2005, there was no unrealized appreciation or depreciation of
investments.
(A) Obligation is subject to an unconditional put back to the issuer with ninety
calendar days notice.
(B) Collateral held at Bank of New York for Banc of America Securities, LLC,
FHLMC 3.962 - 5.50%, Due 3/1/2017 - 8/1/2035 and FNMA 3.981% - 7.50%, Due
12/1/2017 - 12/1/2035, Total Value - $505,091; and at JPMorgan Chase for UBS
Securities, LLC, FNMA 4.038 - 6.302%, Due 2/1/2011 - 12/1/2035 and FHLMC
4.559% - 5.989%, Due 2/1/2032 - 1/1/2034, Total Value - $235,112.
(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 $1,592,919 or 23.47% 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.
(E) Rates associated with money market securities represent discount rate at
time of purchase.
See accompanying notes
- --------------------------------------------------------------------------------
31
AMERICAN BEACON MASTER U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
---------- --------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 87.43%
Banc of America Securities, LLC, 4.27%, Due 1/3/2006........ $52,000 $ 52,000
Barclays Capital, Incorporated, 4.30%, Due 1/3/2006......... 55,000 55,000
Goldman Sachs, 4.24%, Due 1/3/2006.......................... 47,449 47,449
UBS Securities, LLC, 4.28%, Due 1/3/2006.................... 55,000 55,000
--------
TOTAL REPURCHASE AGREEMENTS............................. 209,449
--------
U.S. GOVERNMENT AGENCY VARIABLE RATE INSTRUMENTS - 12.52%
Federal Farm Credit Bank,
Federal Home Loan Bank, Variable Rate Note, 3.914%, Due
4/4/2007 (Note B)....................................... 10,000 9,994
Federal Home Loan Mortgage Corporation, Variable Rate
Note, 4.389%, Due 12/27/2006 (Note B)................... 10,000 9,994
Federal National Mortgage Association, Variable Rate Note,
4.371%, Due 12/22/2006 (Note B)......................... 10,000 9,994
--------
TOTAL U.S. GOVERNMENT AGENCY VARIABLE RATE
INSTRUMENTS............................................ 29,982
--------
TOTAL INVESTMENTS - 99.95% (COST $239,431).................. 239,431
--------
OTHER ASSETS, NET OF LIABILITIES - 0.05%.................... 129
--------
TOTAL NET ASSETS - 100%..................................... $239,560
========
</Table>
- ---------------
Based on the cost of investments of $239,431 for federal income tax purposes at
December 31, 2005, there was no unrealized appreciation or depreciation of
investments.
(A) Collateral held at Bank of New York for Banc of America Securities, LLC,
FHLMC 4.00 - 5.00%, Due 1/1/2020 - 1/1/2036 and FNMA 4.50% - 5.00%, Due
1/1/2020 - 9/1/2035, Total Value - $52,847; and Barclays Capital,
Incorporated, FHLMC 3.329 - 4.892%, Due 9/1/2033 - 3/1/2035, Total
Value - $55,918; and Goldman Sachs, FHLMC 5.50 - 5.696%, Due
10/1/2032 - 11/1/2035, Total Value - $48,183, and at JP Morgan Chase Bank
for UBS Securities, LLC, FNMA 4.28%, Due 2/1/2011, Total Value - $55,026.
(B) 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
- --------------------------------------------------------------------------------
32
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
MUNICIPAL OBLIGATIONS (NOTE A) - 96.38%
CALIFORNIA - 5.25%
Los Angeles Department of Airports Revenue Bonds, Series
2003 A, (Airport, port and marina improvements), 3.80%,
Due 5/15/2016, LOC BNP Paribas............................ $1,000 $ 1,000
Irvine Ranch California Water District, General Obligations,
Consolidated Series 1995, 3.72%, Due 1/1/2021, LOC State
Street Bank............................................... 600 600
-------
TOTAL CALIFORNIA........................................ 1,600
-------
COLORADO - 9.35%
Colorado Educational and Cultural Facilities Variable Rate
Demand Revenue Bonds (National Jewish Federation Bond
Program), Series A7, 3.70%, Due 7/1/2029, LOC Bank Of
America, NA............................................... 1,250 1,250
Colorado Educational and Cultural Facilities Authority
Variable Rate Demand Revenue Bonds (National Jewish
Federation Bond Program), Series C-1, 3.70%, Due 9/1/2035,
LOC US Bank, NA........................................... 1,600 1,600
-------
TOTAL COLORADO.......................................... 2,850
-------
FLORIDA - 8.95%
Alachua County, Florida Housing Financial Authority,
Multifamily Housing Revenue Bonds, Series 2001 (University
Cove Apartment Project), 3.55%, Due 6/15/2034, LOC
SouthTrust Bank........................................... 1,830 1,830
Orange County Health Facilities Authority, Variable Rate
Demand Revenue Bonds, Series 1992 (Adventist Health
System/Sunbelt, Inc.), 3.58%, Due 11/15/2014, LOC Suntrust
Bank...................................................... 900 900
-------
TOTAL FLORIDA........................................... 2,730
-------
ILLINOIS - 5.90%
Village of Richton Park, Illinois-Industrial Development
Revenue Bonds, Series 1997
(Avatar Corporation Project), 3.57%, Due 4/1/2027, LOC
Fifth Third Bank.......................................... 1,800 1,800
-------
TOTAL ILLINOIS.......................................... 1,800
-------
INDIANA - 3.28%
Fort Wayne, Indiana Industrial Economic Development Revenue
Bonds, Series 1989 (ND-Tech Corporation Project), 3.63%,
Due 7/1/2009, LOC Bank One, NA............................ 1,000 1,000
-------
TOTAL INDIANA........................................... 1,000
-------
KENTUCKY - 7.80%
Breckinridge County, Kentucky Lease Program Revenue Bonds,
Series A, 3.70%, Due 2/1/2032, LOC US Bank, NA............ 1,278 1,278
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds,
Series 2001 (North American Stainless, L.P.), 3.58%, Due
5/1/2031, LOC Fifth Third Bank............................ 1,100 1,100
-------
TOTAL KENTUCKY.......................................... 2,378
-------
MARYLAND - 5.51%
Montgomery County, Maryland Variable Rate Housing Revenue
Bonds, Series 1997, Issue I (The Grand), 3.53%, Due
6/1/2030, LOC Federal National Mortgage Association....... 1,680 1,680
-------
TOTAL MARYLAND.......................................... 1,680
-------
MICHIGAN - 5.82%
Michigan State Housing Development Authority Variable Rate
Limited Obligation Multifamily Housing Revenue Refunding
Bonds, 3.54%, Due 6/1/2018, LOC Bank of New York.......... 1,775 1,775
-------
TOTAL MICHIGAN.......................................... 1,775
-------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
33
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
NEVADA - 3.28%
Nevada Housing Division-Variable Rate Demand Multi-Unit
Housing Revenue Bonds, Series 2004 (Sundance Village
Apartments), 3.55%, Due 10/1/2035, LOC Citibank........... $1,000 $ 1,000
-------
TOTAL NEVADA............................................ 1,000
-------
NEW YORK - 19.35%
Long Island Power Authority Subordinated Revenue Bonds,
Subseries 1B, 3.70%, Due 5/1/2033, LOC State Street
Bank...................................................... 1,000 1,000
New York City Housing Development Corporation, Multi-Family
Mortgage Revenue Bonds, Series 2002A (First Avenue
Development), 3.60%, Due 10/15/2035, LOC Fannie Mae....... 800 800
New York State Housing Finance Agency, 66 West 38th Street
Housing Revenue Bonds, Series 2000A, 3.52%, Due 5/15/2033,
LOC Fannie Mae............................................ 1,600 1,600
New York City, General Obligation Bonds, Series E, 3.43%,
Due 8/1/2009, LOC JP Morgan Chase......................... 1,500 1,500
New York City, General Obligation Bonds, 1994, Series A,
3.77%, Due 8/1/2016, LOC Morgan Guaranty Trust............ 1,000 1,000
-------
TOTAL NEW YORK.......................................... 5,900
-------
OHIO - 5.57%
Ohio Water Development Authority, Environmental Improvement
Revenue Bonds, Series 2000B (Waste Management,
Incorporated Project), 3.60%, Due 7/1/2020, LOC Fleet
National Bank............................................. 1,700 1,700
-------
TOTAL OHIO.............................................. 1,700
-------
PENNSYLVANIA - 3.70%
Delaware County Pennsylvania Pollution Control Revenue
Bonds, Series 1999 A, 3.75%,
Due 4/1/2021 LOC Wachovia Bank, NA........................ 1,130 1,130
-------
TOTAL PENNSYLVANIA...................................... 1,130
-------
TEXAS - 3.93%
City of Midlothian, Texas Industrial Development
Corporation, Environmental Facilities Revenue Bonds,
Series 1999 (Holnam Texas Limited Partnership Project)
3.54%, Due 9/1/2031, LOC Bank One......................... 1,200 1,200
-------
TOTAL TEXAS............................................. 1,200
-------
UTAH - 3.77%
Morgan County, Utah Solid Waste Disposal Revenue Bonds,
Series 1996 (Holman, Inc. Project), 3.55%, Due 8/1/2031,
LOC Wachovia Bank, NA..................................... 1,150 1,150
-------
TOTAL UTAH.............................................. 1,150
-------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
34
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
WYOMING - 4.92%
Sweetwater County, Wyoming Pollution Control Revenue
Refunding Bonds, Series 1990A (Pacificorp Project), 3.50%,
Due 7/1/2015, LOC Barclays Bank PLC....................... $1,500 $ 1,500
-------
TOTAL WYOMING........................................... 1,500
-------
TOTAL MUNICIPAL OBLIGATIONS............................. 29,393
-------
<Caption>
SHARES
-----------
OTHER INVESTMENTS - 3.39%
Federated Municipal Obligations Fund........................ 336,133 336
BlackRock Provident MuniCash Fund........................... 698,180 698
-------
TOTAL OTHER INVESTMENTS................................. 1,034
-------
TOTAL INVESTMENTS - 99.77% (COST $30,427)................... 30,427
-------
OTHER ASSETS, NET OF LIABILITIES - 0.23%.................... 69
-------
TOTAL NET ASSETS - 100%..................................... $30,496
=======
</Table>
- ---------------
Based on the cost of investments of $30,427 for federal income tax purposes at
December 31, 2005, 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
- --------------------------------------------------------------------------------
35
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS)
ASSETS:
Investments in securities at value (cost - $6,033,032,
$29,982 and $30,427, respectively).................... $6,033,032 $ 29,982 $30,427
Repurchase agreements (cost - $732,281, $209,449 and $0
respectively) 732,281 209,449 --
Dividends and interest receivable....................... 21,499 166 77
---------- -------- -------
TOTAL ASSETS........................................ 6,786,812 239,597 30,504
---------- -------- -------
LIABILITIES:
Management and investment advisory fees payable (Note
2).................................................... 598 23 4
Other liabilities....................................... 173 14 4
---------- -------- -------
TOTAL LIABILITIES................................... 771 37 8
---------- -------- -------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.... $6,786,041 $239,560 $30,496
========== ======== =======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
36
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income......................................... $225,693 $7,994 $877
-------- ------ ----
TOTAL INVESTMENT INCOME............................. 225,693 7,994 877
-------- ------ ----
EXPENSES:
Management and investment advisory fees (Note 2)........ 6,807 245 35
Custodian fees.......................................... 304 9 2
Professional fees....................................... 180 8 1
Other expenses.......................................... 274 32 2
-------- ------ ----
TOTAL EXPENSES...................................... 7,565 294 40
-------- ------ ----
NET INVESTMENT INCOME....................................... 218,128 7,700 837
-------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments........................ 18 6 --
-------- ------ ----
NET GAIN ON INVESTMENTS............................. 18 6 --
-------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $218,146 $7,706 $837
======== ====== ====
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
37
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET MUNICIPAL MONEY MARKET
--------------------------- -------------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
--------------------------- -------------------------- -----------------------
2005 2004 2005 2004 2005 2004
------------ ------------ ----------- ------------ -------- ------------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................... $ 218,128 $ 70,915 $ 7,700 $ 3,441 $ 837 $ 464
Net realized gain on investments......... 18 208 6 15 -- --
------------ ------------ ----------- ----------- -------- --------
TOTAL INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......... 218,146 71,123 7,706 3,456 837 464
------------ ------------ ----------- ----------- -------- --------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions............................ 98,275,830 59,602,193 1,782,252 1,351,736 56,703 56,379
Withdrawals.............................. (97,114,356) (59,216,512) (1,799,917) (1,340,743) (62,338) (61,336)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTERESTS.... 1,161,474 385,681 (17,665) 10,993 (5,635) (4,957)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS............................. 1,397,620 456,804 (9,959) 14,449 (4,798) (4,493)
------------ ------------ ----------- ----------- -------- --------
NET ASSETS:
Beginning of period...................... 5,406,421 4,949,617 249,519 235,070 35,294 39,787
------------ ------------ ----------- ----------- -------- --------
END OF PERIOD............................ $ 6,786,041 $ 5,406,421 $ 239,560 $ 249,519 $ 30,496 $ 35,294
============ ============ =========== =========== ======== ========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
38
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
39
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
2005 2004 2003 2002 2001
----- ----- ----- ----- -----
Total return................................................ 3.25% 1.34% 1.13% 1.81% 4.30%
Ratios to average net assets (annualized):
Expenses................................................ 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income................................... 3.20% 1.30% 1.14% 1.81% 3.95%
</Table>
- --------------------------------------------------------------------------------
40
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
- ------------------------------------------ -------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
- ------------------------------------------ -------------------------------------
2005 2004 2003 2002 2001 2005 2004 2003 2002 2001
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
3.19% 1.30% 1.11% 1.74% 4.24% 2.38% 1.18% 1.08% 1.39% 2.71%
0.12% 0.11% 0.12% 0.12% 0.11% 0.11% 0.11% 0.12% 0.12% 0.13%
3.15% 1.30% 1.13% 1.71% 3.99% 2.35% 1.14% 1.05% 1.39% 2.71%
</Table>
- --------------------------------------------------------------------------------
41
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust"), formerly known as AMR
Investment Services 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 American Beacon Master Money Market Portfolio, American
Beacon Master U.S. Government Money Market Portfolio and American Beacon Master
Municipal Money Market Portfolio (each a "Portfolio" and collectively the
"Portfolios"). The objective of each Portfolio is current income, liquidity and
the maintenance of a stable price of $1.00 per share. 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.
American Beacon Advisors, Inc. (the "Manager"), formerly known as AMR
Investment Services, Inc., 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 amortized cost, which
approximates fair value. 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
- --------------------------------------------------------------------------------
42
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
December 31, 2005
- --------------------------------------------------------------------------------
collateralized by U.S. Treasury or U.S. Government agency securities and are
valued at cost, which approximates market value. All collateral is held at the
Portfolio's custodian bank, State Street Bank and Trust Company, or at
subcustodian banks. The collateral is monitored daily by the Manager so that the
collateral's market value exceeds the carrying value of the repurchase agreement
plus accrued interest.
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 advisor 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 Money
Market Portfolio to lend money to other participating series managed by the
Manager. For the year ended December 31, 2005, the Money Market Portfolio earned
$5,005 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. Mr. Feld and the non-interested Trustees (other than
Mr. O'Sullivan) and their spouses are provided free unlimited air transportation
on American. Retired Trustees and their spouses are provided free air
transportation on American, up to a maximum annual value of $40,000. 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. Mr. O'Sullivan as a retiree
of American, already receives flight benefits. Mr. O'Sullivan receives an annual
retainer of $40,000 plus $1,250 for each Board meeting attended.
- --------------------------------------------------------------------------------
43
AMERICAN BEACON FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2005
(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 distributions to shareholders included short-term capital gains as
follows:
<Table>
Money Market Fund $1,840
U.S. Government Money Market Fund $ 847
Municipal Money Market Fund $ --
</Table>
- --------------------------------------------------------------------------------
44
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST
(Unaudited)
- --------------------------------------------------------------------------------
The Trustees and officers of the American Beacon Funds (the "Trust") and
the American Beacon Master Trust (the "Master 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 Trust, the Master Trust, the
American Beacon Mileage Funds, and the American Beacon 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 EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (57) President and President (1986-Present) and Director (2003-Present),
Trustee of the American Beacon Advisors, Inc.; Chairman (1989-2003) and
Trust since 1987 Director (1979-1989, 2003-Present), American Airlines
and the Master Federal Credit Union; Director, Crescent Real Estate
Trust since 1995 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 Beacon
Select Funds (1999-Present); Trustee, American Beacon
Mileage Funds (1995-Present).
Alan D. Feld** (69) 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 Beacon Select Funds (1999-
Present); Trustee, American Beacon Mileage Funds
(1996-Present).
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (61) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing
company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); President and CEO,
Allmerica Trust Company, N.A. (1996-1997); President and
CEO, Fidelity Investments Southwest Company (1983-1995);
Senior Vice President of Regional Centers, Fidelity
Investments (1988-1995); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
</Table>
- --------------------------------------------------------------------------------
45
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
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.)
Brenda A. Cline (45) Trustee since 2004 Executive 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); ); Director, Christian Church
Foundation (1999-Present);Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
Richard A. Massman (62) 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 Beacon Select Funds
(2004-Present); Trustee, American Beacon Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (70) Trustee of Trust Consultant (1994-Present); Trustee, American Beacon Select
since 1987 and Funds (1999- Present); Trustee, American Beacon Mileage
the Master Trust Funds (1995-Present).
since 1995
R. Gerald Turner (60) 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 Beacon Select Funds (2001-Present);
Trustee, American Beacon Mileage Funds (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court and Chairman equity firm) (1998- Present); Director, Burger King
Suite 1740 since 2005 Corporation (2004-Present); Trustee, The Hockaday School
Dallas, Texas 75201 (1997-2005); 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, Dallas Employee Retirement
Fund (2004-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Mileage Funds
(1996-Present).
</Table>
- --------------------------------------------------------------------------------
46
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
AND THE AMERICAN BEACON MASTER TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
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
TERM
------------------
One Year
Brian E. Brett (45) VP since 2004 Vice President, Director of Sales, American Beacon Advisors,
Inc. (2004-Present); Regional Vice President, Neuberger
Berman, LLC (investment adviser) (1996-2004).
Nancy A. Eckl (43) VP of Trust since Vice President, Trust Investments, American Beacon Advisors,
1990 and the Inc. (1990-Present).
Master Trust
since 1995
Michael W. Fields (51) VP of Trust since Vice President, Fixed Income Investments, American Beacon
1989 and the Advisors, Inc. (1988- Present).
Master Trust
since 1995
Rebecca L. Harris (39) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (34) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004-Present); Senior Compliance Analyst, American Beacon
2004 and Advisors, Inc. (1998-2004).
Secretary since
2005
</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 and
the Master 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 the Master Trust's sub-advisers.
- --------------------------------------------------------------------------------
47
AMERICAN BEACON FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
The American Beacon 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 customers
or former customers 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.
- --------------------------------------------------------------------------------
48
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
49
(AMERICAN BEACON FUNDS LOGO)
- --------------------------------------------------------------------------------
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:
<Table>
(KEYBOARD GRAPHIC) (MOUSE GRAPHIC)
BY E-MAIL: ON THE INTERNET:
American-Beacon.Funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
</Table>
<Table>
Cash Management Class PlanAhead Class(R) Cash Management Class PlanAhead Class(R)
Institutional Class Institutional Class
Call (800) 388-3344 Platinum Class(SM) American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
Platinum Class(SM) American Beacon Funds Kansas City, MO 64121-9643
4151 Amon Carter Blvd., MD
Call (800) 967-9009 2450
Fort Worth, TX 76155
</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 free of charge
third fiscal quarters. The Funds' Forms N-Q are available on by calling 1-800-967-9009 or by accessing the SEC's website
the SEC's website at www.sec.gov. The Forms N-Q may also be at 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. A complete also be obtained by calling 1-800-967-9009.
schedule of each Fund's portfolio holdings is also available
on the Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of each fiscal
quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES REGISTERED PUBLIC FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ACCOUNTING FIRM Portland, Maine
ERNST & YOUNG LLP
Chicago, Illinois
</Table>
This report is prepared for shareholders of the American Beacon 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
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
PlanAhead Class is a registered service mark of American Beacon Advisors, Inc.
Platinum Class, American Beacon Money Market Fund, American Beacon U.S.
Government Money Market Fund, and American Beacon Municipal Money Market Fund
are service marks of American Beacon Advisors, Inc.
AR 12/05
536464
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 and Compliance 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
- ---------- -----------------
$178,109* 10/31/2004
$41,994* 12/31/2004
$212,628 10/31/2005
$48,010 12/31/2005
</Table>
<FN>
* Revised to include additional audit fees assessed in 2005 relating
to 2004 audit
</FN>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 10/31/2004
$0 12/31/2004
$26,460* 10/31/2005
$0 12/31/2005
</Table>
<FN>
* Attestation services related to Interfund Lending Program
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$0 10/31/2004
$0 12/31/2004
$28,847* 10/31/2005
$10,695* 12/31/2005
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 10/31/2004
$0 12/31/2004
$0 10/31/2005
$0 12/31/2005
</Table>
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance 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 Trusts' financial
statements, and, in connection therewith, reviewing and evaluating
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 Trusts, an investment adviser to
any series of the Trusts or any entity controlling, controlled by,
or under common control with an investment adviser ("adviser
affiliate") that provides ongoing services to the Trusts, if the
engagement relates directly to the operations and financial
reporting of the Trusts;
- to consider whether the non-audit services provided by a Trust's
auditor to an investment adviser or any adviser affiliate that
provides ongoing services to a series of the Trusts, which services
were not pre-approved by the Committee, are compatible with
maintaining the auditor's independence;
- to review the arrangements for and scope of the annual audit and any
special audits; and
- to review and approving the fees proposed to be charged to the
Trusts by the auditors for each audit and non-audit service.
The Audit and Compliance 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
- ---------- ------- ------------------------------ -----------------
$0 $0 N/A 10/31/2004
$0 $0 N/A 12/31/2004
$55,307 $0 N/A 10/31/2005
$10,695 $0 N/A 12/31/2005
</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 report 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, 2005, and
for the year then ended and have issued our report thereon dated February 23,
2006 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 in securities (the "Schedule") as of December 31, 2005
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
Princeton, New Jersey
February 23, 2006
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Australia - 4.7% Airlines - 0.0% 33,640 Qantas Airways Ltd. $ 99,694
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 47,710 Coca-Cola Amatil Ltd. 269,833
86,856 Foster's Group Ltd. 355,521
------------
625,354
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 11,970 CSL Ltd. 373,176
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 11,468 Macquarie Bank Ltd. 573,303
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 15,190 Orica Ltd. 227,310
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.2% 86,582 Australia & New Zealand Banking Group Ltd. 1,521,122
54,199 Commonwealth Bank of Australia 1,699,645
70,318 National Australia Bank Ltd. 1,671,262
92,778 Westpac Banking Corp. 1,548,308
------------
6,440,337
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 53,780 Brambles Industries Ltd. 399,238
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 7,743 Leighton Holdings Ltd. 101,556
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 19,286 Boral Ltd. 114,593
36,728 CSR Ltd. 93,758
3,992 James Hardie Industries NV 26,355
47,920 Rinker Group Ltd. 578,247
------------
812,953
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 41,043 Amcor Ltd. 224,901
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 65,581 Pacific Brands Ltd. 127,965
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.2% 1,250 Australian Stock Exchange Ltd. 29,801
17,991 Babcock & Brown Ltd. 226,334
23,490 Challenger Financial Services Group Ltd. 69,786
16,417 SFE Corp. Ltd. 166,671
23,405 Suncorp-Metway Ltd. 344,234
------------
836,826
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 112,683 Telstra Corp. Ltd. 324,849
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.2% 60,420 Coles Myer Ltd. 452,519
45,737 Woolworths Ltd. 565,325
------------
1,017,844
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 7,344 Ansell Ltd. 59,529
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 40,746 Mayne Group Ltd. 105,509
2,368 Sonic Healthcare Ltd. 25,708
------------
131,217
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 4,629 Aristocrat Leisure Ltd. 41,834
23,453 TABCORP Holdings Ltd. 267,866
14,689 UNiTAB Ltd. 146,434
------------
456,134
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 11,639 Computershare Ltd. $ 57,972
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 15,471 Wesfarmers Ltd. 419,564
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.3% 75,906 AMP Ltd. 428,187
45,366 AXA Asia Pacific Holdings Ltd. 169,054
99,381 Insurance Australia Group Ltd. 395,124
28,433 QBE Insurance Group Ltd. 408,799
------------
1,401,164
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 73,935 John Fairfax Holdings Ltd. 217,483
6,114 Publishing & Broadcasting Ltd. 73,912
------------
291,395
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 52,998 Alumina Ltd. 288,466
162,763 BHP Billiton Ltd. 2,716,239
18,416 BlueScope Steel Ltd. 94,158
30,834 Iluka Resources Ltd. 177,328
14,132 Newcrest Mining Ltd. 251,907
23,360 OneSteel Ltd. 57,405
15,304 Rio Tinto Ltd. 774,613
------------
4,360,116
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.1% 20,590 Australian Gas Light Co., Ltd. 259,635
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.3% 11,923 Caltex Australia Ltd. 169,500
24,197 Origin Energy Ltd. 133,301
34,877 Santos Ltd. 313,405
27,600 Woodside Petroleum Ltd. 793,442
------------
1,409,648
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 5,300 PaperlinX Ltd. 14,929
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 40,746 Mayne Pharma Ltd. (a) 75,919
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.5% 116,985 CFS Gandel Retail Trust 171,629
14,559 Centro Properties Group/New 67,603
57,330 Commonwealth Property Office Fund 53,619
134,992 General Property Trust 405,994
88,153 ING Industrial Fund 144,203
31,118 Investa Property Group 45,311
18,422 Lend Lease Corp., Ltd. 195,675
21,584 Macquire Goodman Group 75,682
46,448 Mirvac Group 140,377
64,780 Stockland 308,877
77,553 Westfield Group 1,033,107
------------
2,642,077
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 16,182 Toll Holdings Ltd. 176,868
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 128,881 Macquarie Infrastructure Group $ 336,566
16,500 Patrick Corp. Ltd. 89,567
10,811 Transurban Group 52,341
------------
478,474
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 24,419,947
- - ---------------------------------------------------------------------------------------------------------------------------------
Austria - 0.4% Building Products - 0.0% 3,535 Wienerberger AG 140,936
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 7,239 Erste Bank der Oesterreichischen Sparkassen AG 401,749
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 53 RHI AG (a) 1,425
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 568 Mayr-Melnhof Karton AG 79,058
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 19,827 Telekom Austria AG 444,352
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 47 Verbund - Oesterreichische
Elektrizitaetswirtschafts AG 16,704
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 1,316 Andritz AG 144,130
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 906 Boehler-Uddeholm AG 152,713
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.1% 7,343 OMV AG 428,741
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 5,877 IMMOFINANZ Immobilien Anlagen AG (a) 56,220
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 105,980 Hagemeyer NV - Registered Shares 342,524
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 1,169 Flughafen Wien AG 83,409
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Austria 2,291,961
- - ---------------------------------------------------------------------------------------------------------------------------------
Belgium - 1.1% Beverages - 0.1% 5,910 InBev NV 256,329
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,818 Solvay SA 309,462
1,724 Umicore 202,541
52 Umicore "VVPR strip" (a) 6
------------
512,009
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 25,528 Dexia 586,574
10,019 KBC Bancassurance Holding 929,480
------------
1,516,054
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 222 D'ieteren SA 60,882
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.4% 55,909 Fortis 1,777,286
3,292 Groupe Bruxelles Lambert SA 321,713
------------
2,098,999
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 9,883 Belgacom SA 321,164
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 1,022 Bekaert SA 95,174
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 520 Barco NV 38,949
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 1,003 Colruyt SA 137,948
1,314 Delhaize Group 85,556
950 Delhaize Group (b) 62,197
------------
285,701
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 1,608 Omega Pharma SA 83,475
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 2,040 AGFA-Gevaert NV 37,081
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Marine - 0.0% 1,790 Compagnie Maritime Belge SA (CMB) $ 58,802
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 1,790 Euronav Sa 51,750
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 4,095 UCB SA 191,665
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 900 Mobistar SA 71,127
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 5,679,161
- - ---------------------------------------------------------------------------------------------------------------------------------
Bermuda - 0.0% Textiles, Apparel & Luxury Goods - 0.0% 21,785 Yue Yuen Industrial Holdings 60,830
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 60,830
- - ---------------------------------------------------------------------------------------------------------------------------------
Denmark - 0.7% Beverages - 0.0% 356 Carlsberg A/S 19,029
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 2,267 Novozymes A/S Class B 123,685
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 17,488 Danske Bank A/S 613,959
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 1,417 FLS Industries A/S Class B 41,680
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 11,049 TDC A/S 659,608
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 9,457 Vestas Wind Systems A/S (a) 154,789
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 2,482 Danisco A/S 189,385
2,039 East Asiatic Co., Ltd. A/S 191,536
------------
380,921
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 186 Coloplast AS Class B 11,501
5,043 GN Store Nord 65,794
1,530 William Demant Holding (a) 84,322
------------
161,617
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 464 Bang & Olufsen A/S Class B 47,549
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 907 Topdanmark A/S (a) 78,459
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 820 NKT Holding A/S 37,476
-----------------------------------------------------------------------------------------------------------------
Marine - 0.1% 51 AP Moller - Maersk A/S 525,852
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2% 3,519 H Lundbeck A/S 72,623
13,315 Novo-Nordisk A/S B 746,454
------------
819,077
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 1,730 DSV A/S 212,849
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 3,876,550
- - ---------------------------------------------------------------------------------------------------------------------------------
Finland - 1.4% Auto Components - 0.0% 6,710 Nokian Renkaat Oyj 84,293
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.8% 214,049 Nokia Oyj 3,900,843
1,270 Nokia Oyj (b) 23,241
------------
3,924,084
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 5,791 Elisa Corp. 106,902
Services - 0.1% 34,753 TeliaSonera AB 186,518
------------
293,420
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 23,140 Fortum Oyj 432,350
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 6,175 Tietoenator Oyj 224,703
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 22,588 Sampo Oyj 392,195
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 5,904 Amer Sports Corp. $ 109,545
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 2,211 Cargotec Corp. Class B (a) 76,388
4,422 Kone Oyj Class B (a) 174,892
9,256 Metso Oyj 252,422
231 Wartsila Oyj 6,812
------------
510,514
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 447 Outokumpu Oyj 6,617
8,196 Rautaruukki Oyj 198,669
------------
205,286
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 7,259 Neste Oil Oyj (a) 204,469
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.2% 33,345 Stora Enso Oyj Class R 449,960
30,054 UPM-Kymmene Oyj 587,056
------------
1,037,016
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 7,417,875
- - ---------------------------------------------------------------------------------------------------------------------------------
France - 8.7% Aerospace & Defense - 0.2% 10,187 European Aeronautic Defense and Space Co. 383,313
7,590 Sagem SA 180,846
4,303 Thales SA 194,396
2,174 Zodiac SA 139,116
------------
897,671
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 3,419 Air France-KLM 72,955
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 9,688 Compagnie Generale des Etablissements Michelin 542,577
4,494 Valeo SA 166,501
------------
709,078
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 8,681 Peugeot SA 498,673
8,205 Renault SA 666,829
------------
1,165,502
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 4,111 Pernod-Ricard 714,762
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 16,785 Cie de Saint-Gobain 994,888
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 4,953 Air Liquide 949,377
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.1% 38,994 BNP Paribas 3,143,787
22,519 Credit Agricole SA 706,823
16,795 Societe Generale 2,058,318
------------
5,908,928
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 1,954 Societe BIC SA 115,818
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.1% 62,585 Alcatel SA (a) 772,919
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 8,493 Vinci SA 727,803
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 1,192 Imerys SA 85,908
9,192 Lafarge SA 824,025
------------
909,933
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 77,284 France Telecom SA $ 1,913,458
Services - 0.4%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2% 7,246 Alstom (a) 415,557
9,721 Schneider Electric SA 863,995
------------
1,279,552
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.1% 4,872 Technip SA 291,936
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.3% 28,046 Carrefour SA 1,309,373
1,910 Casino Guichard Perrachon SA 126,728
------------
1,436,101
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.2% 11,304 Groupe Danone 1,176,694
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 6,310 Cie Generale d'Optique Essilor International SA 507,610
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.2% 10,544 Accor SA 577,832
5,111 Sodexho Alliance SA 209,798
------------
787,630
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 18,563 Thomson 387,559
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 2,452 Atos Origin (a) 160,954
8,123 Cap Gemini SA (a) 324,908
------------
485,862
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 66,599 AXA 2,141,462
775 CNP Assurances 60,883
52,526 SCOR 112,762
------------
2,315,107
-----------------------------------------------------------------------------------------------------------------
Media - 0.5% 6,788 Lagardere S.C.A. 520,442
2,124 PagesJaunes Groupe SA 55,093
10,047 Publicis Groupe 348,418
3,105 Societe Television Francaise 1 85,849
47,284 Vivendi Universal SA 1,475,777
6,053 Vivendi Universal SA (b) 190,246
------------
2,675,825
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 28,582 Arcelor 706,307
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.4% 42,707 Suez SA 1,324,865
5,052 Suez SA 156,605
14,051 Veolia Environnement 633,785
------------
2,115,255
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 2,713 Pinault-Printemps-Redoute 304,492
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 1,925 Neopost SA 192,323
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.3% 26,228 Total SA 6,564,889
4,140 Total SA "VVPR strip' (a) 49
------------
6,564,938
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.2% 13,565 L'Oreal SA 1,004,839
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.8% 48,928 Sanofi-Aventis $ 4,270,768
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 535 Gecina SA 61,213
1,537 Klepierre 143,769
1,964 Unibail 260,390
------------
465,372
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 28,134 STMicroelectronics NV 503,424
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 2,821 Business Objects SA (a) 113,768
2,849 Dassault Systemes SA 160,264
------------
274,032
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 789 Hermes International 196,650
10,625 LVMH Moet Hennessy Louis Vuitton SA 940,582
------------
1,137,232
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 2,314 Autoroutes du Sud de la France 136,474
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 10,321 Bouygues 502,792
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 45,375,216
- - ---------------------------------------------------------------------------------------------------------------------------------
Germany - 6.0% Air Freight & Logistics - 0.2% 39,015 Deutsche Post AG 942,483
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 14,866 Deutsche Lufthansa AG 219,365
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 7,622 Continental AG 674,111
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.5% 41,217 DaimlerChrysler AG 2,097,362
10,525 Volkswagen AG 553,823
------------
2,651,185
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 4,938 Qiagen NV (a) 57,897
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.4% 23,327 Deutsche Bank AG Registered Shares 2,253,511
3,609 MLP AG 74,583
------------
2,328,094
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.7% 24,910 BASF AG 1,901,350
32,758 Bayer AG 1,363,596
3,872 Linde AG 300,386
------------
3,565,332
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 22,843 Commerzbank AG 701,096
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 6,409 Deutsche Boerse AG 654,371
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 124,627 Deutsche Telekom AG 2,069,815
Services - 0.4%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 28,635 E.ON AG (a) 2,951,724
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 2,386 Epcos AG (a) 31,127
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 6,372 Metro AG 306,657
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1% 1,654 Celesio AG 141,758
1,747 Fresenius Medical Care AG 183,400
------------
325,158
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 12,313 TUI AG 251,262
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.6% 36,780 Siemens AG $ 3,140,994
860 Siemens AG (b) 73,607
------------
3,214,601
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.7% 17,193 Allianz AG Registered Shares 2,594,626
8,930 Muenchener Rueckversicherungs AG Registered
Shares 1,204,809
------------
3,799,435
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 8,694 MAN AG 462,296
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 18,195 ThyssenKrupp AG 378,159
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.3% 20,708 RWE AG 1,527,856
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.0% 572 Beiersdorf AG 70,169
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2% 4,588 Altana AG 248,942
2,378 Merck KGaA 196,208
9,424 Schering AG 629,171
------------
1,074,321
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 2,589 IVG Immobilien AG 54,084
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 30,054 Infineon Technologies AG (a) 274,030
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Software - 0.3% 10,050 SAP AG 1,815,634
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0% 1,160 Douglas Holding AG 44,469
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 2,776 Adidas-Salomon AG 523,909
1,129 Puma AG Rudolf Dassler Sport 328,267
------------
852,176
-----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1% 5,764 Hypo Real Estate Holding AG 299,017
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 31,595,924
- - ---------------------------------------------------------------------------------------------------------------------------------
Greece - 0.6% Beverages - 0.0% 5,327 Coca-Cola Hellenic Bottling Co. SA 156,333
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 13,229 Alpha Bank AE 384,802
8,873 EFG Eurobank Ergasias SA 277,772
2,906 Emporiki Bank of Greece SA 97,966
15,426 National Bank of Greece SA 653,956
3,787 Piraeus Bank SA 80,763
------------
1,495,259
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 13,744 Intracom SA 90,786
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 9,858 Technical Olympic SA 54,652
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 2,682 Titan Cement Co. SA 109,143
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 13,051 Hellenic Telecommunications Organization SA (a) 277,098
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 5,616 Public Power Corp. 122,286
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 8,653 OPAP SA 297,014
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 4,057 Viohalco, Hellenic Copper and Aluminum
Industry SA 32,541
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 11,074 Cosmote Mobile Telecommunications SA 245,311
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 2,880,423
- - ---------------------------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Hong Kong - 1.3% Airlines - 0.0% 2,263 Cathay Pacific Airways Ltd. $ 3,955
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 146,900 BOC Hong Kong Holdings Ltd. 282,298
29,739 Bank of East Asia Ltd. 89,943
26,153 Hang Seng Bank Ltd. 341,351
------------
713,592
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 52,719 Li & Fung Ltd. 101,650
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 20,000 Hong Kong Exchanges and Clearing Ltd. 82,930
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 71,195 PCCW Ltd. 43,845
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 71,187 CLP Holdings Ltd. 413,155
56,000 HongKong Electric Holdings 277,344
------------
690,499
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 94,328 Johnson Electric Holdings Ltd. 89,418
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 104,240 Hong Kong & China Gas 222,501
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 24,990 Shangri-La Asia Ltd. 41,738
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 16,560 Techtronic Industries Co. 39,405
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 113,176 Hutchison Whampoa Ltd. 1,077,964
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 34,025 SCMP Group Ltd. 12,616
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.5% 76,735 Cheung Kong Holdings Ltd. 787,287
12,000 Hang Lung Properties Ltd. 18,727
32,491 Henderson Land Development Co., Ltd. 152,952
92,800 The Link REIT (a) 175,940
48,484 New World Development Ltd. 66,596
48,421 Sino Land Co. 58,703
68,324 Sun Hung Kai Properties Ltd. 665,303
57,577 Swire Pacific Ltd. Class A 516,842
56,107 Wharf Holdings Ltd. 198,275
------------
2,640,625
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 24,500 MTR Corp. 48,188
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 5,004 ASM Pacific Technology 28,235
Equipment - 0.1% 430,000 Solomon Systech International Ltd. 178,854
------------
207,089
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 52,000 Esprit Holdings Ltd. 369,534
132,394 Giordano International Ltd. 74,277
------------
443,811
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 65,353 Texwinca Holdings Ltd. 47,201
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 18,465 Hopewell Holdings 46,320
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 47,000 Hutchison Telecommunications
Services - 0.0% International Ltd. (a) 67,891
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 6,621,238
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Ireland - 0.8% Airlines - 0.1% 27,680 Ryanair Holdings Plc (a) $ 270,995
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.0% 10,134 C&C Group Plc 64,549
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 44,953 Allied Irish Banks Plc 957,090
47,958 Bank of Ireland 752,624
15,198 Depfa Bank Plc 223,906
------------
1,933,620
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 936 CRH Plc 27,425
26,953 CRH Plc 790,042
------------
817,467
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 38,588 Eircom Group Plc 90,123
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 22,780 Greencore Group Plc 90,284
4,710 Kerry Group Plc 103,947
------------
194,231
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 61,080 Waterford Wedgewood 4,323
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 3,189 DCC Plc 68,085
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 12,684 Irish Life & Permanent Plc 258,234
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 21,817 Independent News & Media Plc 65,365
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 15,345 Elan Corp. Plc (a) 206,342
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 2,786 Grafton Group Plc 30,233
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 4,003,567
- - ---------------------------------------------------------------------------------------------------------------------------------
Italy - 3.6% Aerospace & Defense - 0.1% 15,618 Finmeccanica SpA 301,203
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.1% 38,723 Fiat SpA (a) 336,174
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 10,234 Banca Fideuram SpA 55,408
26,990 Mediobanca SpA 513,516
17,230 Mediolanum SpA 113,203
------------
682,127
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.2% 7,027 Banca Antonveneta SpA 217,910
132,677 Banca Intesa SpA 700,334
36,404 Banca Intesa SpA Registered Shares 179,233
52,096 Banca Monte dei Paschi di Siena SpA 242,420
85,292 Banca Nazionale del Lavoro SpA (a) 280,088
16,065 Banca Popolare di Milano Scrl 175,207
16,381 Banche Popolari Unite Scrl 357,848
13,238 Banco Popolare di Verona e Novara Scrl 266,859
72,957 Capitalia SpA 420,816
59,514 Sanpaolo IMI SpA 927,761
366,124 UniCredito Italiano SpA 2,512,141
------------
6,280,617
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 5,565 Italcementi SpA $ 103,472
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 4,347 FinecoGroup SpA 41,656
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 444,028 Telecom Italia SpA 1,288,434
Services - 0.4% 258,085 Telecom Italia SpA Registered Shares 637,769
------------
1,926,203
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 205,245 Enel SpA 1,605,587
112,507 Terna SpA 276,563
------------
1,882,150
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 69,090 Snam Rete Gas SpA 283,033
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 4,473 Autogrill SpA 60,987
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 119,974 Pirelli & C SpA 109,816
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.3% 30,165 Alleanza Assicurazioni SpA 371,218
42,265 Assicurazioni Generali SpA 1,471,184
------------
1,842,402
-----------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.0% 47,194 Telecom Italia Media SpA (a) 24,883
29,933 Tiscali SpA (a) 94,412
------------
119,295
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 5,198 Arnoldo Mondadori Editore SpA 48,161
13,547 Gruppo Editoriale L'Espresso SpA 71,188
37,098 Mediaset SpA 391,643
171,874 Seat Pagine Gialle SpA (a) 79,837
------------
590,829
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.7% 116,248 ENI SpA 3,212,733
1,875 ENI SpA (b) 261,487
------------
3,474,220
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 5,296 Benetton Group SpA 60,095
9,894 Bulgari SpA 110,053
4,858 Luxottica Group SpA 122,799
------------
292,947
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 19,690 Autostrade SpA 470,546
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 18,797,677
- - ---------------------------------------------------------------------------------------------------------------------------------
Japan - 23.6% Air Freight & Logistics - 0.1% 23,000 Yamato Transport Co., Ltd. 381,157
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 28,000 Japan Airlines Corp. 76,150
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.5% 9,900 Aisin Seiki Co., Ltd. 363,187
26,000 Bridgestone Corp. 540,795
20,600 Denso Corp. 710,345
1,000 NGK Spark Plug Co., Ltd. 21,605
7,000 NOK Corp. 189,782
29,000 Sanden Corp. 134,398
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
7,000 Stanley Electric Co., Ltd. $ 113,691
1,000 Toyoda Gosei Co., Ltd. 19,487
8,000 Toyota Industries Corp. 287,385
------------
2,380,675
-----------------------------------------------------------------------------------------------------------------
Automobiles - 2.0% 35,000 Honda Motor Co., Ltd. 1,995,679
97,700 Nissan Motor Co., Ltd. 989,168
137,300 Toyota Motor Corp. 7,119,173
9,000 Yamaha Motor Co., Ltd. 234,856
------------
10,338,876
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 9,000 Asahi Breweries Ltd. 109,726
25,000 Kirin Brewery Co., Ltd. 291,240
27,000 Sapporo Holdings Ltd. 151,207
13,000 Takara Holdings, Inc. 77,099
------------
629,272
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.3% 42,000 Asahi Glass Co., Ltd. 541,947
2,000 Central Glass Co., Ltd. 11,065
14,300 Daikin Industries Ltd. 417,987
11,000 JS Group Corp. 219,944
24,000 Nippon Sheet Glass Co., Ltd. 104,719
30,000 Sanwa Shutter Corp. 185,038
9,000 Toto Ltd. 76,023
------------
1,556,723
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.8% 93,000 Daiwa Securities Group, Inc. 1,053,469
54 E*Trade Securities Co., Ltd. 416,792
1,100 Jafco Co., Ltd. 98,136
11,400 Matsui Securities Co., Ltd. 158,111
7,000 Mitsubishi UFJ Securities Co. 87,774
28,000 Nikko Cordial Corp. 443,142
100,800 Nomura Holdings, Inc. 1,930,086
200 Softbank Investments Corporation 135,220
------------
4,322,730
-----------------------------------------------------------------------------------------------------------------
Chemicals - 1.2% 53,000 Asahi Kasei Corp. 358,333
3,000 Daicel Chemical Industries Ltd. 21,554
30,000 Dainippon Ink and Chemicals, Inc. 129,882
3,000 Denki Kagaku Kogyo Kabushiki Kaisha 13,242
2,500 Hitachi Chemical Co., Ltd. 66,085
63,000 Ishihara Sangyo Kaisha Ltd. 112,090
4,000 JSR Corp. 105,058
13,000 Kaneka Corp. 156,952
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
25,000 Kuraray Co., Ltd. $ 258,833
61,500 Mitsubishi Chemical Holdings Corp. 387,143
18,000 Mitsubishi Gas Chemical Co., Inc. 170,042
49,000 Mitsubishi Rayon Co., Ltd. 323,816
13,000 Mitsui Chemicals, Inc. 87,342
31,000 Nippon Kayaku Co., Ltd. 264,484
12,000 Nissan Chemical Industries Ltd. 170,601
7,910 Nitto Denko Corp. 615,885
21,600 Shin-Etsu Chemical Co., Ltd. 1,147,437
18,000 Showa Denko KK 70,152
14,000 Sumitomo Bakelite Co., Ltd. 115,530
54,000 Sumitomo Chemical Co., Ltd. 370,584
52,000 Teijin Ltd. 329,984
54,000 Toray Industries, Inc. 440,125
38,000 Tosoh Corp. 166,771
57,000 Ube Industries Ltd. 154,537
------------
6,036,462
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 2.8% 12,000 The 77 Bank Ltd. 91,095
31,000 The Bank of Fukuoka Ltd. 265,009
41,000 The Bank of Yokohama Ltd. 335,211
31,000 The Chiba Bank Ltd. 259,756
13,000 The Gunma Bank Ltd. 96,043
46,000 Hokuhoku Financial Group, Inc. 214,742
23,000 The Joyo Bank Ltd. 136,796
350 Mitsubishi Tokyo Financial Group, Inc. 4,744,556
23,000 Mitsui Trust Holdings, Inc. 275,930
453 Mizuho Financial Group, Inc. 3,592,375
17,000 The Nishi-Nippon City Bank Ltd. 101,398
223 Resona Holdings, Inc. (a) 897,441
69,000 Shinsei Bank Ltd. 398,695
26,000 The Shizuoka Bank Ltd. 260,374
219 Sumitomo Mitsui Financial Group, Inc. 2,319,326
48,000 The Sumitomo Trust & Banking Co., Ltd. 490,045
4,000 Suruga Bank Ltd. 50,394
------------
14,529,186
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.3% 26,000 Dai Nippon Printing Co., Ltd. 462,594
5,000 Kokuyo Co., Ltd. 74,049
500 Meitec Corp. 16,182
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
12,000 Secom Co., Ltd. $ 627,298
15,000 Toppan Printing Co., Ltd. 175,125
------------
1,355,248
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 8,000 Uniden Corp. 155,554
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.5% 97,000 Fujitsu Ltd. 737,999
13,000 Mitsumi Electric Company, Ltd. 146,929
110,000 NEC Corp. 684,063
4,300 Seiko Epson Corp. 108,019
168,000 Toshiba Corp. 1,002,050
------------
2,679,060
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.4% 9,457 COMSYS Holdings Corp. 135,169
15,000 Chiyoda Corp. 344,404
16,000 JGC Corp. 304,329
46,000 Kajima Corp. 264,238
9,000 Kinden Corp. 81,208
41,000 Nishimatsu Construction Co., Ltd. 168,127
25,000 Obayashi Corp. 184,063
15,000 Okumura Corp. 84,258
16,000 Shimizu Corp. 117,529
54,000 Taisei Corp. 244,768
3,000 Toda Corp. 16,470
------------
1,944,563
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 34,000 Sumitomo Osaka Cement Co., Ltd. 99,093
47,000 Taiheiyo Cement Corp. 190,740
------------
289,833
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.5% 3,100 Acom Co., Ltd. 199,085
500 Aeon Credit Service Co., Ltd. 47,276
2,750 Aiful Corp. 229,497
8,200 Credit Saison Co., Ltd. 409,201
4,100 ORIX Corp. 1,043,845
3,550 Promise Co., Ltd. 236,105
5,620 Takefuji Corp. 381,396
------------
2,546,405
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 5,000 Toyo Seikan Kaisha Ltd. 81,378
-----------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.0% 2,000 Benesse Corp. 69,982
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 239 Nippon Telegraph & Telephone Corp. 1,085,351
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.7% 26,500 Chubu Electric Power Co., Inc. 630,899
6,000 Hokkaido Electric Power Co., Inc. 122,003
33,100 The Kansai Electric Power Co., Inc. 710,908
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
16,400 Kyushu Electric Power Co., Inc. $ 355,706
17,600 Tohoku Electric Power Co., Inc. 357,875
57,300 The Tokyo Electric Power Co., Inc. 1,390,871
------------
3,568,262
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 21,000 Fujikura Ltd. 170,092
45,000 Furukawa Electric Co., Ltd. 351,521
13,873 Matsushita Electric Works Ltd. 129,527
68,000 Mitsubishi Electric Corp. 481,064
29,000 Sumitomo Electric Industries Ltd. 440,049
3,000 Ushio, Inc. 70,025
------------
1,642,278
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 12,000 Alps Electric Co., Ltd. 167,042
Instruments - 1.0% 19,000 Anritsu Corp. 108,015
16,200 Citizen Watch Co., Ltd. 134,508
15,000 Dainippon Screen Manufacturing Co., Ltd. 125,434
1,500 Hirose Electric Co., Ltd. 199,907
129,000 Hitachi Ltd. 868,889
16,800 Hoya Corp. 603,508
4,600 Ibiden Co., Ltd. 246,310
1,000 Keyence Corp. 284,250
8,900 Kyocera Corp. 648,479
1,200 Mabuchi Motor Co., Ltd. 66,593
8,400 Murata Manufacturing Co., Ltd. 538,033
3,800 Nidec Corp. 322,918
6,000 Nippon Electric Glass Co. 130,899
33,000 Oki Electric Industry Co., Ltd. 120,503
10,000 Omron Corp. 230,450
7,600 TDK Corp. 523,494
3,000 Yokogawa Electric Corp. 51,089
------------
5,370,321
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.6% 32,000 Aeon Co., Ltd. 813,353
3,900 FamilyMart Co., Ltd. 131,839
2,400 Lawson, Inc. 98,822
3,200 Matsumotokiyoshi Co., Ltd. 101,127
40,600 Seven & I Holdings Co. Ltd. 1,737,101
4,000 UNY Co., Ltd. 63,069
------------
2,945,311
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.2% 32,000 Ajinomoto Co., Inc. 327,239
4,700 Ariake Japan Co., Ltd. 115,678
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
3,000 Kikkoman Corp. $ 29,103
40,000 Nichirei Corp. 166,737
2,000 Nippon Meat Packers, Inc. 20,978
12,000 Nisshin Seifun Group, Inc. 126,680
5,300 Nissin Food Products Co., Ltd. 153,122
3,000 Yakult Honsha Co., Ltd. 62,272
7,000 Yamazaki Baking Co., Ltd. 56,935
------------
1,058,744
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.2% 86,000 Osaka Gas Co., Ltd. 296,552
159,000 Tokyo Gas Co., Ltd. 705,888
------------
1,002,440
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 6,000 Olympus Corp. 157,587
5,600 Terumo Corp. 165,585
------------
323,172
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 200 Nichii Gakkan Co. 5,083
1,000 Suzuken Co., Ltd. 31,941
------------
37,024
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,900 Oriental Land Co., Ltd. 103,508
2,000 Skylark Co., Ltd. 31,856
------------
135,364
-----------------------------------------------------------------------------------------------------------------
Household Durables - 1.2% 2,000 Casio Computer Co., Ltd. 33,449
2,000 Daito Trust Construction Co., Ltd. 103,363
13,000 Daiwa House Industry Co., Ltd. 203,101
1,000 Makita Corp. 24,570
97,000 Matsushita Electric Industrial Co., Ltd. 1,869,652
11,800 Pioneer Corp. 163,558
171,000 Sanyo Electric Co., Ltd. 463,611
20,000 Sekisui Chemical Co., Ltd. 135,220
24,000 Sekisui House Ltd. 301,754
54,000 Sharp Corp. 820,774
49,200 Sony Corp. 2,009,184
------------
6,128,236
-----------------------------------------------------------------------------------------------------------------
Household Products - 0.2% 28,000 Kao Corp. 749,640
2,400 Uni-Charm Corp. 107,769
------------
857,409
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.2% 3,100 CSK Holdings Corp. 154,698
400 Itochu Techno-Science Corp. 19,148
47 NET One Systems Co., Ltd. 113,488
57 NTT Data Corp. 283,479
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
1,500 Nomura Research Institute Ltd. $ 183,640
100 Obic Co., Ltd. 22,011
400 TIS, Inc. 12,336
------------
788,800
-----------------------------------------------------------------------------------------------------------------
Independent Power Producers & Energy 7,800 Electric Power Development Co. 267,644
Traders - 0.0%
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.6% 74 Millea Holdings, Inc. 1,272,727
70,000 Mitsui Sumitomo Insurance Co., Ltd. 855,799
34,000 Sompo Japan Insurance, Inc. 459,459
9,250 T&D Holdings, Inc. 612,853
------------
3,200,838
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.0% 130 Rakuten, Inc. (a) 125,561
-----------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.4% 201 eAccess Ltd. 142,197
36,000 Softbank Corp. 1,518,936
248 Yahoo! Japan Corp. 376,108
------------
2,037,241
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.3% 28,600 Fuji Photo Film Co., Ltd. 945,014
12,100 Namco Bandai Holdings, Inc. 176,738
6,000 Nikon Corp. 94,603
1,400 Sankyo Co., Ltd. (Gunma) 81,013
5,432 Sega Sammy Holdings, Inc. 181,788
3,500 Shimano, Inc. 91,926
6,600 Yamaha Corp. 109,655
------------
1,680,737
-----------------------------------------------------------------------------------------------------------------
Machinery - 1.0% 20,000 Amada Co., Ltd. 176,226
15,000 Amano Corp. 285,944
22,000 Ebara Corp. 118,733
8,200 Fanuc Ltd. 695,433
5,000 Hino Motors Ltd. 31,645
92,000 Ishikawajima-Harima Heavy Industries Co., Ltd. 290,740
8,000 JTEKT Corp. (e) 148,776
26,000 Kawasaki Heavy Industries Ltd. 94,722
54,000 Komatsu Ltd. 892,604
47,000 Kubota Corp. 394,620
3,000 Kurita Water Industries Ltd. 57,062
25,000 Minebea Co., Ltd. 133,229
157,000 Mitsubishi Heavy Industries Ltd. 691,689
50,000 Mitsui Engineering & Shipbuilding Co., Ltd. 162,671
3,000 NGK Insulators Ltd. 44,582
14,000 NSK Ltd. 95,603
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
15,000 NTN Corp. $ 118,444
1,400 SMC Corp. 199,864
32,000 Sumitomo Heavy Industries Ltd. 268,406
3,700 THK Co., Ltd. 96,552
9,000 Takuma Co., Ltd. 60,086
------------
5,057,631
-----------------------------------------------------------------------------------------------------------------
Marine - 0.2% 42,000 Kawasaki Kisen Kaisha Ltd. 263,323
75,000 Mitsui OSK Lines Ltd. 653,859
49,000 Nippon Yusen Kabushiki Kaisha 335,440
------------
1,252,622
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 600 Asatsu-DK, Inc. 19,063
33 Dentsu, Inc. 107,363
64 Fuji Television Network, Inc. 161,044
5,000 Toho Co., Ltd. 111,836
4,000 Tokyo Broadcasting System, Inc. 108,447
------------
507,753
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 40,000 DAIDO STEEL CO., LTD. 381,937
7,000 Dowa Mining Co., Ltd. 75,794
27,600 JFE Holdings, Inc. 926,002
98,000 Kobe Steel Ltd. 317,174
86,000 Mitsubishi Materials Corp. 439,363
22,000 Mitsui Mining & Smelting Co., Ltd. 138,117
337,000 Nippon Steel Corp. 1,199,187
40,000 Nisshin Steel Co., Ltd. 129,120
218,000 Sumitomo Metal Industries Ltd. 838,533
32,000 Sumitomo Metal Mining Co., Ltd. 395,560
------------
4,840,787
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 9,000 Daimaru, Inc. 129,781
6,000 Hankyu Department Stores 52,360
1,000 Isetan Co., Ltd. 21,308
7,000 Marui Co., Ltd. 137,296
16,000 Mitsukoshi Ltd. 104,380
1,800 Ryohin Keikaku Co., Ltd. 156,926
4,000 Takashimaya Co., Ltd. 63,848
------------
665,899
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.6% 34,800 Canon, Inc. 2,034,398
26,000 Konica Minolta Holdings, Inc. 264,560
37,000 Ricoh Co., Ltd. 647,335
------------
2,946,293
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 21,000 Nippon Mining Holdings, Inc. $ 149,276
66,000 Nippon Oil Corp. 511,650
6,000 Showa Shell Sekiyu KK 71,575
17,000 Teikoku Oil Co., Ltd. 222,384
10,000 TonenGeneral Sekiyu KK 107,430
------------
1,062,315
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 39 Nippon Paper Group, Inc. 155,960
31,000 OJI Paper Co., Ltd. 183,064
------------
339,024
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 6,100 Aderans Co., Ltd. 182,953
10,000 Shiseido Co., Ltd. 186,393
------------
369,346
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.1% 27,600 Astellas Pharma Inc. 1,075,659
17,300 Chugai Pharmaceutical Co., Ltd. 370,829
35,500 Daiichi Sankyo Co. Ltd. 684,254
10,000 Eisai Co., Ltd. 419,385
11,000 Kaken Pharmaceutical Co., Ltd. 85,648
11,000 Kyowa Hakko Kogyo Co., Ltd. 76,701
5,500 Santen Pharmaceutical Co., Ltd. 148,649
18,000 Shionogi & Co., Ltd. 253,308
7,000 Taisho Pharmaceutical Co., Ltd. 131,068
45,300 Takeda Pharmaceutical Co., Ltd. 2,448,649
------------
5,694,150
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.7% 27 Japan Prime Realty Investment Corp. 75,718
14 Japan Real Estate Investment Corp. 115,293
13 Japan Retail Fund Investment Corp. 100,890
2,300 Leopalace21 Corp. 83,403
61,000 Mitsubishi Estate Co., Ltd. 1,266,204
46,000 Mitsui Fudosan Co., Ltd. 933,407
16 Nippon Building Fund, Inc. 134,881
24 Nomura Real Estate Office Fund, Inc. 170,804
24,000 Sumitomo Realty & Development Co., Ltd. 521,562
24,000 Tokyo Tatemono Co., Ltd. 238,922
26,000 Tokyu Land Corp. 259,714
------------
3,900,798
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.8% 95 Central Japan Railway Co. 909,515
175 East Japan Railway Co. 1,202,448
15,000 Keihin Electric Express Railway Co., Ltd. 118,190
19,000 Keio Electric Railway Co., Ltd. 113,488
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
38,000 Keisei Electric Railway Co., Ltd. $ 259,171
72,000 Kintetsu Corp. 287,927
37,000 Nippon Express Co., Ltd. 225,392
25,000 Odakyu Electric Railway Co., Ltd. 148,691
42,000 Tobu Railway Co., Ltd. 219,910
41,000 Tokyu Corp. 289,706
98 West Japan Railway Co. 408,506
------------
4,182,944
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 4,700 Advantest Corp. 473,464
Equipment - 0.3% 4,500 Elpida Memory, Inc. (a) 134,203
1,200 NEC Electronics Corp. 39,346
4,000 Rohm Co., Ltd. 434,805
8,000 Sanken Electric Co., Ltd. 128,984
9,200 Tokyo Electron Ltd. 577,582
------------
1,788,384
-----------------------------------------------------------------------------------------------------------------
Software - 0.2% 4,400 Fuji Soft ABC, Inc. 147,251
7,300 Hitachi Software Engineering Co., Ltd. 152,766
3,600 Konami Corp. 79,149
5,400 Nintendo Co., Ltd. 651,953
900 Oracle Corp. Japan 44,684
5,500 Trend Micro, Inc. (a) 207,828
------------
1,283,631
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 2,800 Aoyama Trading Co., Ltd. 94,654
4,500 Autobacs Seven Co., Ltd. 235,999
3,500 Fast Retailing Co., Ltd. 341,905
600 Shimachu Co., Ltd. 18,199
600 Shimamura Co., Ltd. 82,962
700 USS Co., Ltd. 44,599
4,200 Yamada Denki Co., Ltd. 525,222
------------
1,343,540
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 36,000 Gunze Ltd. 239,126
1,000 Nisshinbo Industries, Inc. 10,921
8,000 Onward Kashiyama Co., Ltd. 157,248
2,000 Toyobo Co., Ltd. 6,693
5,000 Wacoal Holdings Corp. 67,695
------------
481,683
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 49 Japan Tobacco, Inc. 714,056
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.7% 53,000 Itochu Corp. 441,854
80,000 Marubeni Corp. 429,043
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
58,000 Mitsubishi Corp. $ 1,282,555
60,000 Mitsui & Co., Ltd. 770,143
23,100 Sojitz Corp. (a) 136,999
38,000 Sumitomo Corp. 490,977
4,000 Toyota Tsusho Corporation 90,824
------------
3,642,395
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 2,000 Kamigumi Co., Ltd. 17,741
8,000 Mitsubishi Logistics Corp. 134,610
------------
152,351
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 115 KDDI Corp. 662,543
Services - 0.3% 685 NTT DoCoMo, Inc. 1,044,650
------------
1,707,193
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 123,560,782
- - ---------------------------------------------------------------------------------------------------------------------------------
Netherlands - Air Freight & Logistics - 0.1% 21,474 TNT NV 668,704
3.1% -----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 11,714 Heineken NV 370,026
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 11,211 Akzo Nobel NV 517,718
10,240 DSM NV 416,712
------------
934,430
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 82,104 ABN AMRO Holding NV 2,139,325
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 1,086 Randstad Holdings NV 47,000
7,896 Vedior NV 116,608
------------
163,608
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.6% 6,281 Euronext NV 325,986
85,166 ING Groep NV CVA 2,943,410
------------
3,269,396
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 105,076 Royal KPN NV 1,049,793
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 228 IHC Caland NV 18,355
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 85,361 Koninklijke Ahold NV (a) 637,353
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.4% 6,433 Royal Numico NV (a) 265,430
27,472 Unilever NV 1,874,608
------------
2,140,038
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.4% 61,680 Koninklijke Philips Electronics NV 1,909,811
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 3,377 Getronics NV 45,251
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.2% 60,535 Aegon NV 981,807
-----------------------------------------------------------------------------------------------------------------
Media - 0.2% 39,460 Reed Elsevier NV 549,232
13,508 VNU NV 446,294
8,647 Wolters Kluwer NV 174,209
------------
1,169,735
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 194 OCE NV 2,789
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 1,655 Corio NV $ 89,604
1,648 Rodamco Europe NV 136,656
332 Wereldhave NV 31,192
------------
257,452
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 28,130 ASML Holding NV (a) 560,755
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 56,138 Hagemeyer NV (a) 181,436
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 16,500,064
- - ---------------------------------------------------------------------------------------------------------------------------------
New Zealand - Commercial Services & Supplies - 0.0% 23,708 Waste Management NZ Ltd. 98,977
0.2% -----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 20,926 Fletcher Building Ltd. 107,600
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 68,034 Telecom Corp. of New Zealand Ltd. 278,471
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 22,289 Contact Energy Ltd. 100,643
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 45,575 Fisher & Paykel Healthcare Corp. 117,948
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 30,232 Fisher & Paykel Appliances Holdings Ltd. 71,446
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 9,996 Tower Ltd. (a) 14,160
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 16,257 Warehouse Group Ltd. 39,305
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 1 Tenon Ltd. 2
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 64,800 Auckland International Airport Ltd. 87,381
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in New Zealand 915,933
- - ---------------------------------------------------------------------------------------------------------------------------------
Norway - 0.7% Airlines - 0.0% 2,392 SAS AB (a) 30,733
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 8,336 Yara International ASA 120,954
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 19,915 DNB NOR ASA 211,760
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 25,729 Tomra Systems ASA 183,528
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 9,463 Tandberg ASA 57,718
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 15,995 Telenor ASA 156,495
Services - 0.1% 8,900 Telenor ASA (b) 261,660
------------
418,155
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 3,691 Smedvig ASA Class A 107,384
7,800 Stolt Offshore SA (a) 90,426
------------
197,810
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 8,570 Orkla ASA 353,748
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 8,611 Storebrand ASA 74,076
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,568 Schibsted ASA 105,914
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.4% 3,444 Frontline Ltd. 131,224
7,859 Norsk Hydro ASA 804,325
37,653 Statoil ASA 861,911
------------
1,797,460
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 3,089 Norske Skogindustrier ASA 48,927
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Norway 3,600,783
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Portugal - 0.2% Commercial Banks - 0.1% 25,668 Banco BPI SA $ 116,868
88,715 Banco Comercial Portugues SA Registered Shares 243,820
6,793 Banco Espirito Santo SA Registered Shares 108,973
------------
469,661
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 15,305 Cimpor Cimentos de Portugal SA 83,947
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 31,051 Portugal Telecom SGPS SA Registered Shares 313,154
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 57,220 Energias de Portugal SA 175,484
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 4,098 Jeronimo Martins 61,389
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 38,364 Sonae SGPS SA 53,398
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 4,230 PT Multimedia Servicos de Telecomunicacoes e
Multimedia SGPS SA 48,149
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 7,477 Brisa-Auto Estradas de Portugal SA Private
Shares 63,148
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 1,268,330
- - ---------------------------------------------------------------------------------------------------------------------------------
Singapore - 0.8% Aerospace & Defense - 0.0% 56,213 Singapore Technologies Engineering Ltd. 96,686
-----------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.0% 138,954 Singapore Post Ltd. 96,101
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 17,582 Singapore Airlines Ltd. 131,114
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 58,109 DBS Group Holdings Ltd. 576,617
87,834 Oversea-Chinese Banking Corp. 353,914
64,572 United Overseas Bank Ltd. 566,966
------------
1,497,497
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 5,907 Creative Technology Ltd. 48,313
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 3,331 Jardine Cycle & Carriage Ltd. 22,236
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 82,000 Singapore Exchange Ltd. 143,012
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 266,803 Singapore Telecommunications Ltd. 417,181
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 5,000 Venture Corp. Ltd. 41,496
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 83,000 Parkway Holdings Ltd. 105,322
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 29,535 City Developments Ltd. 154,531
2,631 Overseas Union Enterprise Ltd. 17,247
------------
171,778
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 3,836 Fraser and Neave Ltd. 42,679
1,766 Haw Par Corp. Ltd. 5,470
41,914 Keppel Corp. Ltd. 277,276
22,704 SembCorp Industries Ltd. 37,412
------------
362,837
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 107,427 SembCorp Marine Ltd. 178,313
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 50,501 Cosco Corp. Singapore Ltd. 65,601
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 87,116 Singapore Press Holdings Ltd. 225,282
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 126,833 CapitaLand Ltd. 262,392
2,398 MCL Land Ltd. 2,481
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
6,457 United Overseas Land Ltd. $ 9,747
------------
274,620
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 104,816 ComfortDelgro Corp. Ltd. 100,857
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 89,002 Chartered Semiconductor Manufacturing Ltd. (a) 69,583
Equipment - 0.0% 1,120 Chartered Semiconductor Manufacturing
Ltd. (a)(b) 8,546
------------
78,129
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 36,085 SembCorp Logistics Ltd. 36,892
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Singapore 4,093,267
- - ---------------------------------------------------------------------------------------------------------------------------------
South Beverages - 0.1% 35,782 SABMiller Plc 651,755
Africa - 0.1% -----------------------------------------------------------------------------------------------------------------
Total Common Stocks in South Africa 651,755
- - ---------------------------------------------------------------------------------------------------------------------------------
Spain - 3.5% Airlines - 0.0% 31,929 Iberia Lineas Aereas de Espana 86,246
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 15,416 Zeltia SA 106,922
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.4% 160,382 Banco Bilbao Vizcaya Argentaria SA 2,852,816
48,525 Banco Popular Espanol SA 589,549
275,554 Banco Santander Central Hispano SA 3,624,085
------------
7,066,450
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 17,092 ACS Actividades de Construccion y Servicios, SA 548,578
446 Acciona SA 49,688
2,428 Fomento de Construcciones y Contratas SA 137,183
3,360 Grupo Ferrovial SA 231,853
5,086 Sacyr Vallehermoso SA 123,583
------------
1,090,885
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 212,112 Telefonica SA 3,180,004
Services - 0.6% 1,124 Telefonica SA (b) 50,602
------------
3,230,606
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.5% 47,745 Endesa SA 1,251,379
35,281 Iberdrola SA 960,908
8,894 Union Fenosa SA 329,730
------------
2,542,017
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 12,694 Gamesa Corp. Tecnologica SA 185,069
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 7,543 Gas Natural SDG SA 210,511
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 7,812 NH Hoteles SA 122,094
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 11,782 Indra Sistemas SA 229,447
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 8,309 Corporacion Mapfre SA 136,722
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 6,752 Antena 3 de Television SA 160,402
664 Sogecable SA (a) 26,520
10,902 Telefonica Publicidad e Informacion, SA 92,202
------------
279,124
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 10,980 Acerinox SA 159,174
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.3% 48,466 Repsol YPF SA $ 1,410,338
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 1,852 Metrovacesa SA 112,066
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 7,341 Inditex SA 238,558
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 15,199 Altadis SA 687,001
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 6,724 Abertis Infraestructuras SA 168,620
6,800 Cintra Concesiones de Infraestructuras de
Transporte SA 78,365
------------
246,985
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.0% 3,530 Sociedad General de Aguas de Barcelona SA
Class A 74,949
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 18,215,164
- - ---------------------------------------------------------------------------------------------------------------------------------
Sweden - 2.2% Airlines - 0.0% 1,680 SAS AB (a) 22,184
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 18,498 Assa Abloy AB B 290,535
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.5% 121,451 Nordea Bank AB 1,258,979
31,353 Skandinaviska Enskilda Banken AB Class A 644,110
28,812 Svenska Handelsbanken Class A 713,186
------------
2,616,275
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 18,496 Securitas AB 306,772
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.5% 709,013 Telefonaktiebolaget LM Ericsson 2,432,093
1,407 Telefonaktiebolaget LM Ericsson (b) 48,401
------------
2,480,494
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 17,922 Skanska AB Class B 272,480
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 1,010 OMX AB 14,023
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 18,966 Tele2 AB 203,158
Services - 0.1% 53,260 TeliaSonera AB 285,754
------------
488,912
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 2,151 Getinge AB Class B 29,595
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 4,167 Gambro AB Class A 45,421
3,981 Gambro AB Class B 43,268
------------
88,689
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 15,168 Electrolux AB Series B 393,561
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 4,275 WM-data AB Class B 13,644
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 55,968 Skandia Forsakrings AB 334,742
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.5% 5,967 Alfa Laval AB 128,958
13,962 Atlas Copco AB Class A 310,516
8,016 Atlas Copco AB Class B 159,643
26,500 SKF AB Class B 371,265
11,547 Sandvik AB 536,827
3,295 Scania AB Class B 119,030
6,944 Trelleborg AB Class B 138,294
3,880 Volvo AB Class A 177,702
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
12,629 Volvo AB Class B $ 594,270
------------
2,536,505
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 5,496 Eniro AB 69,057
2,810 Modern Times Group AB Class B (a) 117,045
------------
186,102
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 277 Billerud AB 3,620
945 Holmen AB Class B 31,169
10,718 Svenska Cellulosa AB Class B 399,976
------------
434,765
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 1,700 Kungsleden AB 49,129
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 22,682 Hennes & Mauritz AB B Shares 769,500
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.0% 20,550 Swedish Match AB 241,428
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Sweden 11,569,335
- - ---------------------------------------------------------------------------------------------------------------------------------
Switzerland - Biotechnology - 0.0% 317 Serono SA 251,830
6.7% -----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 52 Geberit AG Registered Shares 41,033
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 1.6% 61,454 Credit Suisse Group 3,124,108
52,538 UBS AG Registered Shares 4,986,914
------------
8,111,022
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.3% 3,021 Ciba Specialty Chemicals AG Registered Shares 194,837
8,553 Clariant AG 125,574
156 Givaudan 105,405
2,022 Lonza Group AG Registered Shares 123,350
6,337 Syngenta AG 786,145
------------
1,335,311
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 4,254 Adecco SA Registered Shares 195,601
184 SGS SA 154,689
------------
350,290
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 3,811 Logitech International SA (a) 178,557
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 10,848 Holcim Ltd. 736,671
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 1,287 Swisscom AG 405,010
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2% 84,393 ABB Ltd. (a) 816,428
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & 2,023 Kudelski SA 59,940
Instruments - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food Products - 1.2% 20,490 Nestle SA Registered Shares 6,109,921
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 732 Nobel Biocare Holding AG 160,513
2,246 Phonak Holding AG Registered Shares 96,456
88 Straumann Holding AG Registered Shares 20,332
1,894 Synthes, Inc. 212,113
------------
489,414
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.6% 17,809 Swiss Reinsurance Registered Shares $ 1,299,917
7,587 Zurich Financial Services AG 1,611,867
------------
2,911,784
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 229 Sulzer AG 120,933
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 500 Kuehne & Nagel International AG 140,559
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2% 117,458 Novartis AG Registered Shares 6,153,856
36,591 Roche Holding AG 5,477,753
------------
11,631,609
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0% 1,898 PSP Swiss Property AG 82,087
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,083 Micronas Semiconductor Holding AG Registered
Equipment - 0.0% Shares (a) 35,745
703 Unaxis Holding AG (a) 105,561
------------
141,306
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 22,558 Compagnie Financiere Richemont AG 979,034
1,398 The Swatch Group Ltd. B Shares 206,844
1,415 The Swatch Group Ltd. Registered Shares 42,677
------------
1,228,555
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 35,142,260
- - ---------------------------------------------------------------------------------------------------------------------------------
United Aerospace & Defense - 0.3% 157,764 BAE Systems Plc 1,033,930
Kingdom - 22.8% 35,280 Cobham Plc 102,660
5,374 Meggitt Plc 33,397
85,217 Rolls-Royce Group Plc 625,412
------------
1,795,399
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 29,636 British Airways Plc (a) 169,930
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 26,018 GKN Plc 128,638
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.0% 1,025 TI Automotive Ltd. A (a) 0
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.5% 151,553 Diageo Plc 2,191,990
29,507 Scottish & Newcastle Plc 246,440
------------
2,438,430
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 53,235 Pilkington Plc 136,172
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.3% 26,336 3i Group Plc 383,172
42,114 Amvescap Plc 319,560
2,797 Close Brothers Group Plc 43,576
12,596 ICAP Plc 87,577
16,296 Man Group Plc 534,341
4,105 Schroders Plc 66,948
------------
1,435,174
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 29,337 BOC Group Plc 603,360
55,975 Imperial Chemical Industries Plc 319,033
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
8,117 Johnson Matthey Plc $ 196,759
------------
1,119,152
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 4.3% 329,477 Barclays Plc 3,455,973
185,053 HBOS Plc 3,154,637
539,814 HSBC Holdings Plc 8,646,291
274,279 Lloyds TSB Group Plc 2,300,177
2,530 Lloyds TSB Group Plc (b) 85,514
154,077 Royal Bank of Scotland Group Plc 4,642,148
------------
22,284,740
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.2% 44,302 Brambles Industries Plc 317,149
24,611 Capita Group Plc 176,080
26,991 Group 4 Securicor Plc 74,602
64,193 Hays Plc 138,304
1,493 Intertek Group Plc 17,865
127,293 Rentokil Initial Plc 357,295
2,405 Serco Group Plc 12,975
------------
1,094,270
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 24,239 Marconi Corp. Plc (a) 160,934
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 12,050 Amec Plc 71,059
24,840 Balfour Beatty Plc 151,812
------------
222,871
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 18,796 BPB Plc 249,269
45,271 Hanson Plc 496,621
------------
745,890
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.0% 7,713 Cattles Plc 43,597
14,009 Provident Financial Plc 131,673
------------
175,270
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 20,343 Rexam Plc 177,412
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 1,845 Inchcape Plc 72,248
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 16,913 London Stock Exchange Plc 180,018
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 387,170 BT Group Plc 1,480,551
Services - 0.4% 900 BT Group Plc (b) 34,542
157,694 Cable & Wireless Plc 322,833
------------
1,837,926
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 51,032 Scottish & Southern Energy Plc 888,351
95,951 Scottish Power Plc 895,268
993 Scottish Power Plc (b) 37,118
------------
1,820,737
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Electronic Equipment & 18,858 Electrocomponents Plc $ 90,972
Instruments - 0.0% 4,902 Premier Farnell Plc 14,538
------------
105,510
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.6% 42,893 Boots Group Plc 445,498
56,272 J Sainsbury Plc 304,545
388,059 Tesco Plc 2,208,439
------------
2,958,482
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.5% 95,046 Cadbury Schweppes Plc 896,614
24,308 Tate & Lyle Plc 234,943
126,668 Unilever Plc 1,253,633
------------
2,385,190
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 3,902 SSL International Plc 20,465
57,863 Smith & Nephew Plc 531,942
------------
552,407
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 6,950 Alliance Unichem Plc 95,510
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.6% 9,132 Carnival Plc 517,349
121,886 Compass Group Plc 461,388
13,810 Enterprise Inns Plc 222,382
97,913 Hilton Group Plc 611,011
27,519 Intercontinental Hotels Group Plc 396,604
30,006 Mitchells & Butlers Plc 215,322
6,594 Punch Taverns Plc 96,108
21,215 Rank Group Plc 111,356
9,436 Whitbread Plc 153,730
22,125 William Hill Plc 203,398
------------
2,988,648
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.2% 9,646 Barratt Developments Plc 163,278
788 Bellway Plc 15,273
2,907 Berkeley Group Holdings Plc (a) 55,445
19,003 Persimmon Plc 410,399
38,566 Taylor Woodrow Plc 251,920
20,870 Wimpey George Plc 171,976
------------
1,068,291
-----------------------------------------------------------------------------------------------------------------
Household Products - 0.2% 34,002 Reckitt Benckiser Plc 1,120,753
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 45,298 LogicaCMG Plc 137,838
-----------------------------------------------------------------------------------------------------------------
Independent Power Producers & Energy 84,659 International Power Plc 348,083
Traders - 0.1%
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 30,357 Smiths Group Plc 545,123
44,450 Tomkins Plc 228,736
------------
773,859
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.7% 125,408 Aviva Plc $ 1,517,814
70,102 Friends Provident Plc 228,057
249,729 Legal & General Group Plc 523,038
129,136 Prudential Plc 1,219,310
106,903 Royal & Sun Alliance Insurance Group 230,782
------------
3,719,001
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.2% 45,752 GUS Plc 810,576
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 9,108 FKI Plc 18,138
11,268 IMI Plc 97,301
206,804 Invensys Plc (a) 65,680
------------
181,119
-----------------------------------------------------------------------------------------------------------------
Media - 0.9% 82,068 Aegis Group Plc 171,885
65,694 British Sky Broadcasting Plc 559,950
11,034 Daily Mail & General Trust 149,267
42,821 EMI Group Plc 178,268
9,612 Emap Plc 142,406
235,932 ITV Plc 455,663
39,399 Pearson Plc 465,010
72,639 Reed Elsevier Plc 680,874
75,204 Reuters Group Plc 555,800
11,407 Trinity Mirror Plc 112,210
15,879 United Business Media Plc 173,647
69,018 WPP Group Plc 745,276
25,811 Yell Group Plc 237,727
------------
4,627,983
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.3% 70,654 Anglo American Plc 2,400,417
114,489 BHP Billiton Plc 1,866,220
194,761 Corus Group Plc 197,269
55,854 Rio Tinto Plc Registered Shares 2,545,792
------------
7,009,698
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.5% 200,818 Centrica Plc 878,256
142,440 National Grid Plc 1,390,165
35,960 United Utilities Plc 414,234
------------
2,682,655
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.3% 100,767 Marks & Spencer Group Plc 873,602
15,628 Next Plc 411,828
------------
1,285,430
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 4.3% 197,100 BG Group Plc 1,943,930
985,820 BP Plc 10,475,924
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
3,849 BP Plc (b) $ 247,183
192,586 Royal Dutch Shell Plc 5,855,276
131,492 Royal Dutch Shell Plc Class B 4,194,200
------------
22,716,513
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.1% 81,162 AstraZeneca Plc 3,941,756
281,413 GlaxoSmithKline Plc 7,096,922
800 GlaxoSmithKline Plc (b) 40,384
------------
11,079,062
-----------------------------------------------------------------------------------------------------------------
Real Estate - 0.4% 30,295 British Land Co. Plc 554,412
11,899 Hammerson Plc 208,769
29,699 Land Securities Group Plc 847,887
9,912 Liberty International Plc 166,845
18,432 Slough Estates Plc 189,383
------------
1,967,296
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 16,203 Firstgroup Plc 111,752
2,119 National Express Group Plc 31,303
33,050 Stagecoach Group Plc 65,533
------------
208,588
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 84,638 ARM Holdings Plc 175,815
Equipment - 0.0%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 21,437 Misys Plc 87,864
66,142 Sage Group Plc 292,955
------------
380,819
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.3% 72,099 Dixons Group Plc 202,682
3,700 HMV Group Plc 11,481
54,796 Kesa Electricals Plc 244,583
145,635 Kingfisher Plc 593,166
24,999 MFI Furniture Plc 34,333
79,661 Signet Group Plc 147,014
2,201 Travis Perkins Plc 52,900
------------
1,286,159
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 16,226 Burberry Group Plc 119,710
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.7% 81,300 British American Tobacco Plc 1,814,421
22,911 Gallaher Group Plc 345,140
40,838 Imperial Tobacco Group Plc 1,217,779
------------
3,377,340
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.2% 21,500 Bunzl Plc 235,485
33,240 Wolseley Plc 699,039
------------
934,524
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.2% 11,911 Associated British Ports Holdings Plc 120,030
58,413 BAA Plc 628,755
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
12,221 BBA Group Plc $ 68,920
41,000 The Peninsular and Oriental Steam
Navigation Co. 328,000
------------
1,145,705
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.1% 15,133 Kelda Group Plc 201,080
12,768 Severn Trent Plc 237,605
------------
438,685
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 2,928,868 Vodafone Group Plc 6,310,265
Services - 1.3% 12,490 Vodafone Group Plc (b) 268,160
------------
6,578,425
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 119,254,885
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $386,849,112) - 93.2% 487,792,927
- - ---------------------------------------------------------------------------------------------------------------------------------
Exchange-Traded Funds
- - ---------------------------------------------------------------------------------------------------------------------------------
United 6,000 iShares MSCI EAFE Index Fund 356,760
States - 0.1% -----------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $232,840) - 0.1% 356,760
- - ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- - ---------------------------------------------------------------------------------------------------------------------------------
Germany - 0.2% Automobiles - 0.1% 540 Porsche AG 386,614
5,476 Volkswagen AG, 4.35% 209,925
------------
596,539
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,828 Henkel KGaA, 1.75% 283,541
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 542 Fresenius Medical Care AG, 2.30% 50,410
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 5,512 ProSieben SAT.1 Media AG, 2.24% 106,303
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.0% 2,033 RWE AG, 3.50% 130,549
-----------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost - $918,283) - 0.2% 1,167,342
- - ---------------------------------------------------------------------------------------------------------------------------------
Rights
- - ---------------------------------------------------------------------------------------------------------------------------------
Portugal - 0.0% Industrial Conglomerates - 0.0% 38,364 Sonae SGPS SA (a)(d) 19,635
-----------------------------------------------------------------------------------------------------------------
Total Rights (Cost - $9,286) - 0.0% 19,635
- - ---------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- - ---------------------------------------------------------------------------------------------------------------------------------
USD 20,328,875 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (c) 20,328,875
-----------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $20,328,875) - 3.9% 20,328,875
-----------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $408,338,396*) - 97.4% 509,665,539
Other Assets Less Liabilities - 2.6% 13,489,756
------------
Net Assets - 100.0% $523,155,295
============
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 413,870,049
=============
Gross unrealized appreciation $ 105,929,208
Gross unrealized depreciation (10,133,718)
-------------
Net unrealized appreciation $ 95,795,490
=============
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ 17,567,968 $318,391
--------------------------------------------------------------------------------------------
(d) The rights may be excercised until 1/06/2006.
(e) Security, or a portion of security, is on loan.
o For Series compliance purposes, the Series' industry classifications refer
to 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. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2005 were as
follows:
----------------------------------------------------------------------------------------------------------------------
Unrealized
Number of Expiration Appreciation
Contracts Issue Exchange Date Face Value (Depreciation)
----------------------------------------------------------------------------------------------------------------------
1 DAX Index 25 Euro Future Eurex March 2006 $ 161,643 $ (1,283)
238 DJ Euro Stoxx 50 Eurex March 2006 $ 9,967,799 104,909
57 FTSE 100 Index Future LIFFE March 2006 $ 5,422,304 73,181
22 Hang Seng Index Future Hong Kong January 2006 $ 2,171,898 (66,823)
66 OMX Stock Index Future Tokyo January 2006 $ 788,615 9,163
1 S&P/MIB Index Eurex March 2006 $ 206,779 4,331
35 SPI 200 Index Future Sydney March 2006 $ 2,954,551 79,511
74 TOPIX Index Future Tokyo March 2006 $ 9,941,069 363,006
----------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation - Net $ 565,995
=============
Master International Index Series
Schedule of Investments as of December 31, 2005 (in U.S. dollars)
o Forward foreign exchange contracts as of December 31, 2005 were as
follows:
-------------------------------------------------------------------------------------------------------
Unrealized
Foreign Currency Settlement Appreciation
Purchased Date (Depreciation)
-------------------------------------------------------------------------------------------------------
AUD 1,705,000 January 2006 $ (16,989)
CHF 2,710,000 January 2006 (20,958)
EUR 7,065,000 January 2006 (17,042)
GBP 3,200,000 January 2006 (74,021)
JPY 693,000,000 January 2006 70,653
SEK 5,945,000 January 2006 1,362
-------------------------------------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign Exchange Contracts -
Net (USD Commitment - $23,829,444) $ (56,995)
==========
-------------------------------------------------------------------------------------------------------
Unrealized
Foreign Currency Settlement Appreciation
Sold Date (Depreciation)
-------------------------------------------------------------------------------------------------------
AUD 480,000 January 2006 $ (1,561)
EUR 320,000 January 2006 6,285
GBP 320,000 January 2006 7,334
JPY 161,000,000 January 2006 (27,800)
SEK 1,415,000 January 2006 (110)
-------------------------------------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign Exchange Contracts -
Net (USD Commitment - $2,807,661) $ (15,852)
==========
o Currency Denominations
AUD Australian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
JPY Japanese Yen
SEK Swedish Krona
USD U.S. Dollar
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, 2005, and for
the year then ended and have issued our report thereon dated February 23, 2006
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 in securities (the "Schedule") as of December 31, 2005 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
Princeton, New Jersey
February 23, 2006
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Advertising Agencies - 0.6% 10,035 Advo, Inc. $ 282,786
19,200 aQuantive, Inc. (a) 484,608
15,200 Catalina Marketing Corp. 385,320
8,100 Greenfield Online, Inc. (a) 47,466
4,500 Marchex, Inc. Class B (a)(e) 101,205
15,600 Valassis Communications, Inc. (a) 453,492
23,000 ValueClick, Inc. (a) 416,530
6,700 Ventiv Health, Inc. (a) 158,254
-------------
2,329,661
- - -----------------------------------------------------------------------------------------------------------------------------
Aerospace - 0.5% 1,800 ARGON ST, Inc. (a) 55,764
7,534 Curtiss-Wright Corp. 411,356
8,626 Heico Corp. (e) 223,241
5,300 K&F Industries Holdings, Inc. (a) 81,408
4,300 MTC Technologies, Inc. (a) 117,734
11,113 Moog, Inc. Class A (a) 315,387
16,235 Orbital Sciences Corp. (a) 208,457
10,734 Teledyne Technologies, Inc. (a) 312,359
3,900 United Industrial Corp. 161,343
-------------
1,887,049
- - -----------------------------------------------------------------------------------------------------------------------------
Agriculture, Fishing & Ranching - 0.2% 3,200 The Andersons, Inc. 137,856
1,100 Alico, Inc. 49,709
11,628 Delta & Pine Land Co. 267,560
17,900 Gold Kist, Inc. (a) 267,605
-------------
722,730
- - -----------------------------------------------------------------------------------------------------------------------------
Air Transport - 1.0% 11,868 AAR Corp. (a) 284,239
14,700 ABX Air, Inc. (a) 115,101
26,520 Airtran Holdings, Inc. (a) 425,116
8,199 Alaska Air Group, Inc. (a) 292,868
9,800 Aviall, Inc. (a) 282,240
29,180 Continental Airlines, Inc. Class B (a)(e) 621,534
10,695 EGL, Inc. (a) 401,811
10,800 ExpressJet Holdings, Inc. (a) 87,372
11,855 Frontier Airlines, Inc. (a) 109,540
100 MAIR Holdings, Inc. (a) 471
8,856 Mesa Air Group, Inc. (a) 92,634
6,985 Offshore Logistics, Inc. (a) 203,962
10,100 Pinnacle Airlines Corp. (a) 67,367
2,700 Republic Airways Holdings, Inc. (a) 41,040
19,700 Skywest, Inc. 529,142
5,500 World Air Holdings, Inc. (a) 52,910
-------------
3,607,347
- - -----------------------------------------------------------------------------------------------------------------------------
Aluminum - 0.1% 9,000 Aleris International, Inc. (a) 290,160
8,402 Century Aluminum Co. (a) 220,216
-------------
510,376
- - -----------------------------------------------------------------------------------------------------------------------------
Auto Parts: After Market - 0.2% 8,643 Aftermarket Technology Corp. (a) 168,020
5,750 Commercial Vehicle Group, Inc. (a) 107,985
5,800 Keystone Automotive Industries, Inc. (a) 182,584
1,000 R&B, Inc. (a) 9,480
3,300 Standard Motor Products, Inc. 30,459
6,699 Superior Industries International, Inc. (e) 149,120
-------------
647,648
- - -----------------------------------------------------------------------------------------------------------------------------
Auto Parts: Original Equipment - 0.3% 11,200 American Axle & Manufacturing Holdings, Inc. 205,296
21,900 ArvinMeritor, Inc. 315,141
17,200 Hayes Lemmerz International, Inc. (a) 60,544
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
2,200 Noble International Ltd. $ 45,848
19,500 Quantum Fuel Systems Technologies
Worldwide, Inc. (a)(e) 52,260
2,273 Sauer-Danfoss, Inc. 42,755
800 Strattec Security Corp. (a) 32,336
13,100 Tenneco, Inc. (a) 256,891
39,300 Visteon Corp. (a) 246,018
-------------
1,257,089
- - -----------------------------------------------------------------------------------------------------------------------------
Auto, Trucks & Parts - 0.2% 1,200 Accuride Corp. (a) 15,480
12,094 Modine Manufacturing Co. 394,143
9,245 Wabash National Corp. 176,117
-------------
585,740
- - -----------------------------------------------------------------------------------------------------------------------------
Banks: New York City - 0.0% 5,300 Signature Bank (a) 148,771
- - -----------------------------------------------------------------------------------------------------------------------------
Banks: Outside New York City - 7.7% 3,540 1st Source Corp. 89,031
3,821 Alabama National Bancorp. 247,448
8,318 Amcore Financial, Inc. 252,950
5,150 AmericanWest Bancorp (a) 121,694
3,600 Ameris Bancorp 71,424
1,500 Ames National Corp. 39,030
2,704 Arrow Financial Corp. 70,710
900 The Banc Corp. (a) 10,269
1,200 BancTrust Financial Group, Inc. 24,120
1,845 Bancfirst Corp. 145,755
2,715 The Bancorp Inc. (a) 46,155
24,300 Bancorpsouth, Inc. 536,301
3,986 Bank of Granite Corp. 73,861
3,100 Bank of the Ozarks, Inc. 114,390
7,800 BankFinancial Corp. (a) 114,504
3,113 Banner Corp. 97,126
12,633 Boston Private Financial Holdings, Inc. 384,296
13,560 CVB Financial Corp. 275,404
1,600 Camden National Corp. 52,608
3,221 Capital City Bank Group, Inc. 110,448
2,700 Capital Corp. of the West 87,615
3,100 Capital Crossing Bank (a) 103,540
2,600 Capitol Bancorp Ltd. 97,344
11,900 Cardinal Financial Corp. 130,900
5,300 Cascade Bancorp 122,854
15,244 Cathay General Bancorp 547,869
19,300 Centennial Bank Holdings, Inc. (a) 238,741
5,100 Center Financial Corp. 128,316
3,482 Central Coast Bancorp (a) 86,145
9,348 Central Pacific Financial Corp. 335,780
7,348 Chemical Financial Corp. 233,372
13,882 Chittenden Corp. 386,058
1,616 Citizens & Northern Corp. 42,339
15,200 Citizens Banking Corp. 421,800
7,093 City Holding Co. 254,993
2,299 CityBank 80,649
1,800 Clifton Savings Bancorp, Inc. 18,108
3,926 CoBiz, Inc. 71,571
500 Colony Bankcorp, Inc. 12,490
600 Columbia Bancorp 24,750
6,441 Columbia Banking System, Inc. 183,891
500 Commercial Bankshares, Inc. 17,685
3,000 Community Bancorp (a) 94,830
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
8,100 Community Bank System, Inc. $ 182,655
5,442 Community Banks, Inc. 152,376
3,623 Community Trust Bancorp, Inc. 111,407
4,552 Corus Bankshares, Inc. 256,141
23,700 Doral Financial Corp. 251,220
700 Enterprise Financial Services Corp. 15,876
1,600 EuroBancshares, Inc. (a) 22,672
1,900 FNB Corp. 58,273
1,785 Farmers Capital Bank Corp. 55,335
1,700 Financial Institutions, Inc. 33,354
19,600 First BanCorp. 243,236
3,036 First Bancorp 61,206
4,014 First Busey Corp. 83,852
8,923 First Charter Corp. 211,118
1,847 First Citizens BancShares, Inc. Class A 322,154
20,540 First Commonwealth Financial Corp. 265,582
5,100 First Community Bancorp, Inc. 277,287
2,894 First Community Bancshares, Inc. 90,177
9,887 First Financial Bancorp 173,220
5,353 First Financial Bankshares, Inc. 187,676
4,244 First Financial Corp. 114,588
5,346 First Merchants Corp. 138,996
12,600 First Midwest Bancorp, Inc. 441,756
1,150 First Oak Brook Bancshares, Inc. 32,142
1,300 First Regional Bancorp (a) 87,815
400 First South Bancorp, Inc. 14,128
6,300 First State Bancorp 151,137
9,100 Franklin Bank Corp. (a) 163,709
6,911 Frontier Financial Corp. 221,152
2,200 GB&T Bancshares, Inc. 47,102
8,643 Glacier Bancorp, Inc. 259,722
15,922 Gold Banc Corp., Inc. 290,099
13,300 Greater Bay Bancorp 340,746
6,454 Hancock Holding Co. 244,026
15,404 Hanmi Financial Corp. 275,115
8,578 Harleysville National Corp. 163,840
3,000 Heartland Financial USA, Inc. 65,100
6,000 Heritage Commerce Corp. 129,000
13,900 Hudson United Bancorp 579,352
4,445 Independent Bank Corp./MA 126,816
8,705 Independent Bank Corp./MI 237,037
4,774 Integra Bank Corp. 101,877
4,900 Interchange Financial Services Corp. 84,525
16,400 Investors Bancorp, Inc. (a) 180,892
5,248 Irwin Financial Corp. 112,412
4,197 Lakeland Bancorp, Inc. 61,696
1,700 Lakeland Financial Corp. 68,646
6,150 MB Financial, Inc. 217,710
3,477 MBT Financial Corp. 56,327
3,078 Macatawa Bank Corp. 111,978
4,356 Main Street Banks, Inc. 118,614
6,266 MainSource Financial Group, Inc. 111,848
3,629 Mercantile Bank Corp. 139,717
1 Mercantile Bankshares Corp. 56
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
7,550 Mid-State Bancshares $ 201,962
1,580 Midwest Banc Holdings, Inc. 35,155
2,029 NBC Capital Corp. 48,270
9,513 NBT Bancorp, Inc. 205,386
7,100 Nara Bancorp, Inc. 126,238
12,377 National Penn Bancshares, Inc. 235,782
1,200 Northern Empire Bancshares (a) 28,392
21,695 Old National Bancorp 469,480
5,776 Old Second Bancorp, Inc. 176,572
2,541 Omega Financial Corp. 70,818
9,218 Oriental Financial Group 113,934
15,762 Pacific Capital Bancorp 560,812
3,715 Park National Corp. 381,308
2,198 Peapack Gladstone Financial Corp. 61,324
200 Pennsylvania Commerce Bancorp, Inc. (a) 6,370
4,210 Peoples Bancorp, Inc. 120,111
4,300 Pinnacle Financial Partners, Inc. (a) 107,414
6,000 Piper Jaffray Cos. (a) 242,400
1,250 Placer Sierra Bancshares 34,637
400 Preferred Bank 17,800
1,700 Premierwest Bancorp 23,885
6,696 PrivateBancorp, Inc. 238,177
4,600 Prosperity Bancshares, Inc. 132,204
11,924 Provident Bankshares Corp. 402,673
11,011 R-G Financial Corp. Class B 145,345
2,432 Renasant Corp. 76,924
28,059 Republic Bancorp, Inc. 333,902
2,608 Republic Bancorp, Inc. Class A 55,942
1,371 Royal Bancshares of Pennsylvania Class A 31,750
7,663 S&T Bancorp, Inc. 282,152
2,446 SCBT Financial Corp. 81,745
9,700 SVB Financial Group (a) 454,348
2,800 SY Bancorp, Inc. 70,056
4,314 Sandy Spring Bancorp, Inc. 150,472
1,603 Santander BanCorp 40,267
3,458 Seacoast Banking Corp. of Florida 79,361
1,400 Security Bank Corp. 32,606
100 Sierra Bancorp 2,279
4,300 Simmons First National Corp. Class A 119,110
2,975 Southside Bancshares, Inc. 60,095
6,300 Southwest Bancorp, Inc. 126,000
2,601 State Bancorp, Inc. 43,541
17,776 Sterling Bancshares, Inc. 274,461
8,502 Sterling Financial Corp. 168,340
3,400 Suffolk Bancorp 114,818
1,100 Summit Bancshares, Inc. 19,778
400 Summit Financial Group, Inc. 9,080
5,757 Sun Bancorp, Inc. (a) 113,701
16,716 Susquehanna Bancshares, Inc. 395,835
200 Taylor Capital Group, Inc. 8,080
9,261 Texas Capital Bancshares, Inc. (a) 207,539
14,576 Texas Regional Bancshares, Inc. Class A 412,501
2,782 Tompkins Trustco, Inc. 124,634
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
3,400 Trico Bancshares $ 79,526
22,061 TrustCo Bank Corp. NY 273,998
16,627 Trustmark Corp. 456,744
24,900 UCBH Holdings, Inc. 445,212
5,576 UMB Financial Corp. 356,362
3,496 USB Holding Co., Inc. 75,723
16,050 Umpqua Holdings Corp. 457,907
2,500 Union Bankshares Corp. 107,750
13,200 United Bankshares, Inc. 465,168
9,000 United Community Banks, Inc. 239,940
600 United Security Bancshares 16,086
2,850 Univest Corp. of Pennsylvania 69,170
7,019 Unizan Financial Corp. 186,425
4,100 Vineyard National Bancorp 126,444
2,912 Virginia Commerce Bancorp (a) 84,710
2,100 Virginia Financial Group, Inc. 75,663
4,200 Washington Trust Bancorp, Inc. 109,956
8,863 WesBanco, Inc. 269,524
4,590 West Bancorporation, Inc. 85,833
4,300 West Coast Bancorp 113,735
8,983 Westamerica Bancorp 476,728
1,920 Western Sierra Bancorp (a) 69,869
4,400 Wilshire Bancorp, Inc. 75,636
8,200 Wintrust Financial Corp. 450,180
3,600 Yardville National Bancorp 124,740
-------------
28,512,452
- - -----------------------------------------------------------------------------------------------------------------------------
Beverage: Brewers (Wineries) - 0.0% 4,800 Boston Beer Co., Inc. Class A (a) 120,000
- - -----------------------------------------------------------------------------------------------------------------------------
Beverage: Soft Drinks - 0.2% 987 Coca-Cola Bottling Co. Consolidated 42,441
1,710 Farmer Bros. Co. 33,071
600 Green Mountain Coffee Roasters, Inc. (a) 24,360
4,200 Hansen Natural Corp. (a)(e) 333,900
2,290 National Beverage Corp. (a) 22,373
4,200 Peet's Coffee & Tea, Inc. (a) 127,470
-------------
583,615
- - -----------------------------------------------------------------------------------------------------------------------------
Biotechnology Research & Production - 2.4% 36,300 Aastrom Biosciences, Inc. (a) 76,956
24,700 Abgenix, Inc. (a) 531,297
2,300 Acadia Pharmaceuticals, Inc. (a) 22,655
8,887 Albany Molecular Research, Inc. (a) 107,977
10,180 Alexion Pharmaceuticals, Inc. (a) 206,145
8,813 Antigenics, Inc. (a)(e) 41,950
21,800 Applera Corp. - Celera Genomics Group (a) 238,928
13,900 Arena Pharmaceuticals, Inc. (a) 197,658
17,119 Ariad Pharmaceuticals, Inc. (a) 100,146
13,700 Arqule, Inc. (a) 83,844
5,600 Array Biopharma, Inc. (a) 39,256
6,120 Arthrocare Corp. (a) 257,897
7,900 Barrier Therapeutics, Inc. (a) 64,780
9,100 Bioenvision, Inc. (a) 59,423
4,000 Caliper Life Sciences, Inc. (a) 23,520
18,924 Cell Genesys, Inc. (a)(e) 112,219
9,031 Cell Therapeutics, Inc. (a)(e) 19,688
2,200 Coley Pharmaceutical Group, Inc. (a) 33,352
2,200 Cotherix, Inc. (a) 23,364
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
17,967 Cubist Pharmaceuticals, Inc. (a) $ 381,799
12,800 CuraGen Corp. (a) 39,424
9,500 Curis, Inc. (a) 33,820
8,900 Cypress Bioscience, Inc. (a) 51,798
4,624 Digene Corp. (a) 134,882
15,600 Discovery Laboratories, Inc. (a) 104,208
6,778 Diversa Corp. (a) 32,534
6,000 Dov Pharmaceutical, Inc. (a) 88,080
15,900 deCODE genetics, Inc. (a)(e) 131,334
17,296 Encysive Pharmaceuticals, Inc. (a) 136,465
16,900 Enzon Pharmaceuticals, Inc. (a) 125,060
21,718 Exelixis, Inc. (a) 204,584
10,900 Genitope Corp. (a) 86,655
15,129 Geron Corp. (a) 130,261
37,700 Human Genome Sciences, Inc. (a) 322,712
18,300 ICOS Corp. (a) 505,629
2,800 Idenix Pharmaceuticals Inc. (a) 47,908
30,324 Incyte Corp. (a) 161,930
4,900 Integra LifeSciences Holdings Corp. (a) 173,754
10,014 InterMune, Inc. (a)(e) 168,235
10,600 Introgen Therapeutics, Inc. (a)(e) 55,862
1,400 Kensey Nash Corp. (a) 30,842
10,400 Keryx Biopharmaceuticals, Inc. (a) 152,256
18,205 Lexicon Genetics, Inc. (a) 66,448
5,650 MannKind Corp. (a)(e) 63,619
300 Marshall Edwards, Inc. (a) 1,875
8,500 Martek Biosciences Corp. (a)(e) 209,185
6,701 Maxygen, Inc. (a) 50,325
3,600 Momenta Pharmaceuticals Inc. (a) 79,344
28,300 Monogram Biosciences, Inc. (a) 52,921
4,300 Myogen, Inc. (a) 129,688
9,700 Myriad Genetics, Inc. (a) 201,760
12,723 NPS Pharmaceuticals, Inc. (a) 150,640
20,854 Nabi Biopharmaceuticals (a) 70,487
19,200 Nanogen, Inc. (a)(e) 50,304
6,700 Nastech Pharmaceutical Co., Inc. (a) 98,624
10,300 Neurocrine Biosciences, Inc. (a) 646,119
5,400 Neurogen Corp. (a) 35,586
6,800 Northfield Laboratories, Inc. (a) 91,120
11,000 Nuvelo, Inc. (a) 89,210
5,300 Orchid Cellmark, Inc. (a) 40,280
4,400 PRA International Inc. (a) 123,860
4,600 Progenics Pharmaceuticals, Inc. (a) 115,046
8,770 Rigel Pharmaceuticals, Inc. (a) 73,317
26,800 Savient Pharmaceuticals, Inc. (a) 100,232
7,600 Seattle Genetics, Inc. (a) 35,872
9,472 Serologicals Corp. (a) 186,977
24,800 StemCells, Inc. (a)(e) 85,560
8,045 Tanox, Inc. (a) 131,697
16,432 Telik, Inc. (a) 279,180
900 Tercica, Inc. (a) 6,453
3,338 Trimeris, Inc. (a) 38,354
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,300 ViaCell, Inc. (a) $ 24,166
7,100 Zymogenetics, Inc. (a) 120,771
-------------
8,990,107
- - -----------------------------------------------------------------------------------------------------------------------------
Building Materials - 0.8% 2,500 Ameron International Corp. 113,950
2,900 BlueLinx Holdings, Inc. 32,625
3,900 Building Material Holding Corp. 266,019
19,600 Hughes Supply, Inc. 702,660
1,600 Huttig Building Products, Inc. (a) 13,440
3,312 LSI Industries, Inc. 51,866
4,968 NCI Building Systems, Inc. (a) 211,041
11,732 Simpson Manufacturing Co., Inc. 426,458
6,545 Texas Industries, Inc. 326,203
4,709 Trex Co., Inc. (a) 132,087
7,665 Watsco, Inc. 458,444
4,700 Zoltek Cos., Inc. (a)(e) 41,266
-------------
2,776,059
- - -----------------------------------------------------------------------------------------------------------------------------
Building: Air Conditioning - 0.1% 13,735 Lennox International, Inc. 387,327
- - -----------------------------------------------------------------------------------------------------------------------------
Building: Cement - 0.2% 5,078 Eagle Materials, Inc. 621,344
- - -----------------------------------------------------------------------------------------------------------------------------
Building: Heating & Plumbing - 0.1% 1,800 Aaon, Inc. (a) 32,256
3,700 Interline Brands Inc. (a) 84,175
20,150 Jacuzzi Brands, Inc. (a) 169,260
-------------
285,691
- - -----------------------------------------------------------------------------------------------------------------------------
Building: Miscellaneous - 0.2% 4,000 Builders FirstSource, Inc. (a) 85,480
9,100 Comfort Systems USA, Inc. 83,720
4,400 Drew Industries, Inc. (a) 124,036
10,947 Griffon Corp. (a) 260,648
-------------
553,884
- - -----------------------------------------------------------------------------------------------------------------------------
Building: Roofing & Wallboard - 0.1% 4,300 Beacon Roofing Supply, Inc. (a) 123,539
6,651 ElkCorp 223,873
-------------
347,412
- - -----------------------------------------------------------------------------------------------------------------------------
Cable Television Services - 0.1% 70,400 Charter Communications, Inc. Class A (a)(e) 85,888
5,498 Crown Media Holdings, Inc. Class A (a) 50,417
20,894 TiVo, Inc. (a)(e) 106,977
-------------
243,282
- - -----------------------------------------------------------------------------------------------------------------------------
Casinos & Gambling - 0.6% 14,900 Alliance Gaming Corp. (a) 193,998
8,000 Ameristar Casinos, Inc. 181,600
11,091 Aztar Corp. (a) 337,055
1,632 Churchill Downs, Inc. 59,943
2,815 Dover Downs Gaming & Entertainment, Inc. 39,832
6,375 Isle of Capri Casinos, Inc. (a) 155,295
10,500 MTR Gaming Group, Inc. (a) 109,305
11,500 Magna Entertainment Corp. Class A (a)(e) 82,110
13,100 Mikohn Gaming Corp. (a) 129,297
1,600 Monarch Casino & Resort, Inc. (a) 36,160
8,800 Multimedia Games, Inc. (a)(e) 81,400
12,164 Pinnacle Entertainment, Inc. (a) 300,572
1,600 Riviera Holdings Corp. (a) 26,224
9,200 Shuffle Master, Inc. (a)(e) 231,288
6,212 WMS Industries, Inc. (a) 155,859
-------------
2,119,938
- - -----------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.2% 3,000 American Vanguard Corp. 70,500
6,256 Arch Chemicals, Inc. 187,054
1,200 Balchem Corp. 35,772
13,200 CF Industries Holdings, Inc. 201,300
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
6,900 Cabot Microelectronics Corp. (a) $ 202,377
15,801 Calgon Carbon Corp. 89,908
10,485 Cambrex Corp. 196,803
13,200 EnerSys (a) 172,128
5,164 Energy Conversion Devices, Inc. (a) 210,433
9,637 Georgia Gulf Corp. 293,158
39,500 Hercules, Inc. (a) 446,350
8,467 MacDermid, Inc. 236,229
5,641 Medis Technologies Ltd. (a)(e) 82,979
2,534 NL Industries, Inc. 35,704
4,200 NewMarket Corp. (a) 102,732
4,765 Nuco2, Inc. (a) 132,848
9,300 OM Group, Inc. (a) 174,468
3,500 Octel Corp. 56,945
2,000 Pioneer Cos., Inc. (a) 59,940
28,967 PolyOne Corp. (a) 186,258
6,500 Rockwood Holdings, Inc. (a) 128,245
11,106 Schulman A, Inc. 239,001
5,900 Senomyx, Inc. (a) 71,508
1,555 Stepan Co. 41,814
5,500 Tronox, Inc. Class A 71,885
11,800 UAP Holding Corp. 240,956
6,400 Ultralife Batteries, Inc. (a) 76,800
12,300 Valence Technology, Inc. (a)(e) 18,450
19,600 WR Grace & Co. (a) 184,240
3,050 Westlake Chemical Corp. 87,871
-------------
4,334,656
- - -----------------------------------------------------------------------------------------------------------------------------
Coal - 0.2% 8,600 Alpha Natural Resources, Inc. (a) 165,206
6,900 Foundation Coal Holdings, Inc. 262,200
4,800 James River Coal Co. (a) 183,360
-------------
610,766
- - -----------------------------------------------------------------------------------------------------------------------------
Commercial Information Services - 0.3% 8,958 Arbitron, Inc. 340,225
144,800 CMGI, Inc. (a) 220,096
13,161 infoUSA, Inc. 143,850
6,400 LECG Corp. (a) 111,232
7,374 ProQuest Co. (a) 205,808
6,553 Sourcecorp (a) 157,141
-------------
1,178,352
- - -----------------------------------------------------------------------------------------------------------------------------
Communications & Media - 0.1% 21,400 Entravision Communications Corp. Class A (a) 152,368
74,600 Gemstar-TV Guide International, Inc. (a) 194,706
-------------
347,074
- - -----------------------------------------------------------------------------------------------------------------------------
Communications Technology - 2.6% 107,300 3Com Corp. (a) 386,280
18,800 Adtran, Inc. 559,112
16,300 Airspan Networks, Inc. (a) 92,747
7,222 Anaren, Inc. (a) 112,880
8,372 Anixter International, Inc. 327,513
2,000 Arbinet-Thexchange Inc. (a) 14,020
8,900 Atheros Communications Inc. (a) 115,700
16,500 Avocent Corp. (a) 448,635
3,159 Bel Fuse, Inc. 100,456
6,188 Black Box Corp. 293,187
15,050 Broadwing Corp. (a) 91,052
82,300 Brocade Communications Systems, Inc. (a) 334,961
17,700 CSG Systems International Inc. (a) 395,064
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
1,672 Catapult Communications Corp. (a) $ 24,729
163,200 Ciena Corp. (a) 484,704
133 ClearOne Communications Inc. (a) 318
16,588 CommScope, Inc. (a) 333,916
5,725 Comtech Telecommunications Corp. (a) 174,841
8 CycleLogic, Inc. (a) 0
10,100 Digi International, Inc. (a) 105,949
11,800 Ditech Communications Corp. (a) 98,530
8,813 Echelon Corp. (a) 69,006
23,800 Entrust, Inc. (a) 115,192
35,700 Extreme Networks Inc. (a) 169,575
38,500 Finisar Corp. (a)(e) 80,080
36,500 Foundry Networks, Inc. (a) 504,065
27,100 Glenayre Technologies, Inc. (a) 88,075
23,696 Harmonic, Inc. (a) 114,926
6,900 InPhonic, Inc. (a)(e) 59,961
8,377 Inter-Tel, Inc. 163,938
11,100 InterVoice, Inc. (a) 88,356
9,229 Ixia (a) 136,405
6,600 j2 Global Communications, Inc. (a)(e) 282,084
8,300 Netgear, Inc. (a) 159,775
6,800 Novatel Wireless, Inc. (a) 82,348
4,302 Oplink Communications, Inc. (a) 62,379
4,383 Optical Communication Products, Inc. (a) 10,125
9,800 Redback Networks, Inc. (a) 137,788
10,308 Seachange International, Inc. (a) 81,433
12,388 Secure Computing Corp. (a) 151,877
78,300 Sonus Networks, Inc. (a) 291,276
7,810 Standard Microsystems Corp. (a) 224,069
51,700 Sycamore Networks, Inc. (a) 223,344
5,100 Syniverse Holdings, Inc. (a) 106,590
61,800 TIBCO Software, Inc. (a) 461,646
4,680 Talx Corp. 213,923
16,400 Tekelec (a) 227,960
14,200 Telkonet, Inc. (a)(e) 58,930
7,830 Terremark Worldwide, Inc. (a) 36,410
2,640 Ulticom, Inc. (a) 25,898
34,500 Utstarcom, Inc. (a)(e) 278,070
6,301 Viasat, Inc. (a) 168,426
9,731 WebEx Communications, Inc. (a) 210,482
15,800 Westell Technologies, Inc. Class A (a) 71,100
25,175 Zhone Technologies, Inc. (a)(e) 50,602
-------------
9,700,708
- - -----------------------------------------------------------------------------------------------------------------------------
Computer Services Software & Systems - 4.7% 20,600 AMICAS, Inc. (a) 102,176
24,300 Acxiom Corp. 558,900
16,402 Agile Software Corp. (a) 98,084
8,800 Altiris, Inc. (a) 148,632
4,000 American Reprographics Co. (a) 101,640
1,000 Ansoft Corp. (a) 34,050
10,232 Ansys, Inc. (a) 436,804
8,300 Anteon International Corp. (a) 451,105
12,800 Applied Digital Solutions, Inc. (a)(e) 33,408
19,380 Ariba, Inc. (a) 142,443
14,297 AsiaInfo Holdings, Inc. (a) 56,902
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
15,808 Aspen Technology, Inc. (a) $ 124,093
8,100 Audible, Inc. (a)(e) 104,004
55,000 BearingPoint, Inc. (a) 432,300
926 Blackbaud, Inc. 15,816
7,400 Blackboard, Inc. (a) 214,452
2,700 Blue Coat Systems, Inc. (a) 123,444
26,267 Borland Software Corp. (a) 171,524
6,900 Bottomline Technologies, Inc. (a) 76,038
2,500 COMSYS IT Partners, Inc. (a) 27,625
16,002 Ciber, Inc. (a) 105,613
3,300 Click Commerce, Inc. (a)(e) 69,366
7,800 Concur Technologies, Inc. (a) 100,542
2,000 Constellation 3D, Inc. (a) 0
8,100 Covansys Corp. (a) 110,241
12,764 Dendrite International, Inc. (a) 183,929
10,900 Digital River, Inc. (a) 324,166
30,007 Digitas, Inc. (a) 375,688
1,845 EPIQ Systems, Inc. (a) 34,206
14,339 Electronics for Imaging Inc. (a) 381,561
3,000 Emageon, Inc. (a) 47,700
18,500 Epicor Software Corp. (a) 261,405
4,500 Equinix, Inc. (a) 183,420
5,100 eCollege.com, Inc. (a) 91,953
18,979 Gartner, Inc. Class A (a) 244,829
8,600 Infocrossing, Inc. (a)(e) 74,046
29,600 Informatica Corp. (a) 355,200
1,800 Integral Systems, Inc. 33,948
13,800 Internet Capital Group, Inc. (a) 113,436
13,700 Internet Security Systems Inc. (a) 287,015
5,100 Intervideo, Inc. (a) 53,805
17,425 Interwoven, Inc. (a) 147,590
4,300 iGate Corp. (a) 20,898
9,708 JDA Software Group, Inc. (a) 165,133
5,900 Jupitermedia Corp. (a) 87,202
6,400 Kanbay International, Inc. (a) 101,696
15,658 Keane, Inc. (a) 172,395
8,938 Keynote Systems, Inc. (a) 114,853
24,800 Lawson Software, Inc. (a) 182,280
17,500 Lionbridge Technologies Inc. (a) 122,850
5,774 MRO Software, Inc. (a) 81,067
14,100 Macrovision Corp. (a) 235,893
8,000 Magma Design Automation, Inc. (a) 67,280
8,939 Manhattan Associates, Inc. (a) 183,071
4,500 Mantech International Corp. Class A (a) 125,370
6,000 Mapinfo Corp. (a) 75,660
15,597 Matrixone, Inc. (a) 77,829
22,700 Mentor Graphics Corp. (a) 234,718
7,156 Mercury Computer Systems, Inc. (a) 147,628
7,100 Merge Technologies, Inc. (a) 177,642
4,100 MicroStrategy, Inc. Class A (a) 339,234
25,900 Micromuse, Inc. (a) 256,151
10,598 Micros Systems, Inc. (a) 512,095
11,500 Motive, Inc. (a) 35,535
3,200 Ness Technologies, Inc. (a) 34,464
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
16,374 NetIQ Corp. (a) $ 201,236
4,985 Netscout Systems, Inc. (a) 27,168
30,395 Nuance Communications, Inc. (a) 231,914
4,300 Open Solutions, Inc. (a) 98,556
26,533 Openwave Systems, Inc. (a) 463,532
20,100 Opsware, Inc. (a) 136,479
1,800 PAR Technology Corp. (a) 49,968
3,900 PDF Solutions, Inc. (a) 63,375
10,307 Packeteer, Inc. (a) 80,085
89,400 Parametric Technology Corp. (a) 545,340
1,400 Pegasystems, Inc. (a) 10,234
13,208 Progress Software Corp. (a) 374,843
3,500 QAD, Inc. 26,740
18,600 Quest Software, Inc. (a) 271,374
32,400 RealNetworks, Inc. (a) 251,424
4,900 RightNow Technologies, Inc. (a) 90,454
4,200 SI International, Inc. (a) 128,394
3,989 SPSS, Inc. (a) 123,380
500 SSA Global Techonologies, Inc. (a) 9,095
11,061 SYKES Enterprises, Inc. (a) 147,886
1,100 SYNNEX Corp. (a) 16,621
7,199 SafeNet, Inc. (a) 231,952
25,992 Sapient Corp. (a) 147,894
8,797 Serena Software, Inc. (a) 206,202
21,741 SonicWALL, Inc. (a) 172,189
6,500 Stellent, Inc. (a) 64,545
18,600 SupportSoft, Inc. (a) 78,492
1,583 Syntel, Inc. 32,974
12,385 Transaction Systems Architects, Inc.
Class A (a) 356,564
12,608 Trizetto Group (a) 214,210
10,400 Tyler Technologies, Inc. (a) 91,312
9,300 Ultimate Software Group, Inc. (a) 177,351
10,700 Vasco Data Security International Inc. (a) 105,395
7,200 VeriFone Holdings, Inc. (a) 182,160
5,100 Verint Systems, Inc. (a) 175,797
7,380 Vignette Corp. (a) 120,368
6,451 Websense, Inc. (a) 423,444
22,200 Wind River Systems, Inc. (a) 327,894
7,600 Witness Systems, Inc. (a) 149,492
16,820 webMethods, Inc. (a) 129,682
10,508 Zoran Corp. (a) 170,335
-------------
17,490,393
- - -----------------------------------------------------------------------------------------------------------------------------
Computer Technology - 1.8% 37,400 Adaptec, Inc. (a) 217,668
3,700 Advanced Analogic Technologies, Inc. (a) 51,245
21,534 Advanced Digital Information Corp. (a) 210,818
4,300 Cyberguard Corp. (a)(e) 37,969
16,700 Dot Hill Systems Corp. (a) 115,731
25,100 Emulex Corp. (a) 496,729
9,609 FalconStor Software, Inc. (a)(e) 71,011
5,400 Fargo Electronics, Inc. (a) 103,950
13,982 Filenet Corp. (a) 361,435
80,600 Gateway, Inc. (a) 202,306
6,417 Hutchinson Technology, Inc. (a) 182,564
11,800 Imation Corp. 543,626
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
7,296 Intergraph Corp. (a) $ 363,414
7,800 Komag, Inc. (a) 270,348
24,074 Lexar Media, Inc. (a) 197,648
80,700 Maxtor Corp. (a) 560,058
46,600 McData Corp. (a) 177,080
6,200 Mobility Electronics, Inc. (a) 59,892
11,694 Palm, Inc. (a)(e) 371,869
23,900 Perot Systems Corp. Class A (a) 337,946
11,300 Phoenix Technologies Ltd. (a) 70,738
51,800 Quantum Corp. (a) 157,990
25,062 RSA Security, Inc. (a) 281,446
9,500 Radiant Systems, Inc. (a) 115,520
5,742 Radisys Corp. (a) 99,566
4,200 Rimage Corp. (a) 121,716
4,300 Stratasys, Inc. (a) 107,543
5,400 Synaptics, Inc. (a)(e) 133,488
14,200 Trident Microsystems, Inc. (a) 255,600
15,309 UNOVA, Inc. (a) 517,444
-------------
6,794,358
- - -----------------------------------------------------------------------------------------------------------------------------
Construction - 0.4% 4,351 Brookfield Homes Corp. 216,375
4,618 EMCOR Group, Inc. (a) 311,854
12,071 Granite Construction, Inc. 433,470
3,900 Perini Corp. (a) 94,185
6,900 Washington Group International, Inc. 365,493
-------------
1,421,377
- - -----------------------------------------------------------------------------------------------------------------------------
Consumer Electronics - 0.9% 13,467 Alloy, Inc. (a) 38,920
7,453 Atari Inc. (a) 8,049
42,900 CNET Networks, Inc. (a) 630,201
4,500 DTS, Inc. (a) 66,600
43,400 Earthlink, Inc. (a) 482,174
9,600 Infospace, Inc. (a) 247,872
12,800 Ipass, Inc. (a) 83,968
10,600 iVillage, Inc. (a) 85,012
4,300 Jamdat Mobile, Inc. (a) 114,294
2,700 Lifeline Systems, Inc. (a) 98,712
6,900 LoJack Corp. (a) 166,497
7,474 Midway Games, Inc. (a)(e) 141,782
9,300 NIC, Inc. (a) 57,288
7,500 Navarre Corp. (a)(e) 41,475
12,600 NetFlix, Inc. (a)(e) 340,956
7,200 Sohu.com, Inc. (a) 132,048
16,737 THQ, Inc. (a) 399,177
18,450 United Online, Inc. 262,359
4,086 Universal Electronics, Inc. (a) 70,402
1,400 WebSideStory, Inc. (a) 25,382
-------------
3,493,168
- - -----------------------------------------------------------------------------------------------------------------------------
Consumer Products - 0.8% 5,600 Blyth, Inc. 117,320
3,000 CNS, Inc. 65,730
1,891 CSS Industries, Inc. 58,110
2,300 Citi Trends, Inc. (a) 98,187
19,100 Jarden Corp. (a) 575,865
5,700 Mannatech, Inc. 78,717
9,373 Matthews International Corp. Class A 341,271
9,763 Nautilus, Inc. 182,178
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
10,200 Oakley, Inc. $ 149,838
10,176 Playtex Products, Inc. (a) 139,106
5,200 RC2 Corp. (a) 184,704
15,891 The Topps Co., Inc. 118,070
14,674 Tupperware Corp. 328,698
2,700 USANA Health Sciences, Inc. (a) 103,572
1,900 Water Pik Technologies, Inc. (a) 40,793
15,883 Yankee Candle Co., Inc. 406,605
-------------
2,988,764
- - -----------------------------------------------------------------------------------------------------------------------------
Containers & Packaging: Metals & Glass - 0.2% 4,375 Greif, Inc. 289,975
3,571 Mobile Mini, Inc. (a) 169,265
6,400 Silgan Holdings, Inc. 231,168
-------------
690,408
- - -----------------------------------------------------------------------------------------------------------------------------
Containers & Packaging: Paper & Plastic - 0.0% 18,700 Graphic Packaging Corp. (a) 42,636
7,652 Myers Industries, Inc. 111,566
-------------
154,202
- - -----------------------------------------------------------------------------------------------------------------------------
Copper - 0.1% 10,782 Mueller Industries, Inc. 295,642
- - -----------------------------------------------------------------------------------------------------------------------------
Cosmetics - 0.2% 7,393 Elizabeth Arden, Inc. (a) 148,304
1,700 Inter Parfums, Inc. 30,532
20,126 Nu Skin Enterprises, Inc. Class A 353,815
700 Parlux Fragrances, Inc. (a)(e) 21,371
41,883 Revlon, Inc. Class A (a) 129,837
-------------
683,859
- - -----------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.6% 8,100 Euronet Worldwide, Inc. (a) 225,180
16,000 F.N.B. Corp. 277,760
4,800 Greenhill & Co., Inc. 269,568
900 Huron Consulting Group, Inc. (a) 21,591
10,708 Jones Lang LaSalle, Inc. 539,148
15,500 The Nasdaq Stock Market, Inc. (a) 545,290
11,600 USI Holdings Corp. (a) 159,732
-------------
2,038,269
- - -----------------------------------------------------------------------------------------------------------------------------
Diversified Materials & Processing - 0.8% 15,460 Acuity Brands, Inc. 491,628
9,316 Armor Holdings, Inc. (a) 397,327
4,257 Barnes Group, Inc. 140,481
12,594 Brady Corp. 455,651
16,310 Clarcor, Inc. 484,570
17,862 Hexcel Corp. (a) 322,409
21,514 Olin Corp. 423,396
8,245 Tredegar Corp. 106,278
-------------
2,821,740
- - -----------------------------------------------------------------------------------------------------------------------------
Drug & Grocery Store Chains - 0.5% 432 Arden Group, Inc. Class A 39,308
12,907 Casey's General Stores, Inc. 320,094
4,531 Great Atlantic & Pacific Tea Co. (a) 143,995
5,464 Ingles Markets, Inc. Class A 85,512
9,283 Longs Drug Stores Corp. 337,808
2,977 Nash Finch Co. 75,854
17,942 Pathmark Stores, Inc. (a) 179,241
10,569 Ruddick Corp. 224,908
3,929 Smart & Final, Inc. (a) 50,606
8,700 Spartan Stores, Inc. (a) 90,654
4,300 Weis Markets, Inc. 185,072
11,429 Wild Oats Markets, Inc. (a) 138,062
-------------
1,871,114
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Drugs & Pharmaceuticals - 3.0% 28,600 AVANIR Pharmaceuticals Class A (a) $ 98,384
2,600 Adams Respiratory Therapeutics, Inc. (a) 105,716
10,300 Adolor Corp. (a) 150,380
30,000 Alkermes, Inc. (a) 573,600
10,825 Alpharma, Inc. Class A 308,621
32,500 Amylin Pharmaceuticals, Inc. (a) 1,297,400
19,800 Andrx Corp. (a) 326,106
12,300 Atherogenics Inc. (a)(e) 246,123
4,000 Bentley Pharmaceuticals, Inc. (a) 65,640
21,248 BioMarin Pharmaceuticals, Inc. (a) 229,053
13,300 CV Therapeutics, Inc. (a) 328,909
1,300 Caraco Pharmaceutical Laboratories Ltd. (a) 11,674
4,400 Chattem, Inc. (a) 160,116
11,602 Connetics Corp. (a) 167,649
22,800 Dendreon Corp. (a)(e) 123,576
14,900 Durect Corp. (a)(e) 75,543
7,000 Dusa Pharmaceuticals, Inc. (a) 75,390
7,495 Enzo Biochem, Inc. (a) 93,088
9,900 First Horizon Pharmaceutical Corp. (a) 170,775
300 GTx, Inc. (a) 2,268
2,500 Hi-Tech Pharmacal Co., Inc. (a) 110,725
12,827 Immunogen, Inc. (a) 65,803
12,600 Inspire Pharmaceuticals, Inc. (a) 64,008
21,489 Isis Pharmaceuticals, Inc. (a) 112,602
6,400 Ista Pharmaceuticals, Inc. (a) 40,704
10,600 KV Pharmaceutical Co. Class A (a) 218,360
23,700 MGI Pharma, Inc. (a) 406,692
34,300 Medarex, Inc. (a) 475,055
17,327 Medicines Co. (a) 302,356
17,100 Medicis Pharmaceutical Corp. Class A 548,055
24,300 Nektar Therapeutics (a)(e) 399,978
6,045 Neopharm, Inc. (a) 65,226
1,100 New River Pharmaceuticals, Inc. (a) 57,068
6,700 NitroMed, Inc. (a)(e) 93,465
8,131 Noven Pharmaceuticals, Inc. (a) 123,022
11,100 Onyx Pharmaceuticals, Inc. (a) 319,236
9,300 Pain Therapeutics, Inc. (a) 62,868
9,900 Par Pharmaceutical Cos., Inc. (a) 310,266
8,500 Penwest Pharmaceuticals Co. (a) 165,920
29,015 Perrigo Co. 432,614
8,800 Pharmion Corp. (a) 156,376
8,000 Pozen, Inc. (a) 76,720
10,219 Regeneron Pharmaceuticals, Inc. (a) 162,993
6,900 Renovis, Inc. (a) 105,570
4,650 SFBC International, Inc. (a)(e) 74,447
11,900 Salix Pharmaceuticals Ltd. (a) 209,202
20,182 SuperGen, Inc. (a) 101,919
6,546 United Therapeutics Corp. (a) 452,460
30,700 Vertex Pharmaceuticals, Inc. (a) 849,469
-------------
11,173,190
- - -----------------------------------------------------------------------------------------------------------------------------
Education Services - 0.5% 7,904 Bright Horizons Family Solutions, Inc. (a) 292,843
31,100 Corinthian Colleges, Inc. (a) 366,358
17,500 DeVry, Inc. (a) 350,000
3,400 Educate, Inc. (a) 40,120
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,830 Learning Tree International, Inc. (a) $ 61,969
2,249 Renaissance Learning, Inc. 42,529
4,220 Strayer Education, Inc. 395,414
7,900 Universal Technical Institute, Inc. (a) 244,426
-------------
1,793,659
- - -----------------------------------------------------------------------------------------------------------------------------
Electrical & Electronics - 0.3% 12,586 Benchmark Electronics, Inc. (a) 423,267
2,200 LeCroy Corp. (a) 33,638
6,400 OSI Systems, Inc. (a) 117,696
12,798 Plexus Corp. (a) 291,027
8,632 Power Integrations, Inc. (a) 205,528
11,700 TTM Technologies, Inc. (a) 109,980
9,607 Universal Display Corp. (a)(e) 100,970
-------------
1,282,106
- - -----------------------------------------------------------------------------------------------------------------------------
Electrical Equipment & Components - 0.9% 6,881 AO Smith Corp. 241,523
12,800 American Superconductor Corp. (a)(e) 100,736
9,771 Baldor Electric Co. 250,626
11,008 CTS Corp. 121,748
8,518 Cohu, Inc. 194,807
2,100 Color Kinetics, Inc. (a) 30,219
6,260 Franklin Electric Co., Inc. 247,520
13,190 General Cable Corp. (a) 259,843
8,616 Genlyte Group, Inc. (a) 461,559
8,560 Littelfuse, Inc. (a) 233,260
9,900 MKS Instruments, Inc. (a) 177,111
2,031 Powell Industries, Inc. (a) 36,477
19,100 Power-One, Inc. (a) 114,982
7,100 Sonic Solutions, Inc. (a) 107,281
5,300 Spatialight, Inc. (a)(e) 18,709
22,600 Taser International, Inc. (a)(e) 157,522
11,961 Technitrol, Inc. 204,533
5,979 Triumph Group, Inc. (a) 218,891
-------------
3,177,347
- - -----------------------------------------------------------------------------------------------------------------------------
Electrical: Household Appliance - 0.1% 25,100 Maytag Corp. 472,382
1,450 National Presto Industries, Inc. 64,307
-------------
536,689
- - -----------------------------------------------------------------------------------------------------------------------------
Electronics - 0.5% 21,812 Aeroflex, Inc. (a) 234,479
11,563 Agilysys, Inc. 210,678
4,299 Daktronics, Inc. 127,121
6,672 II-VI, Inc. (a) 119,229
22,000 Kopin Corp. (a) 117,700
34,766 MRV Communications, Inc. (a)(e) 71,270
11,180 Methode Electronics, Inc. 111,465
1,300 Multi-Fineline Electronix, Inc. (a) 62,621
6,449 Park Electrochemical Corp. 167,545
19,600 Semtech Corp. (a) 357,896
4,267 Supertex, Inc. (a) 188,815
-------------
1,768,819
- - -----------------------------------------------------------------------------------------------------------------------------
Electronics: Instruments, Gauges & Meters - 0.2% 3,400 Faro Technologies, Inc. (a) 68,000
7,882 Itron, Inc. (a) 315,595
3,801 Keithley Instruments, Inc. 53,138
2,500 Measurement Specialties, Inc. (a) 60,875
5,200 Metrologic Instruments, Inc. (a) 100,152
-------------
597,760
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Electronics: Medical Systems - 1.1% 4,572 Analogic Corp. $ 218,770
6,000 Aspect Medical Systems, Inc. (a) 206,100
5,887 Bruker BioSciences Corp. (a) 28,611
6,200 Candela Corp. (a) 89,528
4,170 Datascope Corp. 137,818
10,700 EPIX Pharmaceuticals, Inc. (a) 43,228
14,750 eResearch Technology, Inc. (a) 222,725
6,300 Greatbatch, Inc. (a) 163,863
7,572 Haemonetics Corp. (a) 369,968
13,600 HealthTronics, Inc. (a) 104,040
11,800 Hologic, Inc. (a) 447,456
8,900 Illumina, Inc. (a) 125,490
1,200 IntraLase Corp. (a) 21,396
10,281 Intuitive Surgical, Inc. (a) 1,205,653
6,851 Luminex Corp. (a) 79,609
2,900 Neurometrix, Inc. (a) 79,112
1,800 Quality Systems, Inc. 138,168
4,400 Somanetics Corp. (a) 136,400
6,932 TriPath Imaging, Inc. (a) 41,869
4,261 Zoll Medical Corp. (a) 107,335
-------------
3,967,139
- - -----------------------------------------------------------------------------------------------------------------------------
Electronics: Semi-Conductors/ Components - 2.9% 11,600 AMIS Holdings, Inc. (a) 123,540
9,516 Actel Corp. (a) 121,139
33,200 Amkor Technology, Inc. (a)(e) 185,920
93,800 Applied Micro Circuits Corp. (a) 241,066
126,800 Atmel Corp. (a) 391,812
12,200 Bell Microproducts, Inc. (a) 93,330
30,900 Cirrus Logic, Inc. (a) 206,412
141,200 Conexant Systems, Inc. (a) 319,112
37,200 Cypress Semiconductor Corp. (a) 530,100
10,783 DSP Group, Inc. (a) 270,222
6,075 Diodes, Inc. (a) 188,629
8,627 Exar Corp. (a) 108,010
3,173 Excel Technology, Inc. (a) 75,454
37,800 Fairchild Semiconductor
International, Inc. (a) 639,198
10,000 Formfactor, Inc. (a) 244,300
9,700 Genesis Microchip, Inc. (a) 175,473
5,693 IXYS Corp. (a) 66,551
55,730 Integrated Device Technology, Inc. (a) 734,521
15,338 Integrated Silicon Solutions, Inc. (a) 98,777
11,000 International DisplayWorks, Inc. (a)(e) 65,340
33,200 Lattice Semiconductor Corp. (a) 143,424
2,700 Leadis Technology, Inc. (a) 13,905
10,300 MIPS Technologies, Inc. (a) 58,504
19,900 Micrel, Inc. (a) 230,840
19,090 Microsemi Corp. (a) 528,029
21,000 Microtune, Inc. (a) 87,570
2,900 Monolithic Power Systems, Inc. (a) 43,471
4,300 Netlogic Microsystems, Inc. (a) 117,132
43,700 ON Semiconductor Corp. (a) 241,661
16,900 Omnivision Technologies, Inc. (a) 337,324
6,800 PLX Technology, Inc. (a) 58,480
60,000 PMC-Sierra, Inc. (a) 462,600
12,793 Pericom Semiconductor Corp. (a) 101,960
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
13,564 Pixelworks, Inc. (a) $ 68,905
3,300 Portalplayer, Inc. (a) 93,456
57,600 RF Micro Devices, Inc. (a) 311,616
31,300 Rambus, Inc. (a)(e) 506,747
12,600 Sigmatel, Inc. (a) 165,060
24,276 Silicon Image, Inc. (a) 219,698
12,400 Silicon Laboratories, Inc. (a) 454,584
25,758 Silicon Storage Technology, Inc. (a) 130,078
12,100 Sirf Technology Holdings, Inc. (a) 360,580
49,333 Skyworks Solutions, Inc. (a) 251,105
2,400 Sunpower Corp. Class A (a) 81,576
13,800 Tessera Technologies, Inc. (a) 356,730
39,100 Transwitch Corp. (a)(e) 71,553
40,536 Triquint Semiconductor, Inc. (a) 180,385
2,200 Virage Logic Corp. (a) 21,736
68,800 Vitesse Semiconductor Corp. (a) 132,096
3,200 Volterra Semiconductor Corp. (a) 48,000
-------------
10,757,711
- - -----------------------------------------------------------------------------------------------------------------------------
Electronics: Technology - 0.7% 2,700 3D Systems Corp. (a) 48,600
2,100 American Science & Engineering, Inc. (a) 130,977
10,123 Checkpoint Systems, Inc. (a) 249,532
10,980 Coherent, Inc. (a) 325,886
4,452 Cubic Corp. 88,862
7,174 DRS Technologies, Inc. 368,887
6,726 EDO Corp. 182,006
4,600 Essex Corp. (a) 78,430
6,150 Herley Industries, Inc. (a) 101,536
34,030 Identix, Inc. (a) 170,490
2,850 Innovative Solutions & Support, Inc. (a) 36,423
10,284 Intermagnetics General Corp. (a) 328,060
4,700 Ionatron, Inc. (a)(e) 47,517
25,300 Kemet Corp. (a) 178,871
4,200 LaBarge, Inc. (a) 60,354
3,100 Scansource, Inc. (a) 169,508
1,500 Sypris Solutions, Inc. 14,970
-------------
2,580,909
- - -----------------------------------------------------------------------------------------------------------------------------
Energy Equipment - 0.0% 8,700 Global Power Equipment Group, Inc. (a) 39,324
18,826 Plug Power, Inc. (a)(e) 96,577
-------------
135,901
- - -----------------------------------------------------------------------------------------------------------------------------
Energy Miscellaneous - 0.6% 3,500 Alon USA Energy, Inc. (a) 68,775
2,800 Crosstex Energy, Inc. 176,568
8,600 Evergreen Solar, Inc. (a) 91,590
11,826 FuelCell Energy, Inc. (a)(e) 100,166
5,900 Holly Corp. 347,333
17,600 KFX, Inc. (a)(e) 301,136
200 Markwest Hydrocarbon, Inc. 4,402
5,258 Penn Virginia Corp. 301,809
13,200 Syntroleum Corp. (a)(e) 119,196
8,936 Tetra Technologies, Inc. (a) 272,727
11,197 Veritas DGC, Inc. (a) 397,382
-------------
2,181,084
- - -----------------------------------------------------------------------------------------------------------------------------
Engineering & Contracting 3,800 Clean Harbors, Inc. (a) 109,478
Services - 0.4% 13,802 Dycom Industries, Inc. (a) 303,644
2,000 Infrasource Services, Inc. (a) 26,160
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
2,900 Layne Christensen Co. (a) $ 73,747
38,700 Quanta Services, Inc. (a) 509,679
12,677 URS Corp. (a) 476,782
-------------
1,499,490
- - -----------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.2% 1,100 Carmike Cinemas, Inc. 27,896
4,840 Dover Motorsports, Inc. 29,572
11,955 Gaylord Entertainment Co. (a) 521,118
3,472 Lodgenet Entertainment Corp. (a) 48,400
9,415 Movie Gallery, Inc. (e) 52,818
4,155 Speedway Motorsports, Inc. 144,054
-------------
823,858
- - -----------------------------------------------------------------------------------------------------------------------------
Fertilizers - 0.1% 34,500 Terra Industries, Inc. (a)(e) 193,200
- - -----------------------------------------------------------------------------------------------------------------------------
Finance Companies - 0.2% 4,400 Accredited Home Lenders Holding Co. (a) 218,152
3,900 Asta Funding, Inc. 106,626
800 Delta Financial Corp. 6,704
2,300 International Securities Exchange, Inc. (a) 63,296
1,400 United PanAm Financial Corp. (a) 36,218
7,500 World Acceptance Corp. (a) 213,750
-------------
644,746
- - -----------------------------------------------------------------------------------------------------------------------------
Finance: Small Loan - 0.1% 21,200 Advance America, Cash Advance Centers, Inc. 262,880
2,450 Collegiate Funding Services LLC (a) 48,387
4,800 Encore Capital Group, Inc. (a) 83,280
200 QC Holdings, Inc. (a) 2,306
-------------
396,853
- - -----------------------------------------------------------------------------------------------------------------------------
Financial Data Processing Services & Systems - 0.9% 7,800 Advent Software, Inc. (a) 225,498
995 CCC Information Services Group (a) 26,089
6,989 CompuCredit Corp. (a) 268,937
7,800 Cybersource Corp. (a) 51,480
9,130 Digital Insight Corp. (a) 292,343
14,888 eFunds Corp. (a) 348,975
8,423 eSpeed, Inc. Class A (a) 64,941
15,500 Hypercom Corp. (a) 99,045
4,700 iPayment, Inc. (a) 195,144
21,200 Jack Henry & Associates, Inc. 404,496
8,982 John H. Harland Co. 337,723
10,849 Kronos, Inc. (a) 454,139
8,164 NDCHealth Corp. 156,994
5,500 Online Resources Corp. (a) 60,775
22,413 PRG-Schultz International, Inc. (a) 13,672
1,200 TNS, Inc. (a) 23,016
5,900 TradeStation Group, Inc. (a) 73,042
11,800 Wright Express Corp. (a) 259,600
-------------
3,355,909
- - -----------------------------------------------------------------------------------------------------------------------------
Financial Information Services - 0.2% 4,100 Bankrate, Inc. (a) 121,032
9,050 Factset Research Systems, Inc. 372,498
43,100 Homestore, Inc. (a) 219,810
1,800 Morningstar, Inc. (a) 62,352
23,422 S1 Corp. (a) 101,886
400 Value Line, Inc. 13,972
-------------
891,550
- - -----------------------------------------------------------------------------------------------------------------------------
Financial Miscellaneous - 0.9% 5,000 ACE Cash Express, Inc. (a) 116,750
7,500 Advanta Corp. Class B 243,300
1,400 Asset Acceptance Capital Corp. (a) 31,444
9,219 Cash America International, Inc. 213,789
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
400 Enstar Group, Inc. (a) $ 26,500
4,500 Federal Agricultural Mortgage Corp. Class B 134,685
4,167 Financial Federal Corp. 185,223
5,500 First Cash Financial Services, Inc. (a) 160,380
4,700 Global Cash Access, Inc. (a) 68,573
7,600 Harris & Harris Group, Inc. 105,640
4,599 LandAmerica Financial Group, Inc. 286,978
29,200 MoneyGram International, Inc. 761,536
3,700 Portfolio Recovery Associates, Inc. (a) 171,828
3,800 Sanders Morris Harris Group, Inc. 62,282
13,536 Sotheby's Holdings Inc. Class A (a) 248,521
4,716 Sterling Bancorp 93,047
4,922 Stewart Information Services Corp. 239,554
1,033 Stifel Financial Corp. (a) 38,830
4,176 Triad Guaranty, Inc. (a) 183,702
2,291 WSFS Financial Corp. 140,324
-------------
3,512,886
- - -----------------------------------------------------------------------------------------------------------------------------
Foods - 0.9% 2,134 American Italian Pasta Co. Class A 14,511
13,300 Chiquita Brands International, Inc. 266,133
16,184 Flowers Foods, Inc. 446,031
11,857 Hain Celestial Group, Inc. (a) 250,894
2,300 J&J Snack Foods Corp. 136,643
2,300 John B. Sanfilippo & Son, Inc. (a) 29,739
9,900 Lance, Inc. 184,437
3,100 M&F Worldwide Corp. (a) 50,592
963 Maui Land & Pineapple Co., Inc. (a) 32,675
17,300 NBTY, Inc. (a) 281,125
4,900 Natures Sunshine Prods, Inc. 88,592
9,800 Performance Food Group Co. (a) 278,026
3,200 Premium Standard Farms, Inc. 47,872
1,500 Provide Commerce, Inc. (a) 49,665
9,595 Ralcorp Holdings, Inc. (a) 382,936
4,350 Sanderson Farms, Inc. 132,806
112 Seaboard Corp. 169,232
14,657 Sensient Technologies Corp. 262,360
6,800 Tootsie Roll Industries, Inc. 196,724
-------------
3,300,993
- - -----------------------------------------------------------------------------------------------------------------------------
Forest Products - 0.3% 3,209 Deltic Timber Corp. 166,419
16,121 Longview Fibre Co. 335,478
8,197 Potlatch Corp. 417,883
5,434 Universal Forest Products, Inc. 300,229
-------------
1,220,009
- - -----------------------------------------------------------------------------------------------------------------------------
Forms & Bulk Printing Services - 0.1% 10,800 Ennis, Inc. 196,236
4,945 The Standard Register Co. 78,180
-------------
274,416
- - -----------------------------------------------------------------------------------------------------------------------------
Funeral Parlors & Cemeteries - 0.1% 15,300 Alderwoods Group, Inc. (a) 242,811
31,024 Stewart Enterprises, Inc. Class A 167,840
-------------
410,651
- - -----------------------------------------------------------------------------------------------------------------------------
Glass - 0.1% 11,600 Apogee Enterprises, Inc. 188,152
- - -----------------------------------------------------------------------------------------------------------------------------
Gold - 0.1% 64,800 Coeur d'Alene Mines Corp. (a) 259,200
3,400 Royal Gold, Inc. 118,082
-------------
377,282
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Health Care Facilities - 0.9% 11,000 American Healthways, Inc. (a) $ 497,750
37,026 Beverly Enterprises, Inc. (a) 432,093
3,400 Brookdale Senior Living, Inc. 101,354
4,800 Genesis HealthCare Corp. (a) 175,296
8,000 Kindred Healthcare, Inc. (a) 206,080
7,050 LCA-Vision, Inc. 334,945
2,100 Medcath Corp. (a) 38,955
1,900 National Healthcare Corp. 71,022
17,000 PainCare Holdings, Inc. (a)(e) 55,420
7,000 Psychiatric Solutions, Inc. (a) 411,180
2,500 Radiation Therapy Services, Inc. (a) 88,275
4,200 Res-Care, Inc. (a) 72,954
1,824 Specialty Laboratories, Inc. (a) 23,803
9,074 Sunrise Senior Living, Inc. (a) 305,885
14,650 United Surgical Partners
International, Inc. (a) 470,998
-------------
3,286,010
- - -----------------------------------------------------------------------------------------------------------------------------
Health Care Management Services - 0.7% 8,141 Allscripts Healthcare Solutions, Inc. (a)(e) 109,089
1,650 American Dental Partners, Inc. (a) 29,832
11,100 Amsurg Corp. (a) 253,746
7,200 Bioscript, Inc. (a) 54,288
13,900 Centene Corp. (a) 365,431
1,900 Computer Programs & Systems, Inc. 78,717
1,957 Corvel Corp. (a) 37,163
14,031 Eclipsys Corp. (a) 265,607
16,697 Hooper Holmes, Inc. 42,577
4,800 Horizon Health Corp. (a) 108,624
4,400 Molina Healthcare, Inc. (a) 117,216
7,000 Pediatrix Medical Group, Inc. (a) 619,990
8,898 Per-Se Technologies, Inc. (a) 207,857
9,700 Phase Forward, Inc. (a) 94,575
1,900 Vital Images, Inc. (a) 49,685
4,900 WellCare Health Plans, Inc. (a) 200,165
-------------
2,634,562
- - -----------------------------------------------------------------------------------------------------------------------------
Health Care Services - 0.6% 2,800 Adeza Biomedical Corp. (a) 58,940
2,500 Alliance Imaging, Inc. (a) 14,875
5,600 Allied Healthcare International, Inc. (a) 34,384
3,700 Amedisys, Inc. (a) 156,288
6,600 America Retirement Corp. (a) 165,858
13,200 Apria Healthcare Group, Inc. (a) 318,252
3,000 Bio-Reference Labs, Inc. (a) 56,430
4,412 Gentiva Health Services, Inc. (a) 65,033
10,525 Healthcare Services Group 217,973
7,727 IDX Systems Corp. (a) 339,370
7,400 Matria Healthcare, Inc. (a) 286,824
10,100 Odyssey HealthCare, Inc. (a) 188,264
3,900 Symbion, Inc. (a) 89,700
5,100 VistaCare, Inc. Class A (a) 63,750
2,200 WebMD Health Corp. Class A (a) 63,910
-------------
2,119,851
- - -----------------------------------------------------------------------------------------------------------------------------
Homebuilding - 0.2% 2,600 Comstock Homebuilding Cos., Inc. Class A (a) 36,686
4,760 Levitt Corp. Class A 108,242
4,200 M/I Homes, Inc. 170,604
700 Orleans Homebuilders, Inc. 12,845
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
6,462 Technical Olympic USA, Inc. $ 136,284
10,200 WCI Communities, Inc. (a) 273,870
700 William Lyon Homes, Inc. (a) 70,630
-------------
809,161
- - -----------------------------------------------------------------------------------------------------------------------------
Hotel/Motel - 0.1% 7,000 Lodgian, Inc. (a) 75,110
5,779 Marcus Corp. 135,806
-------------
210,916
- - -----------------------------------------------------------------------------------------------------------------------------
Household Furnishings - 0.5% 4,400 American Woodmark Corp. 109,076
3,200 Bassett Furniture Industries, Inc. 59,200
11,200 The Bombay Co., Inc. (a) 33,152
9,600 Ethan Allen Interiors, Inc. 350,688
13,300 Furniture Brands International, Inc. 296,989
4,836 Haverty Furniture Cos., Inc. 62,336
1,700 Hooker Furniture Corp. 29,172
16,000 La-Z-Boy, Inc. (e) 216,960
6,288 Libbey, Inc. 64,263
2,300 Lifetime Brands, Inc. 47,541
10,600 Select Comfort Corp. (a) 289,910
5,800 Stanley Furniture Co., Inc. 134,444
-------------
1,693,731
- - -----------------------------------------------------------------------------------------------------------------------------
Identification Control & Filter Devices - 0.9% 8,912 Advanced Energy Industries, Inc. (a) 105,429
12,767 Artesyn Technologies, Inc. (a) 131,500
16,341 Asyst Technologies Inc. (a) 93,471
1,100 Badger Meter, Inc. 43,164
7,394 C&D Technologies, Inc. 56,342
17,900 Crane Co. 631,333
7,932 ESCO Technologies, Inc. (a) 352,895
6,700 Flanders Corp. (a) 81,472
15,300 Flowserve Corp. (a) 605,268
1,875 The Gorman-Rupp Co. 41,456
8,526 Mine Safety Appliances Co. 308,726
13,582 Paxar Corp. (a) 266,615
3,312 Robbins & Myers, Inc. 67,399
3,000 Sun Hydraulics, Inc. 57,990
10,427 Veeco Instruments, Inc. (a) 180,700
5,496 Vicor Corp. 86,892
3,600 Viisage Technology, Inc. (a) 63,396
7,436 Watts Water Technologies, Inc. Class A 225,236
9,617 X-Rite, Inc. 96,170
-------------
3,495,454
- - -----------------------------------------------------------------------------------------------------------------------------
Industrial Producers - 0.0% 3,500 TAL International Group, Inc. (a) 72,275
- - -----------------------------------------------------------------------------------------------------------------------------
Insurance: Life - 0.4% 15,400 American Equity Investment Life
Holding Co. (e) 200,970
6,500 Ceres Group, Inc. (a) 33,605
8,355 Citizens, Inc. (a) 45,532
9,770 Delphi Financial Group Class A 449,518
2,680 Great American Financial Resources, Inc. 53,171
1,142 Kansas City Life Insurance Co. 57,545
662 National Western Life Insurance Co. Class A 136,974
27,900 The Phoenix Cos., Inc. 380,556
5,893 Presidential Life Corp. 112,203
10,000 Universal American Financial Corp. (a) 150,800
-------------
1,620,874
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line - 0.6% 9,540 Alfa Corp. $ 153,594
3,186 CNA Surety Corp. (a) 46,420
6,809 Crawford & Co. Class B 39,220
300 EMC Insurance Group, Inc. 5,982
3,425 FBL Financial Group, Inc. Class A 112,374
8,400 HealthExtras, Inc. (a) 210,840
9,006 Hilb Rogal & Hobbs Co. 346,821
16,068 Horace Mann Educators Corp. 304,649
1,340 Independence Holding Co. 26,197
3,400 KMG America Corp. (a) 31,212
2,397 Pico Holdings, Inc. (a) 77,327
11,639 UICI 413,301
6,655 Zenith National Insurance Corp. 306,929
-------------
2,074,866
- - -----------------------------------------------------------------------------------------------------------------------------
Insurance: Property-Casualty - 1.4% 8,500 21st Century Insurance Group 137,530
5,250 Affirmative Insurance Holdings, Inc. 76,597
1,071 American Physicians Capital, Inc. (a) 49,041
8,866 Argonaut Group, Inc. (a) 290,539
4,332 Baldwin & Lyons, Inc. Class B 105,268
3,400 Bristol West Holdings, Inc. 64,702
34,330 Covanta Holding Corp. (a) 517,010
3,100 Direct General Corp. 52,390
2,533 Donegal Group, Inc. Class A 58,867
4,400 FPIC Insurance Group, Inc. (a) 152,680
3,700 First Acceptance Corp. (a) 38,073
20,200 Fremont General Corp. 469,246
5,462 Harleysville Group, Inc. 144,743
8,000 Infinity Property & Casualty Corp. 297,680
2,258 The Midland Co. 81,378
2,600 Navigators Group, Inc. (a) 113,386
2,000 Odyssey Re Holdings Corp. 50,160
21,415 Ohio Casualty Corp. 606,473
9,306 PMA Capital Corp. Class A (a) 84,964
8,223 ProAssurance Corp. (a) 399,967
6,554 RLI Corp. 326,848
4,900 Safety Insurance Group, Inc. 197,813
9,954 Selective Insurance Group 528,557
3,312 State Auto Financial Corp. 120,756
7,600 Tower Group, Inc. 167,048
4,100 United Fire & Casualty Co. 165,763
-------------
5,297,479
- - -----------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.6% 22,490 Apollo Investment Corp. 403,245
9,686 Ares Capital Corp. 155,654
5,200 Calamos Asset Management, Inc. Class A 163,540
500 Capital Southwest Corp. 45,250
1,500 Cohen & Steers, Inc. 27,945
2,996 GAMCO Investors, Inc. Class A 130,416
17,700 MCG Capital Corp. 258,243
2,923 NGP Capital Resources Co. 38,379
9,600 National Financial Partners Corp. 504,480
2,100 Technology Investment Capital Corp. 31,710
26,400 Waddell & Reed Financial, Inc. Class A 553,608
-------------
2,312,470
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Jewelry, Watches & Gemstones - 0.1% 4,820 Charles & Colvard Ltd. $ 97,364
17,200 Fossil, Inc. (a) 369,972
4,400 Movado Group, Inc. 80,520
-------------
547,856
- - -----------------------------------------------------------------------------------------------------------------------------
Leisure Time - 0.4% 26,700 Callaway Golf Co. 369,528
1,400 Escalade, Inc. 16,478
10,000 Great Wolf Resorts, Inc. (a) 103,100
12,800 K2, Inc. (a) 129,408
6,400 Life Time Fitness, Inc. (a) 243,776
11,600 Majesco Entertainment Co. (a)(e) 13,572
23,700 Six Flags, Inc. (a) 182,727
2,100 Steinway Musical Instruments Inc. (a) 53,571
9,978 Sturm Ruger & Co., Inc. 69,946
8,456 Vail Resorts, Inc. (a) 279,302
1,500 West Marine, Inc. (a) 20,970
-------------
1,482,378
- - -----------------------------------------------------------------------------------------------------------------------------
Machine Tools - 0.1% 12,792 Lincoln Electric Holdings, Inc. 507,331
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery & Engineering - 0.1% 8,760 Applied Industrial Technologies, Inc. 295,124
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Agricultural - 0.2% 26,600 AGCO Corp. (a) 440,762
400 Alamo Group, Inc. 8,200
4,350 Gehl Co. (a) 114,187
5,313 Lindsay Manufacturing Co. 102,169
-------------
665,318
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Construction & Handling - 0.3% 7,000 ASV, Inc. (a)(e) 174,860
6,017 Astec Industries, Inc. (a) 196,515
9,011 Manitowoc Co. 452,532
1,387 NACCO Industries, Inc. Class A 162,487
10,124 Stewart & Stevenson Services Inc. 213,920
-------------
1,200,314
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Engines - 0.2% 15,100 Briggs & Stratton Corp. 585,729
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Industrial/Specialty - 0.7% 8,000 Actuant Corp. Class A 446,400
6,100 EnPro Industries, Inc. (a) 164,395
9,057 Gardner Denver, Inc. (a) 446,510
3,370 Kadant, Inc. (a) 62,345
10,503 Kennametal, Inc. 536,073
2,200 Middleby Corp. (a) 190,300
8,010 Nordson Corp. 324,485
5,828 Tecumseh Products Co. Class A 133,519
2,637 Tennant Co. 137,124
2,993 Woodward Governor Co. 257,428
-------------
2,698,579
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Oil Well Equipment & Services - 1.6% 5,602 CARBO Ceramics, Inc. 316,625
22,074 Cal Dive International, Inc. (a) 792,236
1,688 Dril-Quip, Inc. (a) 79,674
27,500 Global Industries Ltd. (a) 312,125
3,717 Gulf Island Fabrication, Inc. 90,360
28,343 Hanover Compressor Co. (a) 399,920
4,340 Hornbeck Offshore Services, Inc. (a) 141,918
6,449 Hydril Co. (a) 403,707
19,746 Input/Output, Inc. (a) 138,814
3,600 Lufkin Industries, Inc. 179,532
29,920 Newpark Resources, Inc. (a) 228,290
6,804 Oceaneering International, Inc. (a) 338,703
11,900 Oil States International, Inc. (a) 376,992
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
29,681 Parker Drilling Co. (a) $ 321,445
6,900 RPC, Inc. 181,746
4,692 SEACOR Holdings, Inc. (a) 319,525
23,905 Superior Energy Services Inc. (a) 503,200
2,100 Superior Well Services, Inc. (a) 49,896
5,426 Universal Compression Holdings, Inc. (a) 223,117
10,357 W-H Energy Services, Inc. (a) 342,610
-------------
5,740,435
- - -----------------------------------------------------------------------------------------------------------------------------
Machinery: Specialty - 0.5% 4,900 Applied Films Corp. (a) 101,773
7,200 Bucyrus International, Inc. 379,440
3,700 Cascade Corp. 173,567
11,387 Engineered Support Systems, Inc. 474,155
15,998 JLG Industries, Inc. 730,469
4,741 Semitool, Inc. (a) 51,582
4,700 TurboChef Technologies, Inc. (a)(e) 67,492
-------------
1,978,478
- - -----------------------------------------------------------------------------------------------------------------------------
Manufactured Housing - 0.1% 23,127 Champion Enterprises, Inc. (a) 314,990
4,205 Palm Harbor Homes, Inc. (a)(e) 79,054
1,501 Skyline Corp. 54,636
-------------
448,680
- - -----------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.1% 16,359 Federal Signal Corp. 245,549
3,931 Standex International Corp. 109,125
-------------
354,674
- - -----------------------------------------------------------------------------------------------------------------------------
Medical & Dental Instruments & Supplies - 2.7% 4,500 Abaxis, Inc. (a) 74,160
3,800 Abiomed, Inc. (a) 35,112
15,800 Align Technology, Inc. (a) 102,226
21,400 American Medical Systems Holdings, Inc. (a) 381,562
1,900 Angiodynamics, Inc. (a) 48,507
2,900 Animas Corp. (a) 70,035
5,608 Arrow International, Inc. 162,576
5,000 Bio-Rad Laboratories, Inc. Class A (a) 327,200
4,349 Biosite, Inc. (a) 244,805
2,300 Cantel Medical Corp. (a) 41,262
13,000 Cepheid, Inc. (a) 114,140
11,028 Conmed Corp. (a) 260,922
2,500 Conor Medsystems, Inc. (a) 48,375
5,369 Cyberonics, Inc. (a) 173,419
5,600 DJ Orthopedics, Inc. (a) 154,448
100 DexCom, Inc. (a) 1,492
6,900 Diagnostic Products Corp. 334,995
8,200 Encore Medical Corp. (a) 40,590
3,200 ev3, Inc. (a) 47,168
3,600 FoxHollow Technologies Inc. (a)(e) 107,244
8,000 I-Flow Corp. (a) 116,960
5,550 ICU Medical, Inc. (a) 217,615
5,800 IRIS International, Inc. (a) 126,788
12,762 Immucor, Inc. (a) 298,120
10,822 Invacare Corp. 340,785
4,440 Inverness Medical Innovations, Inc. (a) 105,272
9,900 Kyphon, Inc. (a) 404,217
2,678 Landauer, Inc. 123,429
7,200 Laserscope (a) 161,712
10,500 Lifecell Corp. (a) 200,235
9,444 Mentor Corp. 435,180
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
3,100 Meridian Bioscience, Inc. $ 62,434
9,810 Merit Medical Systems, Inc. (a) 119,093
6,937 Molecular Devices Corp. (a) 200,687
6,800 NuVasive, Inc. (a) 123,080
17,059 OraSure Technologies, Inc. (a) 150,460
12,398 Owens & Minor, Inc. 341,317
23,373 PSS World Medical, Inc. (a) 346,855
6,300 Palomar Medical Technologies, Inc. (a) 220,752
8,629 PolyMedica Corp. 288,813
4,415 SonoSite, Inc. (a) 154,569
1,000 Stereotaxis, Inc. (a) 8,610
21,600 Steris Corp. 540,432
5,583 SurModics, Inc. (a) 206,515
12,300 Sybron Dental Specialties, Inc. (a) 489,663
2,500 Symmetry Medical, Inc. (a) 48,475
10,500 ThermoGenesis Corp. (a) 48,720
14,047 Thoratec Corp. (a) 290,632
10,960 Ventana Medical Systems Inc. (a) 464,156
9,100 Viasys Healthcare, Inc. (a) 233,870
1,624 Vital Signs, Inc. 69,540
8,476 West Pharmaceutical Services, Inc. 212,154
6,900 Wright Medical Group, Inc. (a) 140,760
600 Young Innovations, Inc. 20,448
-------------
10,082,586
- - -----------------------------------------------------------------------------------------------------------------------------
Medical Services - 0.2% 4,900 America Service Group, Inc. (a) 77,714
9,900 Magellan Health Services, Inc. (a) 311,355
3,471 Option Care, Inc. 46,373
10,297 Parexel International Corp. (a) 208,617
5,895 RehabCare Group, Inc. (a) 119,079
5,500 US Physical Therapy, Inc. (a) 101,585
-------------
864,723
- - -----------------------------------------------------------------------------------------------------------------------------
Metal Fabricating - 1.4% 3,500 CIRCOR International, Inc. 89,810
19,156 Commercial Metals Co. 719,116
200 Dynamic Materials Corp. 6,120
4,550 Encore Wire Corp. (a) 103,558
9,226 Kaydon Corp. 296,524
8,658 Lone Star Technologies Inc. (a) 447,272
12,863 Maverick Tube Corp. (a) 512,719
5,365 NN, Inc. 56,869
6,655 NS Group, Inc. (a) 278,246
8,007 Quanex Corp. 400,110
2,800 RBC Bearings, Inc. (a) 45,500
8,013 RTI International Metals, Inc. (a) 304,093
9,947 Reliance Steel & Aluminum Co. 607,961
5,400 Roanoke Electric Steel Corp. 127,440
6,493 Ryerson, Inc. 157,910
22,000 The Shaw Group, Inc. (a) 639,980
7,600 Superior Essex, Inc. (a) 153,216
4,158 Valmont Industries, Inc. 139,127
-------------
5,085,571
- - -----------------------------------------------------------------------------------------------------------------------------
Metals & Minerals Miscellaneous - 0.6% 1,600 AM Castle & Co. (a) 34,944
6,273 AMCOL International Corp. 128,722
5,311 Brush Engineered Materials, Inc. (a) 84,445
7,218 Cleveland-Cliffs, Inc. (e) 639,298
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,800 Compass Minerals International, Inc. $ 117,792
29,644 GrafTech International Ltd. (a) 184,386
40,600 Hecla Mining Co. (a) 164,836
7,153 Minerals Technologies, Inc. 399,781
11,864 Stillwater Mining Co. (a) 137,266
3,000 Titanium Metals Corp. (a)(e) 189,780
-------------
2,081,250
- - -----------------------------------------------------------------------------------------------------------------------------
Milling: Fruit & Grain Processing - 0.2% 23,378 Corn Products International, Inc. 558,500
- - -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Consumer Staples - 0.0% 3,300 Reddy Ice Holdings, Inc. 71,973
- - -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Materials & Commodities - 0.2% 6,750 Ceradyne, Inc. (a) 295,650
9,579 Symyx Technologies Inc. (a) 261,411
6,089 WD-40 Co. 159,897
-------------
716,958
- - -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Materials & Processing - 0.2% 8,638 Insituform Technologies, Inc. Class A (a) 167,318
7,500 Metal Management, Inc. 174,450
5,255 Rogers Corp. (a) 205,891
26,659 USEC, Inc. 318,575
1,900 Xerium Technologies, Inc. 15,979
-------------
882,213
- - -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Producer Durables - 0.2% 25,000 BE Aerospace, Inc. (a) 550,000
11,700 Blount International, Inc. (a) 186,381
-------------
736,381
- - -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Technology - 0.0% 4,700 IHS, Inc. Class A (a) 96,444
- - -----------------------------------------------------------------------------------------------------------------------------
Multi - Sector Companies - 0.5% 15,671 GenCorp, Inc. (a) 278,160
7,094 Kaman Corp. Class A 139,681
6,499 Lancaster Colony Corp. 240,788
4,500 Raven Industries, Inc. 129,825
1,465 Sequa Corp. Class A (a) 101,158
11,450 Trinity Industries, Inc. 504,602
300 United Capital Corp. (a) 7,401
12,002 Walter Industries, Inc. 596,739
-------------
1,998,354
- - -----------------------------------------------------------------------------------------------------------------------------
Office Furniture & Business Equipment - 0.1% 6,974 Kimball International, Inc. Class B 74,134
3,300 Knoll, Inc. 56,463
10,440 Presstek, Inc. (a) 94,378
-------------
224,975
- - -----------------------------------------------------------------------------------------------------------------------------
Offshore Drilling - 0.1% 3,427 Atwood Oceanics, Inc. (a) 267,409
1,900 Bois d'Arc Energy, Inc. (a) 30,134
2,900 Hercules Offshore, Inc. (a) 82,389
-------------
379,932
- - -----------------------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 3.0% 6,800 ATP Oil & Gas Corp. (a) 251,668
4,200 Atlas America, Inc. (a) 252,924
4,701 Berry Petroleum Co. Class A 268,897
3,900 Bill Barrett Corp. (a) 150,579
12,200 Brigham Exploration Co. (a) 144,692
1,700 Bronco Drilling Co., Inc. (a) 39,117
16,111 Cabot Oil & Gas Corp. Class A 726,606
5,900 Callon Petroleum Co. (a) 104,135
4,500 Carrizo Oil & Gas, Inc. (a) 111,195
15,300 Cheniere Energy, Inc. (a) 569,466
24,693 Cimarex Energy Co. 1,062,046
2,800 Clayton Williams Energy, Inc. (a) 116,872
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
12,957 Comstock Resources, Inc. (a) $ 395,318
3,400 Edge Petroleum Corp. (a) 84,694
16,600 Encore Acquisition Co. (a) 531,864
10,800 Endeavour International Corp. (a) 35,640
8,700 Energy Partners Ltd. (a) 189,573
12,200 FX Energy, Inc. (a)(e) 97,356
15,930 Frontier Oil Corp. 597,853
13,200 Gasco Energy, Inc. (a) 86,196
4,300 Goodrich Petroleum Corp. (a) 108,145
64,843 Grey Wolf, Inc. (a) 501,236
13,400 Harvest Natural Resources, Inc. (a) 118,992
7,983 Houston Exploration Co. (a) 421,502
7,200 McMoRan Exploration Co. (a)(e) 142,344
25,311 Meridian Resource Corp. (a) 106,306
12,200 Parallel Petroleum Corp. (a) 207,522
16,642 PetroHawk Energy Corp. (a) 220,007
5,800 Petroleum Development Corp. (a) 193,372
8,400 Petroquest Energy, Inc. (a) 69,552
4,000 Pioneer Drilling Co. (a) 71,720
8,020 Remington Oil & Gas Corp. (a) 292,730
6,649 Resource America, Inc. Class A 113,365
17,952 St. Mary Land & Exploration Co. 660,813
6,378 Stone Energy Corp. (a) 290,390
8,717 Swift Energy Co. (a) 392,875
13,200 Todco Class A 502,392
5,300 Toreador Resources Corp. (a)(e) 111,671
4,900 Tri-Valley Corp. (a)(e) 38,122
3,800 W&T Offshore, Inc. 111,720
5,200 Warren Resources, Inc. (a) 82,264
10,910 Whiting Petroleum Corp. (a) 436,400
-------------
11,010,131
- - -----------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Domestic - 0.2% 11,600 Delta Petroleum Corp. (a)(e) 252,532
3,600 Giant Industries, Inc. (a) 187,056
14,800 KCS Energy, Inc. (a) 358,456
-------------
798,044
- - -----------------------------------------------------------------------------------------------------------------------------
Paints & Coatings - 0.1% 13,276 Ferro Corp. 249,058
6,940 H.B. Fuller Co. 222,566
1,793 Kronos Worldwide, Inc. 52,015
-------------
523,639
- - -----------------------------------------------------------------------------------------------------------------------------
Paper - 0.5% 8,226 Albany International Corp. Class A 297,452
15,100 Bowater, Inc. 463,872
7,198 Buckeye Technologies, Inc. (a) 57,944
10,774 Caraustar Industries, Inc. (a) 93,626
4,892 Chesapeake Corp. 83,066
13,600 Mercer International, Inc.-Sbi (a) 106,896
3,300 Neenah Paper, Inc. 92,400
16,501 P.H. Glatfelter Co. 234,149
7,380 Rock-Tenn Co. Class A 100,737
14,242 Wausau Paper Corp. 168,768
-------------
1,698,910
- - -----------------------------------------------------------------------------------------------------------------------------
Plastics - 0.1% 12,454 Spartech Corp. 273,365
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Pollution Control & Environmental Services - 0.2% 5,200 American Ecology Corp. $ 75,036
15,900 Darling International, Inc. (a) 63,123
4,100 Duratek, Inc. (a) 61,213
13,346 Headwaters, Inc. (a) 472,982
-------------
672,354
- - -----------------------------------------------------------------------------------------------------------------------------
Power Transmission Equipment - 0.1% 9,251 Regal-Beloit Corp. 327,485
- - -----------------------------------------------------------------------------------------------------------------------------
Printing & Copying Services - 0.1% 13,582 Bowne & Co., Inc. 201,557
13,200 Cenveo, Inc. (a) 173,712
2,400 Schawk, Inc. 49,800
4,300 TRM Corp. (a) 32,035
-------------
457,104
- - -----------------------------------------------------------------------------------------------------------------------------
Production Technology Equipment - 1.4% 4,300 ADE Corp. (a) 103,458
13,157 ATMI, Inc. (a) 368,001
7,900 August Technology Corp. (a) 86,821
30,600 Axcelis Technologies, Inc. (a) 145,962
24,678 Brooks Automation, Inc. (a) 309,215
14,156 Cognex Corp. 425,954
25,268 Credence Systems Corp. (a) 175,865
11,200 Cymer, Inc. (a) 397,712
7,331 Dionex Corp. (a) 359,805
11,061 Electro Scientific Industries, Inc. (a) 267,123
16,800 Emcore Corp. (a) 124,656
35,599 Entegris, Inc. (a) 335,343
7,290 Esterline Technologies Corp. (a) 271,115
6,955 FEI Co. (a) 133,327
4,300 Intevac, Inc. (a) 56,760
17,956 Kulicke & Soffa Industries, Inc. (a) 158,731
22,303 LTX Corp. (a) 100,363
6,600 MTS Systems Corp. 228,624
10,899 Mattson Technology, Inc. (a) 109,644
5,862 Photon Dynamics, Inc. (a) 107,157
12,479 Photronics, Inc. (a) 187,934
4,400 Rofin-Sinar Technologies, Inc. (a) 191,268
4,273 Rudolph Technologies, Inc. (a) 55,036
5,190 Ultratech, Inc. (a) 85,220
10,842 Varian Semiconductor Equipment
Associates, Inc. (a) 476,289
-------------
5,261,383
- - -----------------------------------------------------------------------------------------------------------------------------
Publishing: Miscellaneous - 0.5% 8,794 Banta Corp. 437,941
4,400 Consolidated Graphics, Inc. (a) 208,296
1,950 Courier Corp. 66,963
5,382 Martha Stewart Living Omnimedia, Inc.
Class A (a)(e) 93,808
5,207 Playboy Enterprises, Inc. Class B (a) 72,325
43,200 Primedia, Inc. (a) 69,552
30,400 The Reader's Digest Association, Inc.
Class A 462,688
8,560 Scholastic Corp. (a) 244,046
6,000 Thomas Nelson, Inc. 147,900
-------------
1,803,519
- - -----------------------------------------------------------------------------------------------------------------------------
Publishing: Newspapers - 0.2% 23,329 Hollinger International, Inc. Class A 209,028
4,600 Journal Communications, Inc. Class A 64,170
12,033 Journal Register Co. 179,893
5,500 Media General, Inc. Class A 278,850
-------------
731,941
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Radio & TV Broadcasters - 0.7% 1,633 Beasley Broadcasting Group, Inc. Class A $ 22,062
17,500 Citadel Broadcasting Corp. 235,200
10,000 Cox Radio, Inc. Class A (a) 140,800
19,800 Cumulus Media, Inc. Class A (a) 245,718
7,700 Emmis Communications Corp. Class A (a) 153,307
10,700 Entercom Communications Corp. (a) 317,469
1,500 Fisher Communications, Inc. (a) 62,145
12,800 Gray Television, Inc. 125,696
4,854 Liberty Corp. 227,216
11,600 Lin TV Corp. Class A (a) 129,224
5,100 Outdoor Channel Holdings, Inc. (a) 68,850
29,900 Radio One, Inc. Class D (a) 309,465
9,971 Regent Communications, Inc. (a) 46,265
4,833 Saga Communications, Inc. Class A (a) 52,535
2,883 Salem Communications Corp. Class A (a) 50,424
18,264 Sinclair Broadcast Group, Inc. Class A 168,029
14,284 Spanish Broadcasting System, Inc.
Class A (a) 72,991
2,800 WPT Enterprises, Inc. (a)(e) 16,632
10,396 World Wrestling Entertainment, Inc. 152,613
3,900 WorldSpace, Inc. Class A (a) 56,589
-------------
2,653,230
- - -----------------------------------------------------------------------------------------------------------------------------
Railroad Equipment - 0.2% 1,700 Freightcar America, Inc. 81,736
2,800 Greenbrier Cos., Inc. 79,520
16,539 Westinghouse Air Brake Technologies Corp. 444,899
-------------
606,155
- - -----------------------------------------------------------------------------------------------------------------------------
Railroads - 0.4% 11,281 Florida East Coast Industries, Inc. 477,976
5,850 Genesee & Wyoming, Inc. Class A (a) 219,667
22,876 Kansas City Southern (a) 558,861
10,102 RailAmerica, Inc. (a) 111,021
-------------
1,367,525
- - -----------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.3% 1,500 Avatar Holdings, Inc. (a)(e) 82,380
5,500 Bluegreen Corp. (a) 86,900
3,700 California Coastal Communities, Inc. (a) 145,151
1,700 Consolidated-Tomoka Land Co. 120,530
4,100 Housevalues, Inc. (a)(e) 53,423
4,600 Newkirk Realty Trust, Inc. 71,300
8,000 Sunterra Corp. (a) 113,760
2,215 Tejon Ranch Co. (a) 88,423
9,800 Trammell Crow Co. (a) 251,370
-------------
1,013,237
- - -----------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REIT) - 6.3% 7,540 AMLI Residential Properties Trust 286,897
12,100 Aames Investment Corp. 78,166
10,101 Acadia Realty Trust 202,525
2,300 Affordable Residential Communities 21,919
1,100 Agree Realty Corp. 31,790
567 Alexander's, Inc. (a) 139,199
7,156 Alexandria Real Estate Equities, Inc. 576,058
6,250 American Campus Communities, Inc. 155,000
13,387 American Home Mortgage Investment Corp. 436,015
15,900 Anthracite Capital, Inc. 167,427
13,900 Anworth Mortgage Asset Corp. 101,470
5,700 Arbor Realty Trust, Inc. 147,744
14,600 Ashford Hospitality Trust, Inc. 153,154
5,699 Bedford Property Investors Inc. 125,036
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
3,800 Bimini Mortgage Management, Inc. Class A $ 34,390
13,550 BioMed Realty Trust, Inc. 330,620
8,900 Boykin Lodging Co. (a) 108,758
19,147 Brandywine Realty Trust 534,393
10,200 Capital Lease Funding, Inc. 107,406
2,500 Capital Trust, Inc. 73,200
3,200 Cedar Shopping Centers, Inc. 45,024
3,300 CentraCore Properties Trust 88,671
12,484 Colonial Properties Trust 524,078
4,500 Columbia Equity Trust, Inc. 72,675
15,275 Commercial Net Lease Realty 311,152
10,600 Corporate Office Properties Trust 376,724
11,500 Cousins Properties, Inc. 325,450
3,900 CRIIMI MAE, Inc. (a) 77,220
8,000 Deerfield Triarc Capital Corp. 109,600
10,400 DiamondRock Hospitality Co. 124,384
300 Digital Realty Trust, Inc. 6,789
16,700 ECC Capital Corp. 37,742
7,227 Eastgroup Properties Inc. 326,371
5,800 Education Realty Trust, Inc. 74,762
9,180 Entertainment Properties Trust 374,085
15,740 Equity Inns, Inc. 213,277
5,994 Equity Lifestyle Properties, Inc. 266,733
10,500 Equity One, Inc. 242,760
11,350 Extra Space Storage, Inc. 174,790
15,170 FelCor Lodging Trust, Inc. 261,076
19,300 Fieldstone Investment Corp. 228,898
11,800 First Industrial Realty Trust, Inc. 454,300
3,400 First Potomac Realty Trust 90,440
11,790 GMH Communities Trust 182,863
5,000 Getty Realty Corp. 131,450
6,839 Glenborough Realty Trust, Inc. 123,786
13,156 Glimcher Realty Trust 319,954
9,900 Government Properties Trust, Inc. 92,367
2,550 Gramercy Capital Corp. 58,089
8,000 Heritage Property Investment Trust 267,200
9,600 Hersha Hospitality Trust 86,496
9,500 Highland Hospitality Corp. 104,975
15,100 Highwoods Properties, Inc. 429,595
8,220 Home Properties, Inc. 335,376
12,800 HomeBanc Corp. 95,744
21,500 IMPAC Mortgage Holdings, Inc. (e) 202,315
24,300 Inland Real Estate Corp. 359,397
12,592 Innkeepers USA Trust 201,472
13,300 Investors Real Estate Trust 122,759
4,000 JER Investors Trust, Inc. 67,800
9,978 Kilroy Realty Corp. 617,638
4,640 Kite Realty Group Trust 71,781
5,000 LTC Properties, Inc. 105,150
63,600 La Quinta Corp. (a) 708,504
8,820 LaSalle Hotel Properties 323,870
18,442 Lexington Corporate Properties Trust 392,815
17,000 Luminent Mortgage Capital, Inc. 127,670
25,500 MFA Mortgage Investments, Inc. 145,350
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
12,700 Maguire Properties, Inc. $ 392,430
4,200 Medical Properties Trust, Inc. 41,076
24,058 Meristar Hospitality Corp. (a) 226,145
7,029 Mid-America Apartment Communities, Inc. 340,907
8,450 MortgageIT Holdings, Inc. 115,427
6,729 National Health Investors, Inc. 174,685
200 National Health Realty, Inc. 3,714
20,959 Nationwide Health Properties, Inc. 448,523
15,500 Newcastle Investment Corp. 385,175
2,600 NorthStar Realty Finance Corp. 26,494
6,300 Novastar Financial, Inc. (e) 177,093
15,200 Omega Healthcare Investors, Inc. 191,368
4,700 One Liberty Properties, Inc. 86,527
5,000 Origen Financial, Inc. 35,600
4,408 PS Business Parks, Inc. 216,874
3,104 Parkway Properties, Inc. 124,595
11,332 Pennsylvania Real Estate Investment Trust 423,364
13,686 Post Properties, Inc. 546,756
12,550 Prentiss Properties Trust 510,534
8,600 RAIT Investment Trust 222,912
4,300 Ramco-Gershenson Properties Trust 114,595
5,695 Redwood Trust, Inc. 234,976
4,122 Saul Centers, Inc. 148,804
14,200 Saxon Capital Inc. 160,886
21,414 Senior Housing Properties Trust 362,111
2,800 Sizeler Property Investors, Inc. 35,980
4,404 Sovran Self Storage, Inc. 206,856
19,900 Spirit Finance Corp. 225,865
14,700 Strategic Hotel Capital, Inc. 302,526
6,643 Sun Communities, Inc. 208,590
5,700 Sunstone Hotel Investors, Inc. 151,449
9,422 Tanger Factory Outlet Centers, Inc. 270,788
1,975 Tarragon Corp. (a) 40,725
17,408 Taubman Centers, Inc. 604,928
6,363 The Town & Country Trust 215,133
19,400 Trustreet Properties, Inc. 283,628
12,270 U-Store-It Trust 258,284
4,327 Universal Health Realty Income Trust 135,608
5,800 Urstadt Biddle Properties, Inc. Class A 94,018
12,765 Washington Real Estate Investment Trust 387,418
6,855 Winston Hotels, Inc. 67,865
-------------
23,493,816
- - -----------------------------------------------------------------------------------------------------------------------------
Recreational Vehicles & Boats - 0.3% 5,943 Arctic Cat, Inc. 119,217
4,207 Coachmen Industries, Inc. 49,685
14,199 Fleetwood Enterprises, Inc. (a) 175,358
2,175 Marine Products Corp. 22,816
8,624 Monaco Coach Corp. 114,699
11,284 Thor Industries, Inc. 452,150
8,790 Winnebago Industries, Inc. 292,531
-------------
1,226,456
- - -----------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: Commercial - 0.3% 3,753 Electro Rent Corp. (a) 55,957
12,800 GATX Corp. 461,824
900 Interpool, Inc. 16,992
1,900 Marlin Business Services, Inc. (a) 45,391
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,710 McGrath RentCorp $ 130,938
18,500 United Rentals, Inc. (a) 432,715
4,700 Williams Scotsman International, Inc. (a) 81,357
-------------
1,225,174
- - -----------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: Consumer - 0.3% 11,393 Aaron Rents, Inc. 240,164
4,000 Amerco, Inc. (a) 288,200
7,995 Dollar Thrifty Automotive Group (a) 288,380
7,678 Rent-Way, Inc. (a) 49,062
9,258 WESCO International, Inc. (a) 395,594
-------------
1,261,400
- - -----------------------------------------------------------------------------------------------------------------------------
Restaurants - 1.5% 10,000 AFC Enterprises Inc. 151,200
3,300 BJ's Restaurants, Inc. (a) 75,438
13,180 Bob Evans Farms, Inc. 303,931
3,325 Buffalo Wild Wings, Inc. (a) 110,423
9,850 CEC Entertainment, Inc. (a) 335,294
17,300 CKE Restaurants, Inc. 233,723
7,400 California Pizza Kitchen, Inc. (a) 236,578
2,200 Dave & Buster's, Inc. (a) 38,742
26,100 Denny's Corp. (a) 103,878
8,650 Domino's Pizza, Inc. 209,330
6,148 IHOP Corp. 288,403
11,618 Jack in the Box, Inc. (a) 405,817
15,800 Krispy Kreme Doughnuts, Inc. (a)(e) 90,692
3,096 Landry's Restaurants, Inc. 82,694
7,354 Lone Star Steakhouse & Saloon, Inc. 174,584
9,000 Luby's, Inc. (a) 119,700
400 McCormick & Schmick's Seafood
Restaurants, Inc. (a) 9,044
9,684 O'Charleys, Inc. (a) 150,199
6,708 PF Chang's China Bistro, Inc. (a) 332,918
2,248 Papa John's International, Inc. (a) 133,329
12,777 Rare Hospitality International, Inc. (a) 388,293
3,600 Red Robin Gourmet Burgers, Inc. (a) 183,456
19,700 Ruby Tuesday, Inc. 510,033
4,300 Ruth's Chris Steak House, Inc. (a) 77,830
14,600 Ryan's Restaurant Group, Inc. (a) 176,076
6,828 The Steak n Shake Co. (a) 115,735
11,400 Texas Roadhouse, Inc. Class A (a) 177,270
11,350 Triarc Cos. 168,548
-------------
5,383,158
- - -----------------------------------------------------------------------------------------------------------------------------
Retail - 4.4% 1,700 1-800 Contacts, Inc. (a) 19,907
11,024 1-800-FLOWERS.COM, Inc. Class A (a) 70,774
12,500 99 Cents Only Stores (a) 130,750
6,100 AC Moore Arts & Crafts, Inc. (a) 88,755
16,450 Aeropostale, Inc. (a) 432,635
4,750 America's Car Mart, Inc. (a) 78,470
2,600 Asbury Automotive Group, Inc. (a) 42,796
5,400 Big 5 Sporting Goods Corp. 118,206
39,100 Big Lots, Inc. (a) 469,591
846 Blair Corp. 32,943
51,400 Blockbuster, Inc. Class A (e) 192,750
3,900 Blue Nile, Inc. (a)(e) 157,209
3,600 The Bon-Ton Stores, Inc. 68,868
5,779 Brown Shoe Co., Inc. 245,203
1,449 The Buckle, Inc. 46,716
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,000 Build-A-Bear Workshop, Inc. (a)(e) $ 118,560
5,292 Burlington Coat Factory Warehouse Corp. 212,791
16,534 CSK Auto Corp. (a) 249,333
7,900 Cabela's, Inc. Class A (a)(e) 131,140
4,850 Cache, Inc. (a) 84,002
9,600 Casual Male Retail Group, Inc. (a)(e) 58,848
9,395 The Cato Corp. Class A 201,523
4,500 Central Garden and Pet Co. (a) 206,730
2,100 Charlotte Russe Holding, Inc. (a) 43,743
40,740 Charming Shoppes, Inc. (a) 537,768
5,885 The Children's Place Retail Stores, Inc. (a) 290,837
11,928 Christopher & Banks Corp. 224,008
11,345 Coldwater Creek, Inc. (a) 346,363
600 Conn's, Inc. (a)(e) 22,122
4,376 Cost Plus, Inc. (a) 75,048
500 DEB Shops, Inc. 14,865
6,200 Design Within Reach, Inc. (a) 32,860
8,445 Dress Barn, Inc. (a) 326,061
6,733 dELiA*s, Inc. (a) 55,888
15,400 drugstore.com, Inc. (a) 43,890
4,000 FTD Group, Inc. (a) 41,560
15,035 Fred's, Inc. 244,619
8,900 GSI Commerce, Inc. (a) 134,301
15,757 GameStop Corp. Class A (a)(e) 501,388
16 Gander Mountain Co. (a) 95
6,838 Genesco, Inc. (a) 265,246
7,600 Global Imaging Systems, Inc. (a) 263,188
5,332 Group 1 Automotive, Inc. (a) 167,585
7,039 Guitar Center, Inc. (a) 352,020
12,158 Gymboree Corp. (a) 284,497
11,481 HOT Topic, Inc. (a) 163,604
5,561 Handleman Co. 69,068
12,175 Hibbett Sporting Goods, Inc. (a) 346,744
17,498 Insight Enterprises, Inc. (a) 343,136
8,062 The J. Jill Group, Inc. (a) 153,420
6,705 Jo-Ann Stores, Inc. (a) 79,119
3,287 Jos. A. Bank Clothiers, Inc. (a) 142,689
1,647 Lawson Products, Inc. 62,158
12,118 Linens 'N Things, Inc. (a) 322,339
6,600 Lithia Motors, Inc. Class A 207,504
2,600 MarineMax, Inc. (a) 82,082
2,600 New York & Co. (a) 55,120
4,100 Overstock.com, Inc. (a)(e) 115,415
13,810 PEP Boys-Manny, Moe & Jack 205,631
21,100 Pacific Sunwear of California, Inc. (a) 525,812
6,200 The Pantry, Inc. (a) 291,338
19,600 Payless Shoesource, Inc. (a) 491,960
15,900 Petco Animal Supplies, Inc. (a) 349,005
24,299 Pier 1 Imports, Inc. 212,130
7,316 Priceline.com, Inc. (a) 163,293
9,700 Restoration Hardware, Inc. (a) 58,394
7,200 Retail Ventures, Inc. (a) 89,568
9,000 Rush Enterprises Inc. Class A (a) 133,920
3,547 Russ Berrie & Co., Inc. 40,507
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
6,854 School Specialty, Inc. (a) $ 249,760
700 Sharper Image Corp. (a) 6,818
8,600 Sonic Automotive, Inc. 191,608
6,426 The Sports Authority, Inc. (a) 200,041
8,200 Stage Stores, Inc. 244,196
5,003 Stamps.com, Inc. (a) 114,869
6,624 Stein Mart, Inc. 120,226
6,300 Talbots, Inc. 175,266
10,466 Too, Inc. (a) 295,246
11,200 Tractor Supply Co. (a) 592,928
7,630 Trans World Entertainment Corp. (a) 43,491
9,690 Tuesday Morning Corp. 202,715
7,531 United Auto Group, Inc. 287,684
12,780 United Natural Foods, Inc. (a) 337,392
7,956 ValueVision Media, Inc. Class A (a) 100,246
1,500 Volcom Inc. (a) 51,015
9,700 The Wet Seal, Inc. Class A (a)(e) 43,068
2,800 Wilsons The Leather Experts Inc. (a) 10,164
15,900 Zale Corp. (a) 399,885
1,800 Zumiez, Inc. (a) 77,796
-------------
16,174,822
- - -----------------------------------------------------------------------------------------------------------------------------
Savings & Loan - 2.1% 6,637 Anchor Bancorp Wisconsin, Inc. 201,367
11,350 BFC Financial Corp. (a) 62,652
16,738 Bank Mutual Corp. 177,423
16,742 BankAtlantic Bancorp, Inc. Class A 234,388
5,373 BankUnited Financial Corp. Class A 142,761
2,400 Berkshire Hills Bancorp, Inc. 80,400
1,900 Beverly Hills Bancorp, Inc. 19,703
22,487 Brookline Bancorp, Inc. 318,641
500 Charter Financial Corp. 17,855
4,702 Coastal Financial Corp. 59,950
15,926 Commercial Capital Bancorp, Inc. 272,653
10,149 Dime Community Bancshares, Inc. 148,277
8,722 Fidelity Bankshares, Inc. 285,209
1,220 First Defiance Financial Corp. 33,050
4,026 First Financial Holdings, Inc. 123,679
3,240 First Indiana Corp. 111,391
39,553 First Niagara Financial Group, Inc. 572,332
3,000 First Place Financial Corp. 72,150
8,250 First Republic Bank 305,332
4,100 FirstFed Financial Corp. (a) 223,532
8,250 Flagstar Bancorp, Inc. 118,800
4,975 Flushing Financial Corp. 77,461
3,078 Great Southern Bancorp, Inc. 84,984
6,817 Harbor Florida Bancshares, Inc. 252,570
3,000 Horizon Financial Corp. 65,520
1,850 IBERIABANK Corp. 94,368
2,700 ITLA Capital Corp. (a) 131,895
7,900 KNBT Bancorp, Inc. 128,691
6,300 Kearny Financial Corp. 76,860
9,860 MAF Bancorp, Inc. 408,007
300 NASB Financial, Inc. 11,703
17,511 Netbank, Inc. 125,729
39,100 NewAlliance Bancshares, Inc. 568,514
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
4,467 Northwest Bancorp, Inc. $ 94,968
2,696 OceanFirst Financial Corp. 61,361
10,065 Ocwen Financial Corp. (a) 87,565
6,911 PFF Bancorp, Inc. 210,924
19,928 Partners Trust Financial Group, Inc. 240,132
2,700 Pennfed Financial Services, Inc. 49,734
1,450 Provident Financial Holdings, Inc. 38,135
21,358 Provident Financial Services, Inc. 395,337
10,089 Provident New York Bancorp 111,080
4,100 Rockville Financial, Inc. (a) 53,505
2,400 Sound Federal Bancorp, Inc. 45,840
8,053 Sterling Financial Corp. 201,164
6,700 TierOne Corp. 197,047
7,861 United Community Financial Corp. 92,838
32,933 W Holding Co., Inc. 271,039
400 Westfield Financial, Inc. 9,604
-------------
7,768,120
- - -----------------------------------------------------------------------------------------------------------------------------
Scientific Equipment & Suppliers - 0.2% 12,635 Newport Corp. (a) 171,078
11,535 Varian, Inc. (a) 458,978
-------------
630,056
- - -----------------------------------------------------------------------------------------------------------------------------
Securities Brokerage & Services - 0.7% 10,250 Archipelago Holdings, Inc. (a)(e) 510,142
2,900 BKF Capital Group, Inc. 54,955
13,345 CharterMac 282,647
700 GFI Group, Inc. (a) 33,201
5,200 Gladstone Investment Corp. 70,668
5,900 IntercontinentalExchange, Inc. (a) 214,465
13,200 Investment Technology Group, Inc. (a) 467,808
38,200 Knight Capital Group, Inc. Class A (a) 377,798
16,800 LaBranche & Co., Inc. (a) 169,848
10,000 MarketAxess Holdings, Inc. (a) 114,300
9,061 NCO Group, Inc. (a) 153,312
6,000 optionsXpress Holdings, Inc. 147,300
4,604 SWS Group, Inc. 96,408
200 ZipRealty, Inc. (a) 1,684
-------------
2,694,536
- - -----------------------------------------------------------------------------------------------------------------------------
Services: Commercial - 3.3% 3,963 4Kids Entertainment, Inc. (a) 62,179
11,870 ABM Industries, Inc. 232,058
5,605 AMN Healthcare Services, Inc. (a) 110,867
5,461 Administaff, Inc. 229,635
6,900 The Advisory Board Co. (a) 328,923
4,800 Ambassadors Group, Inc. 109,872
3,000 Angelica Corp. 49,620
12,300 Autobytel, Inc. (a) 60,762
17,853 CBIZ, Inc. (a) 107,475
3,801 CDI Corp. 104,147
2,500 CRA International, Inc. (a) 119,225
8,778 Casella Waste Systems, Inc. (a) 112,271
7,572 Chemed Corp. 376,177
4,600 Clark, Inc. 60,950
6,050 CoStar Group, Inc. (a) 261,178
8,800 Cogent, Inc. (a) 199,584
9,692 Coinstar, Inc. (a) 221,268
12,394 Corrections Corp. of America (a) 557,358
8,800 Cross Country Healthcare, Inc. (a) 156,464
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
12,000 DiamondCluster International, Inc.
Class A (a) $ 95,280
2,000 Escala Group, Inc. (a)(e) 40,560
2,402 Exponent, Inc. (a) 68,169
12,141 FTI Consulting, Inc. (a) 333,149
3,881 Forrester Research, Inc. (a) 72,769
6,077 G&K Services, Inc. Class A 238,522
2,900 The Geo Group, Inc. (a) 66,497
10,100 Gevity HR, Inc. 259,772
14,900 Harris Interactive, Inc. (a) 64,219
7,158 Heidrick & Struggles International, Inc. (a) 229,414
8,800 Hudson Highland Group, Inc. (a) 152,768
34,500 IKON Office Solutions, Inc. 359,145
11,100 Jackson Hewitt Tax Service, Inc. 307,581
5,568 Kelly Services, Inc. Class A 145,993
6,600 Kforce, Inc. (a) 73,656
10,668 Korn/Ferry International (a) 199,385
17,422 Labor Ready, Inc. (a) 362,726
5,204 MAXIMUS, Inc. 190,935
32,305 MPS Group, Inc. (a) 441,609
5,542 Midas, Inc. (a) 101,751
2,900 Monro Muffler, Inc. 87,928
14,723 Navigant Consulting, Inc. (a) 323,612
3,717 Netratings, Inc. (a) 45,831
8,300 Nutri/System, Inc. (a) 298,966
13,964 PHH Corp. (a) 391,271
8,539 Pegasus Solutions, Inc. (a) 76,595
3,660 Pre-Paid Legal Services, Inc. 139,849
4,400 The Providence Service Corp. (a) 126,676
15,300 Regis Corp. 590,121
15,932 Resources Connection, Inc. (a) 415,188
9,202 Rollins, Inc. 181,371
4,500 Sirva, Inc. (a) 36,000
13,300 Source Interlink Cos., Inc. (a) 147,896
20,629 Spherion Corp. (a) 206,496
4,540 Startek, Inc. 81,720
12,089 TeleTech Holdings, Inc. (a) 145,672
16,531 Tetra Tech, Inc. (a) 259,041
700 Travelzoo, Inc. (a)(e) 15,400
2,800 Unifirst Corp. 87,080
2,400 Vertrue, Inc. (a) 84,792
5,600 Viad Corp. 164,248
1,759 Volt Information Sciences, Inc. (a) 33,456
12,818 Waste Connections, Inc. (a) 441,708
13,000 Waste Services, Inc. (a) 43,290
12,515 Watson Wyatt Worldwide, Inc. 349,169
13,713 Wireless Facilities, Inc. (a) 69,936
7,200 World Fuel Services Corp. 242,784
-------------
12,350,009
- - -----------------------------------------------------------------------------------------------------------------------------
Shipping - 0.2% 6,300 Gulfmark Offshore, Inc. (a) 186,606
4,500 Horizon Lines, Inc. Class A 54,585
6,830 Kirby Corp. (a) 356,321
2,500 Maritrans, Inc. 65,050
-------------
662,562
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Shoes - 0.4% 3,800 DSW, Inc. Class A (a) $ 99,636
1,900 Deckers Outdoor Corp. (a)(e) 52,478
15,166 The Finish Line, Inc. Class A 264,192
6,796 K-Swiss, Inc. Class A 220,462
3,592 Kenneth Cole Productions, Inc. Class A 91,596
3,700 Shoe Carnival, Inc. (a) 81,104
6,455 Skechers U.S.A., Inc. Class A (a) 98,891
5,412 Steven Madden Ltd. 158,193
12,735 Stride Rite Corp. 172,687
300 Weyco Group, Inc. 5,730
18,408 Wolverine World Wide, Inc. 413,444
-------------
1,658,413
- - -----------------------------------------------------------------------------------------------------------------------------
Steel - 0.7% 37,427 AK Steel Holding Corp. (a) 297,545
7,526 Carpenter Technology Corp. 530,357
5,545 Chaparral Steel Co. (a) 167,736
7,034 Gibraltar Industries, Inc. 161,360
10,700 Oregon Steel Mills, Inc. (a) 314,794
5,350 Schnitzer Steel Industries, Inc. Class A 163,657
11,097 Steel Dynamics, Inc. 394,054
4,900 Steel Technologies, Inc. 137,151
4,300 Wheeling-Pittsburgh Corp. (a) 38,786
24,000 Worthington Industries, Inc. 461,040
-------------
2,666,480
- - -----------------------------------------------------------------------------------------------------------------------------
Synthetic Fibers - 0.0% 4,318 Wellman, Inc. 29,276
- - -----------------------------------------------------------------------------------------------------------------------------
Telecommunications Equipment - 0.9% 1,700 Applied Signal Technology, Inc. 38,590
31,000 Arris Group, Inc. (a) 293,570
6,685 Audiovox Corp. Class A (a) 92,654
15,361 Belden CDT, Inc. 375,269
14,434 C-COR, Inc. (a) 70,149
16,600 Interdigital Communications Corp. (a) 304,112
5,500 Mastec, Inc. (a) 57,585
14,799 Plantronics, Inc. 418,812
32,800 Polycom, Inc. (a) 501,840
27,977 Powerwave Technologies, Inc. (a) 351,671
200 Preformed Line Products Co. 8,558
28,150 SBA Communications Corp. Class A (a) 503,885
8,780 Spectralink Corp. 104,219
18,100 Symmetricom, Inc. (a) 153,307
22,476 Terayon Corp. (a) 51,920
-------------
3,326,141
- - -----------------------------------------------------------------------------------------------------------------------------
Textile Products - 0.1% 7,200 DHB Industries, Inc. (a) 32,184
5,100 Dixie Group, Inc. (a) 70,278
21,000 Innovo Group, Inc. (a) 21,420
13,821 Interface, Inc. Class A (a) 113,609
-------------
237,491
- - -----------------------------------------------------------------------------------------------------------------------------
Textiles Apparel Manufacturers - 0.6% 5,500 Carter's, Inc. (a) 323,675
2,500 Cherokee, Inc. 85,975
6,285 Guess?, Inc. (a) 223,746
4,700 Hartmarx Corp. (a) 36,707
6,182 Kellwood Co. 147,626
4,200 Maidenform Brands, Inc. (a) 53,172
4,142 Oxford Industries, Inc. 226,567
4,600 Perry Ellis International, Inc. (a) 87,400
10,554 Phillips-Van Heusen Corp. 341,950
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
13,017 Russell Corp. $ 175,209
3,500 Under Armour, Inc. Class A (a) 134,085
13,200 The Warnaco Group, Inc. (a) 352,704
-------------
2,188,816
- - -----------------------------------------------------------------------------------------------------------------------------
Tires & Rubber - 0.1% 3,374 Bandag, Inc. 143,969
17,700 Cooper Tire & Rubber Co. 271,164
2,000 Titan International, Inc. 34,500
-------------
449,633
- - -----------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.2% 32,755 Alliance One International, Inc. 127,744
5,520 Schweitzer-Mauduit International, Inc. 136,786
11,600 Star Scientific, Inc. (a)(e) 27,260
7,856 Universal Corp. 340,636
10,713 Vector Group Ltd. 194,655
-------------
827,081
- - -----------------------------------------------------------------------------------------------------------------------------
Toys - 0.1% 10,030 Jakks Pacific, Inc. (a) 210,028
7,500 Leapfrog Enterprises, Inc. (a)(e) 87,375
-------------
297,403
- - -----------------------------------------------------------------------------------------------------------------------------
Transportation Miscellaneous - 0.2% 1,600 Dynamex, Inc. (a) 30,496
6,900 HUB Group, Inc. Class A (a) 243,915
14,000 Odyssey Marine Exploration, Inc. (a) 49,560
10,700 Pacer International, Inc. 278,842
6,481 SCS Transportation, Inc. (a) 137,721
4,700 US Xpress Enterprises, Inc. Class A (a) 81,686
-------------
822,220
- - -----------------------------------------------------------------------------------------------------------------------------
Truckers - 0.6% 6,041 Arkansas Best Corp. 263,871
4,700 Covenant Transport, Inc. Class A (a) 65,706
11,532 Forward Air Corp. 422,648
2,000 Frozen Food Express Industries, Inc. (a) 22,060
15,180 Heartland Express, Inc. 308,002
16,462 Knight Transportation, Inc. 341,268
1,950 Marten Transport Ltd. (a) 35,529
11,025 Old Dominion Freight Line Inc. (a) 297,454
1,200 PAM Transportation Services (a) 21,348
3,000 USA Truck, Inc. (a) 87,390
1,700 Universal Truckload Services, Inc. (a) 39,100
12,400 Werner Enterprises, Inc. 244,280
-------------
2,148,656
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Cable TV & Radio - 0.0% 18,100 Mediacom Communications Corp. Class A (a) 99,369
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Electrical - 1.4% 9,066 Allete, Inc. 398,904
17,875 Avista Corp. 316,566
8,700 Black Hills Corp. 301,107
4,889 CH Energy Group, Inc. 224,405
3,803 Central Vermont Public Service Corp. 68,492
14,967 Cleco Corp. 312,062
20,600 Duquesne Light Holdings, Inc. 336,192
17,408 El Paso Electric Co. (a) 366,264
9,068 The Empire District Electric Co. 184,352
11,400 IDACORP, Inc. 334,020
4,200 ITC Holdings Corp. 117,978
5,445 MGE Energy, Inc. 184,640
12,900 NorthWestern Corp. 400,803
8,286 Otter Tail Corp. 240,128
4,300 Pike Electric Corp. (a) 69,746
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
53,177 Sierra Pacific Resources (a) $ 693,428
4,400 UIL Holdings Corp. 202,356
8,883 Unisource Energy Corp. 277,150
-------------
5,028,593
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Distributors - 0.8% 5,622 Cascade Natural Gas Corp. 109,685
2,700 EnergySouth, Inc. 72,306
6,148 The Laclede Group, Inc. 179,583
8,174 New Jersey Resources Corp. 342,409
12,300 Nicor, Inc. 483,513
9,999 Northwest Natural Gas Co. 341,766
10,200 Peoples Energy Corp. 357,714
9,132 South Jersey Industries, Inc. 266,106
13,490 Southwest Gas Corp. 356,136
16,700 WGL Holdings, Inc. 502,002
-------------
3,011,220
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Pipelines - 0.0% 14,631 Transmontaigne, Inc. (a) 96,565
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Miscellaneous - 0.1% 127,400 Aquila, Inc. (a) 458,640
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Telecommunications - 1.2% 2,000 Alaska Communications Systems Group, Inc. 20,320
5,455 CT Communications, Inc. 66,224
4,726 Centennial Communications Corp. (a) 73,348
74,400 Cincinnati Bell, Inc. (a) 261,144
4,833 Commonwealth Telephone Enterprises, Inc. 163,210
4,900 Consolidated Communications Holdings, Inc. 63,651
38,500 Dobson Communications Corp. Class A (a) 292,985
11,000 FairPoint Communications, Inc. 113,960
16,239 General Communication Inc. Class A (a) 167,749
12,300 GlobeTel Communications Corp. (a)(e) 45,387
5,592 Golden Telecom, Inc. (f) 145,168
20,000 IDT Corp. Class B (a) 234,000
5,600 Intrado, Inc. (a) 128,912
9,800 Iowa Telecommunications Services, Inc. 151,802
227,400 Level 3 Communications, Inc. (a)(e) 652,638
7,700 NeuStar, Inc. Class A (a) 234,773
4,321 North Pittsburgh Systems, Inc. 81,537
21,200 Premiere Global Services, Inc. (a) 172,356
13,989 Price Communications Corp. (a) 208,016
6,100 RCN Corp. (a) 143,045
1,600 Shenandoah Telecom Co. 63,744
4,300 SureWest Communications 113,391
11,533 Talk America Holdings, Inc. (a) 99,530
19,400 Time Warner Telecom, Inc. Class A (a) 191,090
7,820 USA Mobility, Inc. 216,770
27,000 Ubiquitel, Inc. (a) 267,030
12,800 Valor Communications Group, Inc. (e) 145,920
-------------
4,517,700
- - -----------------------------------------------------------------------------------------------------------------------------
Utilities: Water - 0.2% 4,785 American States Water Co. 147,378
4,996 California Water Service Group 190,997
2,389 Connecticut Water Service, Inc. 58,554
3,382 Middlesex Water Co. 58,644
1,974 SJW Corp. 89,817
3,184 Southwest Water Co. 45,557
-------------
590,947
- - -----------------------------------------------------------------------------------------------------------------------------
Wholesale & International Trade - 0.1% 6,450 Central European Distribution Corp. (a) 258,903
- - -----------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
Shares
Industry Held Common Stocks Value
- - -----------------------------------------------------------------------------------------------------------------------------
Wholesalers - 0.3% 6,650 Brightpoint, Inc. (a) $ 184,404
3,000 Earle M. Jorgensen Holding Company, Inc. (a) 27,690
5,600 LKQ Corp. (a) 193,872
8,200 Prestige Brands Holdings, Inc. (a) 102,500
10,069 United Stationers, Inc. (a) 488,347
-------------
996,813
- - -----------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $291,937,655) - 99.7% 368,885,577
- - -----------------------------------------------------------------------------------------------------------------------------
Mutual Funds
- - -----------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.0% 4,700 Gladstone Capital Corp. (e) 100,486
- - -----------------------------------------------------------------------------------------------------------------------------
Total Mutual Funds
(Cost - $99,942) - 0.0% 100,486
- - -----------------------------------------------------------------------------------------------------------------------------
Rights
- - -----------------------------------------------------------------------------------------------------------------------------
Retail - 0.0% 777 dELiA*s, Inc. (g) 777
- - -----------------------------------------------------------------------------------------------------------------------------
Total Rights
(Cost - $0) - 0.0% 777
- - -----------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Other Interests (b)
- - -----------------------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 0.0% $ 500 PetroCorp Inc. (Escrow Shares) 0
- - -----------------------------------------------------------------------------------------------------------------------------
Total Other Interests
(Cost - $0) - 0.0% 0
- - -----------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- - -----------------------------------------------------------------------------------------------------------------------------
$ 641,675 Merrill Lynch Liquidity Series, LLC 641,675
Cash Sweep Series I (c)
13,465,055 Merrill Lynch Liquidity Series, LLC 13,465,055
Money Market Series (c)(d)
- - -----------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $14,106,730) - 3.8% 14,106,730
- - -----------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $306,144,327*) - 103.5% 383,093,570
Liabilities in Excess of Other
Assets - (3.5%) (12,948,221)
-------------
Net Assets - 100.0% $ 370,145,349
=============
* The cost and unrealized appreciation (depreciation) of investments, as of
December 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 309,875,971
=============
Gross unrealized appreciation $ 98,880,176
Gross unrealized depreciation (25,662,577)
-------------
Net unrealized appreciation $ 73,217,599
=============
(a) Non-income producing security.
(b) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(c) Investments in companies considered to be an affiliate of the Series, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
-----------------------------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
-----------------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (8,347,915) $ 464,626
Merrill Lynch Liquidity Series, LLC Money Market Series $ 1,812,667 $ 210,148
-----------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2005
(d) Security was purchased with the cash proceeds from securities loans.
(e) Security, or a portion of security, is on loan.
(f) Depositary receipts.
(g) The rights may be exercised until 1/27/2006.
o Financial futures contracts purchased as of December 31, 2005 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
4 Russell 2000 Index March 2006 $ 1,357,448 $ (848)
--------------------------------------------------------------------------
o For Series compliance purposes, the Series' industry classifications refer
to 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 the
purposes of this report, which may combine industry sub-classifications
for reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
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. PURCHASES 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 8, 2006
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 8, 2006
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 8, 2006