UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04984
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, 2006
Date of reporting period: June 30, 2006
ITEM 1. REPORTS 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]
SEMI-ANNUAL REPORT
[PHOTO]
JUNE 30, 2006
S&P 500 INDEX FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
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....................... 10
Statements of Operations............. 11
Statements of Changes in Net Assets.. 12
Notes to Financial Statements........ 13
Financial Highlights................. 18
State Street Equity 500 Index Portfolio
Portfolio of Investments............. 22
Statement of Assets and Liabilities.. 28
Statement of Operations.............. 29
Statements of Changes in Net Assets.. 30
Financial Highlights................. 31
Notes to Financial Statements........ 32
Master Small Cap Index Series
Summary Schedule of Investments...... 35
Statement of Assets and Liabilities.. 42
Statement of Operations.............. 43
Statements of Changes in Net Assets.. 44
Financial Highlights................. 45
Notes to Financial Statements........ 46
Master International Index Series
Summary Schedule of Investments...... 50
Statement of Assets and Liabilities.. 56
Statement of Operations.............. 57
Statements of Changes in Net Assets.. 58
Financial Highlights................. 59
Notes to Financial Statements........ 60
Additional Information............Back Cover
</Table>
American Beacon Funds June 30, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
Enclosed please find the Semi-Annual Report for the American Beacon S&P 500,
International Equity, and Small Cap Index Funds for the six months ended June
30, 2006.
As investors faced soaring gasoline prices, rising interest rates and a
slowdown in the housing market, most financial markets experienced growth. For
the six months ended June 30, 2006, the Dow Jones Industrial Average posted
gains of 5.22%, the S&P 500 Index increased by 2.71%, and the MSCI EAFE Index
returned 10.16%. Additionally, the Federal Reserve increased the Fed Funds Rate
to 5.25%, up 100 basis points from the beginning of the year.
During the six-month period, the American Beacon S&P 500 Index Fund
increased by 2.65%, the American Beacon Small Cap Index Fund returned 8.06%, and
the American Beacon International Equity Index Fund recorded gains of 10.26%.
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
DOMESTIC MARKET OVERVIEW
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The U.S. economy entered 2006, its fifth consecutive year of expansion, with an
impressive first three months. Equity markets trumped the preceding quarter's
gains, delivering the best first quarter in several years. The second quarter of
2006 was a difficult period for investors, with most equity markets posting
losses. As was the case in the first quarter, market volatility continued
throughout the second quarter, but this time leaning in a negative direction.
Profit taking and concerns over the medium-term strength of the economy weighed
on stock prices. Moreover, equity markets came under pressure from the
intensifying headwinds of higher interest rates, inflation on the upswing, a
weakening in personal consumption and the housing market, record energy prices
and ongoing unease about the excessive levels of consumer debt, all of which had
been present for some time.
The impetus behind the U.S. market climb in the first quarter was a robust
U.S. economy, which rebounded sharply following the pause in the last quarter of
2005. Economic growth resiliently forged ahead despite well-publicized headwinds
such as rising interest rates, a slowdown in the housing market and wild cards
such as bird flu, turbulence in the Middle East and volatile energy markets.
Following solid returns in January, equity markets cooled in February. Consumer
spending slowed to the weakest pace in six months and incomes grew at the
slowest rate since November of 2005. Nonetheless, an improvement in the trade
deficit in February was a positive indicator of an ongoing economic recovery
during the first quarter. In March, consumer confidence edged higher, spurred by
rising wages and a jobless rate near a four-year low. However, retail sales
experienced its slowest growth in more than a year in March, as cold weather and
higher gasoline prices limited spending. Manufacturing growth also moderated in
March as prices rose. On the encouraging side, the unemployment rate in March
dropped to 4.7% from 4.8% in the previous month, matching a four-year low and
capping the best first quarter for hiring since 2000.
A vigorous economy extended into April as markets opened the second quarter
in the same way the first quarter ended, posting impressive gains. By early May,
the Dow Jones Industrial Average climbed to within 100 points of its all-time
high. During the month, U.S. equity markets continued to weather the headwinds
of multi-year record prices for commodities, increasing interest rates, poorer
consumption and residential investment, and escalating geopolitical tensions.
Notable financial news for April included the yield on the bellwether 10-year
U.S. Treasury moving above the 5% mark for the first time in almost four years,
oil prices breaking the $75 per barrel mark to reach all-time highs, and gold
prices surging to a 25-year peak at above $650 per ounce.
In May, the unemployment rate progressed from 4.7% in April to 4.6%, the
lowest level since the summer of 2001. However, equity markets lost ground
during the month amid concerns of moderating economic growth, mostly due to
weaker trends in housing and personal consumption. Consumer confidence, which
had struck a four-year high in April, dipped in May to the lowest level since
September of 2005. Furthermore, the core rate of inflation (excluding food and
energy prices) edged upward 0.3% in May, compared to the more modest gain of
0.1% in April. As widely expected, the U.S. Federal Reserve (the Fed) carried
out its 16th consecutive 0.25% hike on May 10, boosting the short-term interest
rate to 5%, the highest mark in more than five years.
Following the Fed's rate hike in May, equity markets came under a
correction via a significant sell off, driven by interest rate concerns and a
resurgence in inflation fears, as well as the likelihood of subdued corporate
earnings growth for the second half of the year. For June, equity markets ended
the month flat, as signs of moderating economic growth mounted amid a worsening
slide in consumer senti-
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.
2
DOMESTIC MARKET OVERVIEW -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
ment and the housing market. Interest rates on 30-year home mortgages reached a
four-year peak. However, the unemployment rate remained at 4.6%.
In June, the Fed carried out its 17th consecutive 0.25% hike to 5.25%. The
accompanying statement by the Fed, which omitted the phrase "the committee
judges that some further tightening may yet be needed," led many to believe that
the current cycle of interest rate hikes may be close to an end. The Fed noted
that recent indicators suggested that "economic growth is moderating from its
quite strong pace earlier this year, partly reflecting a gradual cooling of the
housing market and the lagged effects of increases in interest rates and energy
prices." Furthermore, the Fed's statement included the phrase "readings on core
inflation have been elevated in recent months," stoking investor worries over
inflation. Yet, the structural forces that have kept a lid on prices over the
past several years were still intact as of quarter-end: globalization,
competition and a technology-driven surge in productivity.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON S&P 500 INDEX FUND+
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2006, the total return of the
Institutional Class of the American Beacon S&P 500 Index Fund was 2.65%,
slightly below the S&P 500 Index return of 2.71% and slightly in excess of the
Lipper S&P 500 Objective Funds Index return of 2.58%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------------------------------
PERIODS ENDED 06/30/06
-------------------------------------------------
SINCE
INCEPTION
6 MONTH* 1 YEAR 3 YEAR 5 YEAR (12/31/96)
-------- ------ ------ ------- ----------
Institutional
Class(1)............... 2.65% 8.50% 11.04% 2.29% 7.35%
PlanAhead Class(1, 2)... 2.39% 8.00% 10.53% 1.82% 6.98%
Lipper S&P 500
Index(3)............... 2.58% 8.36% 10.91% 2.20% 7.23%
S&P 500 Index(3)........ 2.71% 8.63% 11.22% 2.49% 7.52%
</Table>
* Not Annualized
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 of 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 quoted. To obtain performance as 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.
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.
3. The Lipper S&P 500 Objective Funds Index tracks the results
of the 30 largest mutual funds in the Lipper S&P 500 Objective Funds
category. Lipper is an independent mutual fund research and ranking service.
The S&P 500 Index is a market capitalization weighted index of common stocks
publicly traded in the U.S. One cannot invest directly in an index.
Eight out of ten sectors in the S&P 500 Index (the "Index") had positive
returns for the first six months of 2006. The strongest performing sectors were
Telecommunication Services and Energy, each up 13.8% during this period. No
other S&P sectors achieved anything close to double digits. The weakest sector
in the first half of 2006 was Information Technology, which tumbled 5.9%. The
only other sector in the red on a year-to-date basis was Health Care, which
declined 4.2% over the period. The best overall performers in the Index for the
six-month period were Allegheny Technologies, up 92.6%, Archer-Daniels-Midland,
up 68.3% and Nucor, which gained 65.6%. The worst performers for the same time
period were Dana Corp., down 62.1%, KB HOME, down 36.4% and Goodyear Tire &
Rubber, down 36.1%.
As of June 30, 2006, the Fund's largest sector weightings were Financials
(21.4% of assets), Information Technology (14.6% of assets), and Health Care
(12.2% 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*
--------------
Exxon Mobil Corp. 3.2%
General Electric Co. 3.0%
Citigroup, Inc. 2.1%
Bank of America Corp. 1.9%
Microsoft Corp. 1.8%
Procter & Gamble Co. 1.6%
Johnson & Johnson 1.5%
Pfizer, Inc. 1.5%
American International Group, Inc. 1.3%
Altria Group, Inc. 1.3%
</Table>
* Percent of equity portion of State Street Equity 500 Index
Portfolio
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financials 21.4%
Information Technology 14.6%
Health Care 12.2%
Industrials 11.7%
Consumer Discretionary 10.5%
Energy 10.1%
Consumer Staples 9.6%
Utilities 3.4%
Telecommunication Services 3.4%
Materials 3.1%
</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 SMALL CAP INDEX FUND(SM)
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2006, the total return of the
Institutional Class of the American Beacon Small Cap Index Fund was 8.06%. The
Fund's performance lagged the Russell 2000(R) Index return of 8.21%, but
substantially exceeded the Lipper Small-Cap Core Funds Index return of 6.30%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-----------------------------------------------
PERIODS ENDED 06/30/06
-----------------------------------------------
SINCE
INCEPTION
6 MONTH* 1 YEAR 3 YEAR 5 YEAR (7/31/00)
-------- ------ ------ ------ ---------
Institutional
Class(1)............... 8.06% 14.39% 18.42% 8.39% 7.68%
Lipper Small-Cap Core
Index(2)............... 6.30% 14.52% 18.59% 9.12% 9.13%
Russell 2000 Index(2)... 8.21% 14.58% 18.70% 8.50% 7.83%
</Table>
* Not Annualized
1. Performance shown is historical and may not be indicative
of future returns. Investment returns and principal value will vary, and
share 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 quoted. To obtain performance as 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.
2. The Lipper Small-Cap Core Funds Index tracks the 30 largest
mutual funds in the Lipper Small-Cap Core Funds category. Lipper is an
independent mutual fund research and ranking service. The Russell 2000 Index
is an unmanaged index comprised of approximately 2,000
smaller-capitalization stocks from various industrial sectors. One cannot
invest directly in an index.
All 12 sectors in the Russell 2000 Index ("Index") posted positive returns
for the semi-annual period. The top-performing sector was Materials and
Processing, returning an impressive 17.5%, followed by Other Energy and
Utilities up 15.7% and 15.2%, respectively. The worst-performing sector for the
six-month period was Health Care, with a return of only 0.4%, followed by
Consumer Discretionary (up 2.4%) and Technology (up 5.3%).
The top individual performers in the Index for the first half of the year
were Medifast, Inc. (up 241.0%), Zoltek Cos. (up 240.4%), and Insteel Industries
(up 192.9%). The bottom performers were Neurocrine Biosciences, Inc. (down
83.1%), Anadys Pharmaceuticals (down 66.8%), and PortalPlayer, Inc. (down
65.4%).
As of June 30, 2006, the Fund's largest sector weightings were Financial
Services (23.5% of assets), Consumer Discretionary (19.1% of assets), Technology
(13.6% of assets), and Health Care (11.7% of assets), consistent with the top
sector weightings in the Index.
The Fund will continue to strive to meet its objective of closely
replicating, before expenses, the return of its benchmark, the Russell 2000
Index. It does so by investing in a subset of the securities in the Index such
that the characteristics of the portfolio closely track the characteristics of
the Index.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
Maverick Tube Corp. ...................... 0.2%
Hologic, Inc. ............................ 0.2%
JetBlue Airways Corp. .................... 0.2%
Phillips-Van Heusen Corp. ................ 0.2%
3Com Corp. ............................... 0.2%
RSA Security, Inc. ....................... 0.2%
Alexandria Real Estate Equities, Inc. .... 0.2%
FormFactor, Inc. ......................... 0.2%
Highwoods Properties, Inc. ............... 0.2%
American Commercial Lines, Inc. .......... 0.2%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES*
--------------
Financial Services........................ 23.5%
Consumer Discretionary.................... 19.1%
Technology................................ 13.6%
Health Care............................... 11.7%
Materials & Processing.................... 9.3%
Producer Durables......................... 7.2%
Other Energy.............................. 4.8%
Autos and Transportation.................. 4.1%
Utilities................................. 3.9%
Consumer Staples.......................... 2.1%
Integrated Oils........................... 0.4%
Other..................................... 0.3%
</Table>
* Percent of equity portion of Master Small Cap Index Series
5
INTERNATIONAL MARKET OVERVIEW
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
International equity markets generated positive performance over the semi-annual
period ended June 30, 2006 as European economic growth continued to strengthen.
During the reporting period, international equity markets outperformed U.S.
equity markets.
As evidence mounted of moderating economic growth elsewhere, the euro zone
continued to demonstrate resilience. European companies were the leaders in
analysts' upgrades. Both business and consumer confidence hit five-year highs
during the second quarter. Government reports and industry surveys showed
accelerating economic growth across the region, as increased exports spurred
investment and hiring.
All 16 of the MSCI Europe country indexes posted positive returns for the
semi-annual period, with a majority exceeding the MSCI Europe's 13.6% gain.
Norway (22.7%), Portugal (21.8%), and Spain (16.5%) were the leading regional
performers, respectively; at the other end of the spectrum were Switzerland and
Denmark (10.0% each), the Netherlands (10.7%), and Austria (11.1%).
March was the most eventful month of the first quarter for Europe in terms
of financial news. Early in the month, the European Central Bank (ECB) raised
interest rates by 0.25% to 2.5%, following December's first hike in five years.
Consumer confidence in the regional economy rose to the highest level in almost
five years as export revenue sparked domestic spending. June was the most
eventful month of the second quarter for Europe in terms of financial news.
Early in the month, in an effort to counter inflation, which had edged up to
2.5% in May from 2.4% in April, the ECB raised interest rates by 0.25% to 2.75%.
In Germany, the region's largest economy, business confidence reached an
all-time high since the country's reunification in 1991. The German economy is
estimated to have expanded at the fastest pace in more than five years in the
second quarter, at 0.7%, led by construction and industrial output. In addition,
unemployment improved for a third straight month to its best level since 2004.
The Asia/Pacific Basin region was a laggard among the developed regions,
with the MSCI Pacific Index posting only 3.5% for the semi-annual period. In the
Asia/Pacific Basin region, Singapore posted the strongest gain over the period
with 11.4%. Japan posted positive, but relatively weak, returns of 1.9% over the
same timeframe. New Zealand was the only country of the developed MSCI country
indexes that ended in negative territory for the period (-11.6%). In Singapore,
gross domestic product expanded for a fourth straight quarter, at a 1.2%
annualized pace in the first quarter. This expansion followed a 12.5% increase
in the previous quarter and added to evidence that global demand for digital
music players and laptop computers manufactured in Asia was fueling regional
growth. In Japan, stocks suffered mainly from the likelihood of the first
interest rate increase in more than 10 years. Of 33 industry groups in the Topix
Index, brokerages -- such as Nomura Holdings, the nation's largest securities
firm -- posted the steepest losses.
Turning to global currencies, the major currencies traded in relatively
narrow ranges over the course of the first quarter. The U.S. dollar, which
outperformed most major currencies in 2005, gained 2.6% against the euro, rose
1.0% with respect to the pound, and ended flat versus the yen. In the second
quarter, the U.S. dollar continued its out-performance against most major
currencies, registering gains of 5.7%, 6.6%, and 3.2% against the euro, pound,
and yen, respectively.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM)
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 2006, the Institutional Class of the
American Beacon International Equity Index Fund posted a total return of 10.26%,
slightly above the MSCI EAFE Index return of 10.16% and well above the Lipper
International Funds Index return of 9.30%.
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-----------------------------------------------
PERIODS ENDED 06/30/06
-----------------------------------------------
SINCE
INCEPTION
6 MONTH* 1 YEAR 3 YEAR 5 YEAR (7/31/00)
-------- ------ ------ ------ ---------
Institutional
Class(1)............ 10.26% 26.58% 23.88% 9.96% 4.20%
Lipper Int'l. Funds
Index(2)............ 9.30% 27.26% 23.16% 10.13% 4.57%
MSCI EAFE Index(2)... 10.16% 26.56% 23.94% 10.06% 4.37%
</Table>
* Not Annualized
1. Performance shown is historical and may not be indicative
of future returns. Investment returns and principal value will vary, and
share 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 quoted. To obtain performance as 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.
2. The Lipper International Funds Index tracks the 30 largest
mutual funds in the Lipper International Funds category. Lipper is an
independent mutual fund research and ranking service. The MSCI EAFE Index is
a market capitalization weighted index of international stock performance
composed of equities from developed markets excluding the U.S. and Canada.
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. One cannot invest directly in an index.
Of the 21 countries in the MSCI EAFE Index ("EAFE"), 20 posted positive
returns for the six-month period. The top performer was Norway, up 22.7%,
followed by Portugal and Spain, with respective returns of 21.8% and 16.5%, all
in U.S. dollars. The worst performers for the first half of 2006 were New
Zealand, Japan, and Hong Kong with returns of -11.6%, 1.9%, and 7.0%,
respectively.
With regards to sector performance, all 10 sectors in EAFE posted positive
returns for the semi-annual period. Utilities led with an impressive 17.8%
return, followed by Materials, up 15.3%, and Health Care, up 13.1%. Lagging
sectors were Information Technology, up 2.2%, Telecommunication Services, up
4.4%, and Consumer Discretionary, up 7.0%.
The top three returning individual securities for the semi-annual period
were Boliden AB, up 128.1%, Vallourec SA, up 119.1%, and Paladin Resources, up
110.8%. The worst performers for the period were SBI E*Trade, down 47.7%,
Softbank Corporation, down 46.8%, and Index Holdings, down 45.5%.
As of June 30, 2006, the Fund's largest country weightings were Japan (25%)
and the United Kingdom (24%), while the largest sector weightings were
Financials (30%) and Consumer Discretionary (12%).
The Fund continues to pursue its objective of closely replicating, before
expenses, the return of its benchmark, the MSCI EAFE Index. It does so by
investing in a subset of the securities in the Index such that the
characteristics of the portfolio closely track the characteristics of the Index.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF EQUITIES*
--------------
BP plc...................................... 2.2%
HSBC Holdings plc........................... 1.8%
GlaxoSmithKline plc......................... 1.5%
Total S.A. ................................. 1.3%
Toyota Motor Corp. ......................... 1.3%
Royal Dutch Shell plc....................... 1.2%
Vodafone Group plc.......................... 1.2%
Novartis AG................................. 1.1%
Nestle S.A. ................................ 1.1%
Mitsubishi UFJ Financial Group Inc. ........ 1.1%
</Table>
7
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES* EAFE
-------------- -----
Financials.......................... 29.8% 29.8%
Consumer Discretionary.............. 12.0% 12.0%
Industrials......................... 10.6% 10.6%
Energy.............................. 8.3% 8.2%
Materials........................... 8.3% 8.5%
Health Care......................... 7.7% 7.7%
Consumer Staples.................... 7.0% 7.0%
Information Technology.............. 6.1% 6.2%
Telecommunication Services.......... 5.1% 5.0%
Utilities........................... 5.1% 5.0%
</Table>
* Percent of equity portion of Master International Index Series
COUNTRY ALLOCATION
(COUNTRY CHART)
<Table>
<Caption>
% OF
EQUITIES* EAFE
--------- -----
Japan..................................... 24.5% 24.4%
United Kingdom............................ 24.2% 24.2%
France.................................... 9.9% 9.8%
Germany................................... 7.0% 7.0%
Switzerland............................... 6.7% 6.8%
Australia................................. 5.3% 5.3%
Italy..................................... 3.9% 3.8%
Spain..................................... 3.8% 3.8%
Netherlands............................... 3.3% 3.3%
Sweden.................................... 2.4% 2.4%
Hong Kong................................. 1.7% 1.7%
Finland................................... 1.5% 1.5%
Belgium................................... 1.1% 1.2%
Norway.................................... 0.9% 0.9%
Ireland................................... 0.8% 0.8%
Singapore................................. 0.8% 0.8%
Denmark................................... 0.7% 0.7%
Greece.................................... 0.6% 0.6%
Austria................................... 0.5% 0.6%
Portugal.................................. 0.3% 0.3%
New Zealand............................... 0.1% 0.1%
</Table>
* Percent of equity portion of Master International Index
Series
8
FUND EXPENSES
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLE
As a shareholder of a 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 January 1, 2006
through June 30, 2006.
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 to estimate the expenses you paid on your
account during this period. Shareholders of the PlanAhead and Institutional
Classes that invest in a 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
1/1/06....................... $1,000.00 $1,000.00 $1,000.00 Beginning Account Value 1/1/06............... $1,000.00
Ending Account Value
6/30/06...................... $1,026.51 $1,080.59 $1,102.61 Ending Account Value 6/30/06................. $1,023.90
Expenses Paid During Period*
1/1/06-6/30/06............... $ 0.67 $ 0.78 $ 1.11 Expenses Paid During Period* 1/1/06-6/30/06.. $ 3.04
Annualized Expense Ratio...... 0.13% 0.15% 0.21% 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 a 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 INDEX PLANAHEAD CLASS INDEX
- ------------------- --------- --------- ------------- --------------- ---------
Beginning Account Value
1/1/06....................... $1,000.00 $1,000.00 $1,000.00 Beginning Account Value 1/1/06............... $1,000.00
Ending Account Value
6/30/06...................... $1,024.13 $1,024.04 $1,023.74 Ending Account Value 6/30/06................. $1,021.79
Expenses Paid During Period*
1/1/06-6/30/06............... $ 0.67 $ 0.76 $ 1.07 Expenses Paid During Period* 1/1/06-6/30/06.. $ 3.03
Annualized Expense Ratio...... 0.13% 0.15% 0.21% Annualized Expense Ratio..................... 0.60%
</Table>
- ---------------
* Expenses are equal to each Fund's annualized expense ratio 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 (181) by days in the year (365) to reflect the half-year period.
9
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006 (Unaudited) (in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
----------- ---------- -------------
ASSETS:
Investment in master portfolio, at value................ $ 246,006 $ 125,558 $ 91,223
Receivable for fund shares sold......................... 401 -- 134
----------- ---------- ----------
TOTAL ASSETS........................................ 246,407 125,558 91,357
----------- ---------- ----------
LIABILITIES:
Payable for fund shares redeemed........................ 238 4,923 5
Administrative service fees payable (Note 2)............ 18 9 3
Other liabilities....................................... 30 10 34
----------- ---------- ----------
TOTAL LIABILITIES................................... 286 4,942 42
----------- ---------- ----------
NET ASSETS.................................................. $ 246,121 $ 120,616 $ 91,315
=========== ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in capital......................................... $ 206,776 $ 116,191 $ 77,838
Undistributed net investment income..................... 1,140 1,087 1,230
Accumulated net realized gain (loss).................... (47,152) 4,863 (14)
Unrealized net appreciation (depreciation) of
investments and futures contracts..................... 85,357 (1,525) 12,261
----------- ---------- ----------
NET ASSETS.................................................. $ 246,121 $ 120,616 $ 91,315
=========== ========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class..................................... 11,675,226 8,737,095 8,017,691
=========== ========== ==========
PlanAhead Class......................................... 2,610,029 N/A N/A
=========== ========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class..................................... $ 17.27 $ 13.81 $ 11.39
=========== ========== ==========
PlanAhead Class......................................... $ 17.03 N/A N/A
=========== ========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
10
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited) (in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Dividend income......................................... $2,456 $ 613 $1,560
Interest income......................................... 140 530 56
Securities lending income............................... -- 55 1
Portfolio expenses...................................... (59) (46) (38)
------- ------- ------
NET INVESTMENT INCOME ALLOCATED FROM MASTER
PORTFOLIO......................................... 2,537 1,152 1,579
------- ------- ------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class................................. 53 36 24
PlanAhead Class..................................... 63 -- --
Sub-administrative service fees
Institutional Class................................. -- 13 19
Transfer agency fees:
Institutional Class................................. 7 3 5
PlanAhead Class..................................... 7 -- --
Custody and Accounting fees............................. 3 3 5
Professional fees....................................... 5 4 4
Registration fees....................................... 18 5 --
Service fees - PlanAhead Class (Note 2)................. 63 -- --
Printing................................................ 15 1 6
Other expenses.......................................... 2 -- --
------- ------- ------
TOTAL FUND EXPENSES................................. 236 65 63
------- ------- ------
NET INVESTMENT INCOME....................................... 2,301 1,087 1,516
------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized gain (loss) from investment transactions... (429) 5,197 563
Net realized loss on foreign currency transactions...... -- -- 278
Net realized loss from futures transactions............. (143) -- --
Net change in unrealized appreciation of investments and
futures contracts..................................... 5,704 (6,691) 6,522
------- ------- ------
NET GAIN (LOSS) ON INVESTMENTS...................... 5,132 (1,494) 7,363
------- ------- ------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $7,433 $ (407) $8,879
======= ======= ======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
11
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
-------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2006 2005 2006 2005 2006 2005
----------- ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................ $ 2,301 $ 4,606 $ 1,087 $ 592 $ 1,516 $ 1,582
Net realized gain (loss) on
investments, foreign currency and
futures transactions............... (572) (651) 5,197 1,052 841 589
Change in net unrealized appreciation
(depreciation) of investments and
futures contracts.................. 5,704 8,505 (6,691) (3,264) 6,522 5,507
-------- -------- -------- --------- ------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS...................... 7,433 12,460 (407) (1,620) 8,879 7,678
-------- -------- -------- --------- ------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class.............. (993) (4,029) -- (606) -- (2,005)
PlanAhead Class.................. (179) (677) -- -- -- --
Net realized gain from investments,
foreign currency and futures
transactions:
Institutional Class.............. -- -- -- (521) -- --
Tax return of capital:
Institutional Class.............. -- (59) -- (167) -- (778)
PlanAhead Class.................. -- (11) -- -- -- --
-------- -------- -------- --------- ------- --------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS.................... (1,172) (4,776) -- (1,294) -- (2,783)
-------- -------- -------- --------- ------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares........ 13,166 45,216 146,092 132,413 50,311 102,863
Reinvestments of dividends and
distributions...................... 1,165 4,749 -- 1,291 -- 2,783
Cost of shares redeemed.............. (49,313) (73,819) (71,182) (123,873) (58,075) (43,497)
-------- -------- -------- --------- ------- --------
NET INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL SHARE
TRANSACTIONS.................... (34,982) (23,854) 74,910 9,831 (7,764) 62,149
-------- -------- -------- --------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS... (28,721) (16,170) 74,503 6,917 1,115 67,044
-------- -------- -------- --------- ------- --------
NET ASSETS:
Beginning of period.................. 274,842 291,012 46,113 39,196 90,200 23,156
-------- -------- -------- --------- ------- --------
END OF PERIOD*....................... $246,121 $274,842 $120,616 $ 46,113 $91,315 $ 90,200
======== ======== ======== ========= ======= ========
* Includes undistributed net
investment income of............... $ 1,140 $ 11 $ 1,087 $ -- $ 1,230 $ (286)
======== ======== ======== ========= ======= ========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
12
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a no load, 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: JUNE 30, 2006
- ---------------- ----------- ---------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 10.1%
Small Cap Index Fund Master Small Cap Index Series 24.5%
International Equity Index Fund Master International Index Series 14.6%
</Table>
The financial statements of the Portfolios are included elsewhere in this
report and should be read in conjunction with the Funds' financial statements.
American Beacon Advisors, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the Trust and other
investors.
The following is a summary of the significant accounting policies followed
by the Funds.
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.
- --------------------------------------------------------------------------------
13
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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-
- --------------------------------------------------------------------------------
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 plus
a fee for each Board meeting attended.
At June 30, 2006, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 77.5% of the Institutional Class of the S&P 500 Index
Fund, 99.2% of the Small Cap Index Fund and 80.0% 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.
- --------------------------------------------------------------------------------
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
The tax character of distributions during the six months ended June 30,
2006 and December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
-------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2006 2005 2006 2005 2006 2005
----------- ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Distributions paid from:
Ordinary Income:*
Institutional
Class............. $ 993 $4,029 $ -- $ 606 $ -- $2,005
PlanAhead Class..... 179 677 -- -- -- --
Long-term capital gain
Institutional
Class............. -- -- -- 521 -- --
Return of capital
Institutional
Class............. -- 59 -- 167 -- 778
PlanAhead Class..... -- 11 -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL TAXABLE
DISTRIBUTIONS.......... $1,172 $4,776 $ 0 $1,294 $ 0 $2,783
====== ====== ====== ====== ====== ======
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
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>
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 SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, 2006 DECEMBER 31, 2005
------------------- -------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------- --------- ------- ---------
Shares sold......................................... 352 $ 6,101 1,805 $ 29,463
Reinvestment of dividends........................... 57 993 248 4,086
Shares redeemed..................................... (2,095) (36,504) (3,587) (58,696)
------ -------- ------ --------
Net increase/(decrease) in capital shares
outstanding....................................... (1,686) $(29,410) (1,534) $(25,147)
====== ======== ====== ========
</Table>
- --------------------------------------------------------------------------------
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, 2006 DECEMBER 31, 2005
------------------- ------------------
PLANAHEAD CLASS SHARES AMOUNT SHARES AMOUNT
- --------------- ------- --------- ------ --------
Shares sold.......................................... 413 $ 7,065 978 $ 15,753
Reinvestment of dividends............................ 10 172 41 663
Shares redeemed...................................... (748) (12,809) (938) (15,123)
---- -------- ---- --------
Net increase/(decrease) in capital shares
outstanding........................................ (325) $ (5,572) 81 $ 1,293
==== ======== ==== ========
</Table>
SMALL CAP INDEX FUND
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, 2006 DECEMBER 31, 2005
------------------- ------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------- --------- ------ ---------
Shares sold....................................... 10,452 $146,092 10,087 $ 132,413
Reinvestment of dividends......................... -- -- 100 1,291
Shares redeemed................................... (5,324) (71,182) (9,695) (123,873)
------ -------- ------ ---------
Net increase/(decrease) in capital shares
outstanding..................................... 5,128 $ 74,910 492 $ 9,831
====== ======== ====== =========
</Table>
INTERNATIONAL EQUITY INDEX FUND
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, 2006 DECEMBER 31, 2005
------------------- -------------------
INSTITUTIONAL CLASS SHARES AMOUNT SHARES AMOUNT
- ------------------- ------- --------- ------- ---------
Shares sold......................................... 4,483 $ 50,311 10,624 $102,863
Reinvestment of dividends........................... -- -- 268 2,783
Shares redeemed..................................... (5,198) (58,075) (4,624) (43,497)
------ -------- ------ --------
Net increase/(decrease) in capital shares
outstanding....................................... (715) $ (7,764) 6,268 $ 62,149
====== ======== ====== ========
</Table>
- --------------------------------------------------------------------------------
17
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- -------- -------- -------- -------- --------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 16.90 $ 16.43 $ 15.10 $ 11.96 $ 15.62 $ 17.99
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income............... 0.07 0.29 0.29 0.21 0.20 0.20
Net gains (losses) on investments,
foreign currency and futures
transactions (both realized and
unrealized)....................... 0.38 0.47 1.32 3.14 (3.66) (2.38)
-------- -------- -------- -------- -------- --------
Total from investment operations........ 0.45 0.76 1.61 3.35 (3.46) (2.18)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.08) (0.29) (0.28) (0.21) (0.20) (0.19)
Tax return of capital............... -- --(B) -- -- -- --(B)
-------- -------- -------- -------- -------- --------
Total distributions..................... (0.08) (0.29) (0.28) (0.21) (0.20) (0.19)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 17.27 $ 16.90 $ 16.43 $ 15.10 $ 11.96 $ 15.62
======== ======== ======== ======== ======== ========
TOTAL RETURN............................ 2.65%(C) 4.74% 10.76% 28.26% (22.27%) (12.12%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $201,676 $225,857 $244,668 $245,251 $195,368 $254,289
Ratios to average net assets
(annualized):(A)
Net investment income.......... 1.83% 1.75% 1.85% 1.63% 1.47% 1.22%
Expenses, including expenses of
the master portfolio......... 0.13% 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.
(C) Not annualized.
- --------------------------------------------------------------------------------
18
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- ------- ------- ------- -------- --------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 16.69 $ 16.23 $ 14.96 $ 11.85 $ 15.49 $ 17.99
------- ------- ------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:(A)
Net investment income....... 0.02 0.21 0.21 0.15 0.14 0.14
Net gains (losses) on
investments, foreign
currency and futures
transactions (both
realized and
unrealized)............... 0.38 0.48 1.31 3.12 (3.64) (2.39)
------- ------- ------- ------- -------- --------
Total from investment
operations.................... 0.40 0.69 1.52 3.27 (3.50) (2.25)
------- ------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income......... (0.06) (0.23) (0.25) (0.16) (0.14) (0.25)
Tax return of capital....... -- --(B) -- -- -- --(B)
------- ------- ------- ------- -------- --------
Total distributions............. (0.06) (0.23) (0.25) (0.16) (0.14) (0.25)
------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD.. $ 17.03 $ 16.69 $ 16.23 $ 14.96 $ 11.85 $ 15.49
======= ======= ======= ======= ======== ========
TOTAL RETURN.................... 2.39%(D) 4.32% 10.21% 27.65% (22.59%) (12.48%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............ $44,445 $48,985 $46,344 $34,729 $ 24,885 $ 32,284
Ratios to average net assets
(annualized):(A)
Net investment income,
net of waivers....... 1.36% 1.28% 1.43% 1.16% 1.06% 0.89%
Net investment income,
before waivers....... 1.36% 1.28% 1.43% 1.15% 0.98% 0.84%
Expenses, including
expenses of the
master portfolio, net
of waivers(C)........ 0.60% 0.61% 0.62% 0.63% 0.55% 0.56%
Expenses, including
expenses of the
master portfolio,
before waivers....... 0.60% 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.
(D) Not annualized.
- --------------------------------------------------------------------------------
19
AMERICAN BEACON SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- ------- ------- ------- -------- -------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 12.78 $ 12.57 $ 11.27 $ 7.70 $ 9.79 $ 9.69
-------- ------- ------- ------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:(A)
Net investment income........... 0.12 0.16 0.14 0.04 0.11 0.09
Net gains (losses) on
investments, foreign currency
and futures transactions (both
realized and unrealized)...... 0.91 0.42 1.87 3.57 (2.10) 0.11
-------- ------- ------- ------- -------- -------
Total from investment operations.... 1.03 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...... $ 13.81 $ 12.78 $ 12.57 $ 11.27 $ 7.70 $ 9.79
======== ======= ======= ======= ======== =======
TOTAL RETURN........................ 8.06%(C) 4.51% 17.91% 46.90% (20.37%) 2.07%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................... $120,616 $46,113 $39,196 $67,756 $ 11,227 $11,803
Ratios to average net assets
(annualized):(A)
Net investment income...... 1.49% 1.12% 0.90% 1.04% 1.13% 1.36%
Expenses, including
expenses of the master
portfolio................ 0.15% 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.
(C) Not annualized.
- --------------------------------------------------------------------------------
20
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- ------- ------- ------- -------- --------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.33 $ 9.39 $ 8.01 $ 5.86 $ 7.07 $ 9.21
------- ------- ------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:(A)
Net investment income...... 0.18 0.21 0.17 0.14 0.11 0.10
Net gains (losses) on
investments, foreign
currency and futures
transactions (both
realized and
unrealized).............. 0.88 1.06 1.44 2.13 (1.23) (2.12)
------- ------- ------- ------- -------- --------
Total from investment
operations................... 1.06 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....................... $ 11.39 $ 10.33 $ 9.39 $ 8.01 $ 5.86 $ 7.07
======= ======= ======= ======= ======== ========
TOTAL RETURN................... 10.26%(C) 13.58% 20.12% 38.87% (15.65%) (22.14%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........... $91,315 $90,200 $23,156 $10,043 $ 4,912 $ 3,773
Ratios to average net
assets (annualized):(A)
Net investment
income.............. 3.21% 2.49% 2.16% 2.71% 1.97% 1.49%
Expenses, including
expenses of the
master portfolio.... 0.21% 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.
(C) Not annualized.
- --------------------------------------------------------------------------------
21
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 98.2%
CONSUMER DISCRETIONARY - 10.3%
Amazon.Com, Inc. (a)........... 64,300 $ 2,487
Apollo Group, Inc. (a)......... 29,475 1,523
AutoNation, Inc. (a)........... 30,136 646
AutoZone, Inc. (a)............. 11,387 1,004
Bed Bath & Beyond, Inc. (a).... 59,014 1,958
Best Buy Co., Inc. ............ 84,281 4,622
Big Lots, Inc. (a)............. 24,438 417
Black & Decker Corp. .......... 16,033 1,354
Brunswick Corp. ............... 19,929 663
Carnival Corp. ................ 90,619 3,782
CBS Corp. ..................... 161,898 4,379
Centex Corp. .................. 25,776 1,297
Circuit City Stores, Inc. ..... 31,439 856
Clear Channel Communications,
Inc. ........................ 104,465 3,233
Coach, Inc. (a)................ 80,700 2,413
Comcast Corp. (a).............. 439,767 14,398
Cooper Tire & Rubber Co. ...... 12,537 140
D.R. Horton, Inc. ............. 56,700 1,351
Darden Restaurants, Inc. ...... 27,410 1,080
Dillard's, Inc. Class A........ 13,653 435
Dollar General Corp. .......... 64,115 896
Dow Jones & Co., Inc. ......... 12,526 439
Eastman Kodak Co. ............. 60,837 1,447
eBay, Inc. (a)................. 240,520 7,045
EW Scripps Co. ................ 18,000 777
Family Dollar Stores, Inc. .... 33,068 808
Federated Department Stores,
Inc. ........................ 115,880 4,241
Ford Motor Co. ................ 388,655 2,693
Fortune Brands, Inc. .......... 30,466 2,163
Gannett Co., Inc. ............. 49,938 2,793
Gap, Inc. ..................... 113,930 1,982
General Motors Corp. .......... 117,773 3,508
Genuine Parts Co. ............. 35,493 1,479
Goodyear Tire & Rubber Co.
(a).......................... 37,942 421
H&R Block, Inc. ............... 68,820 1,642
Harley-Davidson, Inc. ......... 55,738 3,059
Harman International
Industries, Inc. ............ 13,900 1,187
Harrah's Entertainment,
Inc. ........................ 38,433 2,736
Hasbro, Inc. .................. 36,787 666
Hilton Hotels Corp. ........... 68,543 1,938
Home Depot, Inc. .............. 430,257 15,399
International Game Technology.. 70,352 2,669
Interpublic Group of Cos., Inc.
(a).......................... 88,477 739
JC Penney & Co., Inc. ......... 49,188 3,321
Johnson Controls, Inc. ........ 40,396 3,321
Jones Apparel Group, Inc. ..... 23,979 762
KB HOME........................ 15,862 727
Kohl's Corp. (a)............... 70,710 4,180
Leggett & Platt, Inc. ......... 38,254 956
Lennar Corp. Class A........... 28,700 1,273
Limited Brands................. 70,969 1,816
Liz Claiborne, Inc. ........... 22,041 817
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Lowe's Cos., Inc. ............. 161,423 $ 9,794
Marriot International, Inc.
Class A...................... 67,678 2,580
Mattel, Inc. .................. 81,445 1,345
McDonald's Corp. .............. 259,253 8,711
McGraw-Hill, Inc. ............. 74,326 3,733
Meredith Corp. ................ 8,947 443
New York Times Co. Class A..... 30,745 755
Newell Rubbermaid, Inc. ....... 57,721 1,491
News Corp. Class A............. 492,200 9,440
NIKE, Inc. Class B............. 39,513 3,201
Nordstrom, Inc. ............... 44,576 1,627
Office Depot, Inc. (a)......... 59,670 2,267
OfficeMax, Inc. ............... 14,319 584
Omnicom Group, Inc. ........... 35,617 3,173
Pulte Homes, Inc. ............. 44,872 1,292
Radioshack Corp. .............. 28,653 401
Sears Holdings Corp. (a)....... 20,152 3,120
Sherwin-Williams Co. .......... 23,570 1,119
Snap-On, Inc. ................. 12,548 507
Stanley Works.................. 14,432 682
Staples, Inc. ................. 152,125 3,700
Starbucks Corp. (a)............ 159,552 6,025
Starwood Hotels & Resorts
Worldwide, Inc. Class B...... 45,212 2,728
Target Corp. .................. 179,657 8,780
Tiffany & Co. ................. 30,068 993
Time Warner, Inc. ............. 891,447 15,422
TJX Cos., Inc. ................ 94,713 2,165
Tribune Co. ................... 54,955 1,782
Univision Communications, Inc.
Class A (a).................. 46,818 1,568
V.F. Corp. .................... 18,488 1,256
Viacom, Inc. (a)............... 150,698 5,401
Walt Disney Co. ............... 456,873 13,706
Wendy's International, Inc. ... 23,967 1,397
Whirlpool Corp. ............... 16,262 1,344
Yum! Brands, Inc. ............. 56,422 2,836
----------
251,306
----------
CONSUMER STAPLES - 9.4%
Alberto Culver Co. Class B..... 16,058 782
Altria Group, Inc. ............ 434,864 31,932
Anheuser-Busch Cos., Inc. ..... 161,167 7,348
Archer-Daniels-Midland Co. .... 136,567 5,637
Avon Products, Inc. ........... 94,448 2,928
Brown-Forman Corp. Class B..... 17,182 1,228
Campbell Soup Co. ............. 38,183 1,417
Clorox Co. .................... 31,310 1,909
Coca-Cola Co. ................. 426,735 18,358
Coca-Cola Enterprises, Inc. ... 64,300 1,310
Colgate-Palmolive Co. ......... 107,035 6,411
ConAgra Foods, Inc. ........... 108,046 2,389
Constellation Brands, Inc.
Class A (a).................. 40,600 1,015
Costco Wholesale Corp.......... 97,951 5,596
CVS Corp....................... 170,484 5,234
Dean Foods Co. (a)............. 28,400 1,056
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
22
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Estee Lauder Cos, Inc.......... 25,400 $ 982
General Mills, Inc............. 74,364 3,842
H.J. Heinz Co.................. 70,320 2,899
Hershey Foods Corp............. 37,308 2,055
Kellogg Co..................... 50,529 2,447
Kimberly-Clark Corp............ 95,564 5,896
Kroger Co...................... 152,022 3,323
McCormick & Co., Inc........... 27,400 919
Molson Coors Brewing Co., Class
B............................ 12,244 831
Pepsi Bottling Group, Inc...... 28,353 911
PepsiCo, Inc................... 344,110 20,660
Procter & Gamble Co............ 683,457 38,000
Reynolds American, Inc......... 17,840 2,057
Safeway, Inc................... 93,693 2,436
Sara Lee Corp.................. 158,717 2,543
SuperValu, Inc................. 43,003 1,320
Sysco Corp..................... 129,281 3,951
Tyson Foods, Inc., Class A..... 53,800 799
UST Corp....................... 33,547 1,516
Wal-Mart Stores, Inc........... 520,628 25,079
Walgreen Co.................... 210,210 9,426
Whole Foods Market, Inc........ 29,000 1,875
Wrigley Wm., Jr. Co............ 45,670 2,072
----------
230,389
----------
ENERGY - 9.9%
Anadarko Petroleum Corp........ 96,108 4,583
Apache Corp.................... 69,030 4,711
Baker Hughes, Inc.............. 70,880 5,802
BJ Services Co................. 67,510 2,515
Chesapeake Energy Corp......... 80,900 2,447
ChevronTexaco Corp............. 461,588 28,646
ConocoPhillips................. 343,696 22,522
Devon Energy Corp.............. 91,422 5,523
El Paso Corp................... 145,394 2,181
EOG Resources, Inc............. 50,568 3,506
ExxonMobil Corp................ 1,260,302 77,320
Halliburton Co................. 107,386 7,969
Hess Corp...................... 50,106 2,648
Kerr-McGee Corp................ 47,142 3,269
Kinder Morgan, Inc............. 21,938 2,191
Marathon Oil Corp.............. 75,357 6,277
Murphy Oil Corp................ 34,800 1,944
Nabors Industries, Ltd. (a).... 64,330 2,174
National Oilwell Varco, Inc.
(a).......................... 36,300 2,299
Noble Corp..................... 28,523 2,123
Occidental Petroleum Corp...... 89,123 9,140
Rowan Cos., Inc................ 23,239 827
Schlumberger, Ltd.............. 245,614 15,992
Sunoco, Inc.................... 27,956 1,937
Transocean, Inc. (a)........... 67,495 5,421
Valero Energy Corp............. 128,000 8,515
Weatherford International Ltd.
(a).......................... 72,800 3,612
Williams Cos., Inc............. 123,737 2,891
XTO Energy, Inc................ 75,800 3,356
----------
242,341
----------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
FINANCIALS - 21.0%
ACE, Ltd....................... 68,155 $ 3,448
AFLAC, Inc..................... 103,616 4,803
Allstate Corp.................. 132,107 7,230
Ambac Financial Group, Inc..... 22,047 1,788
American Express Co............ 256,773 13,665
American International Group,
Inc.......................... 540,983 31,945
Ameriprise Financial, Inc...... 50,594 2,260
AmSouth Bancorp................ 72,519 1,918
AON Corp....................... 66,023 2,299
Apartment Investment &
Management Co. Class A....... 20,500 891
Archstone-Smith Trust.......... 44,300 2,254
Bank of America Corp........... 950,428 45,716
Bank of New York Co., Inc...... 161,179 5,190
BB&T Corp...................... 115,018 4,784
Bear Stearns Cos., Inc......... 25,299 3,544
Boston Properties, Inc......... 19,100 1,727
Capital One Financial Corp..... 63,015 5,385
Charles Schwab Corp............ 214,993 3,436
Chubb Corp..................... 86,778 4,330
Cincinnati Financial Corp...... 36,505 1,716
CIT Group, Inc................. 42,000 2,196
Citigroup, Inc................. 1,035,371 49,946
Comerica, Inc.................. 33,832 1,759
Commerce Bancorp, Inc.......... 38,300 1,366
Compass Bancshares, Inc........ 27,100 1,507
Countrywide Financial Corp..... 127,286 4,847
E*Trade Financial Corp. (a).... 89,400 2,040
Equity Office Properties
Trust........................ 75,941 2,773
Equity Residential............. 60,907 2,724
Fannie Mae..................... 201,429 9,689
Federal Home Loan Mortgage
Corp......................... 143,746 8,195
Federated Investors, Inc. Class
B............................ 18,100 570
Fifth Third Bancorp............ 116,000 4,286
First Horizon National Corp.... 26,117 1,050
Franklin Resources, Inc........ 31,744 2,756
Genworth Financial, Inc........ 75,700 2,637
Golden West Financial Corp..... 53,622 3,979
Goldman Sachs Group, Inc....... 89,900 13,524
Hartford Financial Services
Group, Inc................... 63,088 5,337
Huntington Bancshares, Inc..... 50,554 1,192
J.P. Morgan Chase & Co......... 723,619 30,392
Janus Capital Group, Inc. ..... 44,919 804
KeyCorp 83,709 2,987
Kimco Realty Corp. ............ 44,300 1,616
Legg Mason, Inc. .............. 27,600 2,747
Lehman Brothers Holdings,
Inc. ........................ 111,336 7,253
Lincoln National Corp. ........ 59,492 3,358
Loews Corp. ................... 84,942 3,011
M & T Bank Corp. .............. 16,300 1,922
Marsh & McLennan Cos., Inc. ... 113,936 3,064
Marshall & Ilsley Corp. ....... 47,192 2,159
MBIA, Inc. .................... 27,758 1,625
Mellon Financial Corp. ........ 86,323 2,972
Merrill Lynch & Co., Inc. ..... 192,327 13,378
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
23
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
MetLife, Inc. ................. 157,807 $ 8,081
MGIC Investment Corp. ......... 18,362 1,193
Moody's Corp. ................. 51,030 2,779
Morgan Stanley................. 222,943 14,092
National City Corp. ........... 112,691 4,078
North Fork Bancorp, Inc. ...... 96,535 2,912
Northern Trust Corp. .......... 38,840 2,148
Plum Creek Timber Co., Inc. ... 38,580 1,370
PNC Financial Services Group,
Inc. ........................ 61,847 4,340
Principal Financial Group,
Inc. ........................ 58,150 3,236
Progressive Corp. ............. 162,588 4,180
ProLogis....................... 51,200 2,669
Prudential Financial, Inc. .... 102,800 7,988
Public Storage, Inc. .......... 17,200 1,305
Regions Financial Corp. ....... 95,609 3,167
SAFECO Corp. .................. 24,664 1,390
Simon Property Group, Inc. .... 38,363 3,182
SLM Corp. ..................... 85,342 4,516
Sovereign Bancorp, Inc. ....... 77,805 1,580
St. Paul Travelers Cos.,
Inc. ........................ 145,225 6,474
State Street Corp. (b)......... 69,525 4,039
SunTrust Banks, Inc. .......... 75,572 5,763
Synovus Financial Corp. ....... 67,604 1,810
T. Rowe Price Group, Inc. ..... 55,580 2,101
Torchmark Corp. ............... 20,676 1,255
U.S. Bancorp................... 370,461 11,440
UnumProvident Corp. ........... 62,935 1,141
Vornado Realty Trust........... 24,700 2,409
Wachovia Corp. ................ 334,886 18,111
Washington Mutual, Inc. ....... 199,913 9,112
Wells Fargo Co. ............... 349,811 23,466
XL Capital, Ltd. Class A....... 37,732 2,313
Zions Bancorp.................. 22,219 1,732
----------
513,362
----------
HEALTH CARE - 12.0%
Abbott Laboratories............ 317,667 13,853
Aetna, Inc. ................... 118,528 4,733
Allergan, Inc. ................ 31,991 3,431
AmerisourceBergen Corp. ....... 43,432 1,821
Amgen, Inc. (a)................ 245,475 16,012
Applera Corp. -- Applied
Biosystems Group............. 38,367 1,241
Barr Pharmaceuticals, Inc.
(a).......................... 22,400 1,068
Bausch & Lomb, Inc. ........... 11,325 555
Baxter International, Inc. .... 136,126 5,004
Becton, Dickinson & Co. ....... 51,829 3,168
Biogen Idec, Inc. (a).......... 71,673 3,321
Biomet, Inc. .................. 51,841 1,622
Boston Scientific Corp. (a).... 254,012 4,278
Bristol-Myers Squibb Co. ...... 409,217 10,582
C.R. Bard, Inc. ............... 21,594 1,582
Cardinal Health, Inc. ......... 86,866 5,588
Caremark Rx, Inc. ............. 91,908 4,583
CIGNA Corp. ................... 24,989 2,462
Coventry Health Care, Inc.
(a).......................... 33,600 1,846
Eli Lilly & Co. ............... 235,197 12,999
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Express Scripts, Inc. (a)...... 30,600 $ 2,195
Fisher Scientific
International, Inc. (a)...... 25,900 1,892
Forest Laboratories, Inc.
(a).......................... 68,306 2,643
Genzyme Corp. (a).............. 54,105 3,303
Gilead Sciences, Inc. (a)...... 94,600 5,597
HCA, Inc. ..................... 85,459 3,688
Health Management Associates,
Inc. Class A................. 50,398 993
Hospira, Inc. (a).............. 32,236 1,384
Humana, Inc. (a)............... 34,425 1,849
IMS Health, Inc. .............. 41,881 1,125
Johnson & Johnson.............. 616,646 36,949
King Pharmaceuticals, Inc.
(a).......................... 49,932 849
Laboratory Corp. of America
Holdings (a)................. 26,300 1,637
Manor Care, Inc. .............. 16,651 781
McKesson Corp. ................ 63,831 3,018
Medco Health Solutions, Inc.
(a).......................... 62,672 3,590
MedImmune, Inc. (a)............ 52,465 1,422
Medtronic, Inc. ............... 251,202 11,786
Merck & Co., Inc. ............. 454,303 16,550
Millipore Corp. (a)............ 10,728 676
Mylan Laboratories Inc. ....... 43,200 864
Patterson Cos., Inc. (a)....... 29,500 1,030
Pfizer, Inc. .................. 1,525,974 35,815
Quest Diagnostics Inc. ........ 33,800 2,025
Schering-Plough Corp. ......... 309,224 5,885
St. Jude Medical, Inc. (a)..... 74,794 2,425
Stryker Corp. ................. 60,908 2,565
Tenet Healthcare Corp. (a)..... 99,009 691
Thermo Electron Corp. (a)...... 33,929 1,230
UnitedHealth Group, Inc. ...... 280,368 12,555
Watson Pharmaceuticals, Inc.
(a).......................... 22,003 512
Wellpoint, Inc. (a)............ 132,678 9,655
Wyeth.......................... 280,131 12,441
Zimmer Holdings, Inc. (a)...... 51,620 2,928
----------
292,297
----------
INDUSTRIALS - 11.5%
3M Co.......................... 156,884 12,672
Allied Waste Industries, Inc.
(a).......................... 50,667 576
American Power Conversion
Corp. ....................... 36,667 715
American Standard Cos.,
Inc. ........................ 37,321 1,615
Avery Dennison Corp. .......... 22,970 1,334
Boeing Co. .................... 166,445 13,634
Burlington Northern Santa Fe
Corp. ....................... 76,250 6,043
Caterpillar, Inc. ............. 139,370 10,380
Cendant Corp. ................. 207,622 3,382
Cintas Corp. .................. 28,482 1,132
Cooper Industries, Ltd. ....... 19,121 1,777
CSX Corp. ..................... 45,824 3,228
Cummins, Inc. ................. 9,573 1,170
Danaher Corp. ................. 49,426 3,179
Deere & Co. ................... 48,741 4,069
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
24
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Dover Corp. ................... 42,713 $ 2,111
Eaton Corp. ................... 30,978 2,336
Emerson Electric Co. .......... 85,335 7,152
Equifax, Inc. ................. 26,769 919
FedEx Corp. ................... 63,446 7,414
Fluor Corp. ................... 18,106 1,683
General Dynamics Corp. ........ 83,912 5,493
General Electric Co. .......... 2,165,923 71,389
Goodrich Co. .................. 25,755 1,038
Honeywell International,
Inc. ........................ 172,142 6,937
Illinois Tool Works, Inc. ..... 86,828 4,124
Ingersoll-Rand Co. Class A..... 68,600 2,935
ITT Industries, Inc. .......... 38,404 1,901
L-3 Communications Holdings,
Inc. ........................ 25,200 1,901
Lockheed Martin Corp. ......... 73,571 5,278
Masco Corp. ................... 83,074 2,462
Monster Worldwide, Inc. (a).... 26,192 1,117
Navistar International Corp.
(a).......................... 13,180 324
Norfolk Southern Corp. ........ 86,861 4,623
Northrop Grumman Corp. ........ 71,478 4,579
PACCAR, Inc. .................. 34,570 2,848
Pall Corp. .................... 26,774 750
Parker-Hannifin Corp. ......... 25,223 1,957
Pitney Bowes, Inc. ............ 45,939 1,897
R.R. Donnelley & Sons Co. ..... 45,660 1,459
Raytheon Co. .................. 93,114 4,150
Robert Half International,
Inc. ........................ 36,214 1,521
Rockwell Automation, Inc. ..... 37,120 2,673
Rockwell Collins, Inc. ........ 35,419 1,979
Ryder Systems, Inc. ........... 12,780 747
Southwest Airlines Co. ........ 147,740 2,418
Textron, Inc. ................. 26,975 2,487
Tyco International, Ltd. ...... 423,848 11,656
Union Pacific Corp. ........... 56,340 5,237
United Parcel Service, Inc.
Class B...................... 225,800 18,590
United Technologies Corp. ..... 210,414 13,344
W.W. Grainger, Inc. ........... 16,109 1,212
Waste Management, Inc. ........ 113,279 4,064
----------
279,611
----------
INFORMATION TECHNOLOGY - 14.4%
ADC Telecommunications, Inc.
(a).......................... 25,018 422
Adobe Systems, Inc. ........... 125,242 3,802
Advanced Micro Devices, Inc.
(a).......................... 100,184 2,447
Affiliated Computer Services,
Inc. (a)..................... 24,600 1,270
Agilent Technologies, Inc.
(a).......................... 89,297 2,818
Altera Corp. (a)............... 75,978 1,333
Analog Devices, Inc. .......... 74,861 2,406
Andrew Corp. (a)............... 34,827 309
Apple Computer, Inc. (a)....... 176,992 10,110
Applied Materials, Inc. ....... 325,061 5,292
Autodesk, Inc. ................ 48,430 1,669
Automatic Data Processing,
Inc. ........................ 120,238 5,453
Avaya, Inc. (a)................ 87,415 998
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
BMC Software, Inc. (a)......... 44,636 $ 1,067
Broadcom Corp. (a)............. 95,769 2,878
CA, Inc. ...................... 95,129 1,955
CIENA Corp. (a)................ 126,088 607
Cisco Systems, Inc. (a)........ 1,271,159 24,826
Citrix Systems, Inc. (a)....... 38,153 1,531
Computer Sciences Corp. (a).... 39,182 1,898
Compuware Corp. (a)............ 78,557 526
Comverse Technology, Inc. (a).. 42,838 847
Convergys Corp. (a)............ 28,605 558
Corning, Inc. (a).............. 325,585 7,876
Dell, Inc. (a)................. 472,791 11,541
Electronic Arts, Inc. (a)...... 63,400 2,729
Electronic Data Systems
Corp. ....................... 107,786 2,593
EMC Corp. (a).................. 491,541 5,392
First Data Corp. .............. 159,204 7,171
Fiserv, Inc. (a)............... 36,347 1,649
Freescale Semiconductor, Inc.
(a).......................... 84,108 2,473
Gateway, Inc. (a).............. 65,065 124
Google, Inc. (a)............... 42,910 17,993
Hewlett-Packard Co. ........... 580,819 18,400
Intel Corp. ................... 1,211,203 22,952
International Business Machines
Corp. ....................... 322,818 24,799
Intuit, Inc. (a)............... 35,351 2,135
Jabil Circuit, Inc. ........... 36,613 937
JDS Uniphase Corp. (a)......... 352,519 892
Juniper Networks, Inc. (a)..... 117,100 1,872
KLA-Tencor Corp................ 41,864 1,740
Lexmark International Group,
Inc. Class A (a)............. 21,702 1,212
Linear Technology Corp......... 63,675 2,132
LSI Logic Corp. (a)............ 81,935 733
Lucent Technologies, Inc.
(a).......................... 931,672 2,255
Maxim Integrated Products,
Inc.......................... 67,156 2,156
Micron Technology, Inc. (a).... 151,532 2,282
Microsoft Corp................. 1,827,204 42,574
Molex, Inc..................... 29,510 991
Motorola, Inc.................. 513,998 10,357
National Semiconductor Corp.... 70,318 1,677
NCR Corp. (a).................. 38,184 1,399
Network Appliance, Inc. (a).... 78,067 2,756
Novell, Inc. (a)............... 68,842 456
Novellus Systems, Inc. (a)..... 27,369 676
NVIDIA Corp. (a)............... 73,902 1,573
Oracle Corp. (a)............... 810,519 11,744
Parametric Technology Corp. New
(a).......................... 23,296 296
Paychex, Inc................... 69,527 2,710
PerkinElmer, Inc............... 27,257 570
PMC-Sierra, Inc. (a)........... 43,224 406
QLogic Corp. (a)............... 34,290 591
QUALCOMM, Inc.................. 348,878 13,980
Sabre Holdings Corp. Class A... 28,424 625
SanDisk Corp. (a).............. 40,800 2,080
Sanmina-SCI Corp. (a).......... 112,858 519
Solectron Corp. (a)............ 187,214 640
Sun Microsystems, Inc. (a)..... 732,888 3,042
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
25
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Symantec Corp. (a)............. 214,834 $ 3,339
Symbol Technologies, Inc....... 52,185 563
Tektronix, Inc................. 16,729 492
Tellabs, Inc. (a).............. 93,575 1,245
Teradyne, Inc. (a)............. 41,392 577
Texas Instruments, Inc......... 324,203 9,820
Unisys Corp. (a)............... 72,779 457
VeriSign, Inc. (a)............. 51,300 1,189
Waters Corp. (a)............... 21,857 970
Xerox Corp. (a)................ 190,442 2,649
Xilinx, Inc.................... 72,204 1,635
Yahoo!, Inc. (a)............... 262,080 8,649
----------
350,307
----------
MATERIALS - 3.1%
Air Products & Chemicals,
Inc.......................... 46,489 2,972
Alcoa, Inc..................... 180,846 5,852
Allegheny Technologies, Inc.... 18,029 1,248
Ashland, Inc................... 14,980 999
Ball Corp...................... 21,670 803
Bemis Co., Inc................. 21,628 662
Consol Energy, Inc............. 38,300 1,789
Dow Chemical Co................ 200,999 7,845
E.I. Du Pont de Nemours & Co... 191,639 7,972
Eastman Chemical Co............ 16,862 911
Ecolab, Inc.................... 38,226 1,551
Freeport-McMoRan Copper & Gold,
Inc. Class B................. 39,514 2,189
Hercules, Inc. (a)............. 24,698 377
International Flavors &
Fragrances, Inc.............. 16,204 571
International Paper Co......... 102,856 3,322
Louisiana-Pacific Corp......... 21,959 481
MeadWestvaco Corp.............. 37,588 1,050
Monsanto Co.................... 56,246 4,735
Newmont Mining Corp............ 94,042 4,978
Nucor Corp..................... 64,808 3,516
Pactiv Corp. (a)............... 29,764 737
Phelps Dodge Corp.............. 42,510 3,493
PPG Industries, Inc............ 34,490 2,276
Praxair, Inc................... 67,420 3,641
Rohm & Haas Co................. 29,896 1,498
Sealed Air Corp................ 17,036 887
Sigma-Aldrich Corp............. 13,793 1,002
Temple-Inland, Inc............. 22,928 983
United States Steel Corp....... 22,802 1,599
Vulcan Materials Co............ 20,996 1,638
Weyerhaeuser Co................ 51,624 3,214
----------
74,791
----------
TELECOMMUNICATION SERVICES - 3.3%
ALLTEL Corp.................... 80,898 5,164
AT&T, Inc...................... 809,553 22,578
BellSouth Corp................. 376,528 13,630
CenturyTel, Inc................ 23,808 884
Citizens Communications Co..... 68,877 899
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ----------
(DOLLARS IN THOUSANDS)
Embarq Corp. (a)............... 31,045 $ 1,273
Qwest Communications
International, Inc. (a)...... 325,122 2,630
Sprint Corp. (Fon Group)....... 620,000 12,394
Verizon Communications, Inc.... 607,410 20,342
----------
79,794
----------
UTILITIES - 3.3%
AES Corp. (a).................. 137,914 2,545
Allegheny Energy, Inc. (a)..... 33,899 1,257
Ameren Corp.................... 42,542 2,148
American Electric Power Co.,
Inc.......................... 82,254 2,817
CenterPoint Energy, Inc........ 63,893 799
CMS Energy Corp. (a)........... 46,605 603
Consolidated Edison, Inc....... 51,122 2,272
Constellation Energy Group,
Inc.......................... 37,103 2,023
Dominion Resources, Inc........ 72,587 5,429
DTE Energy Co.................. 36,946 1,505
Duke Energy Corp............... 256,899 7,545
Dynegy Inc. Class A (a)........ 77,330 423
Edison International........... 67,762 2,643
Entergy Corp................... 43,243 3,059
Exelon Corp.................... 139,078 7,904
FirstEnergy Corp............... 68,812 3,730
FPL Group, Inc................. 84,078 3,479
KeySpan Corp................... 35,806 1,447
Nicor, Inc..................... 9,313 386
NiSource, Inc.................. 57,867 1,264
Peoples Energy Corp............ 8,131 292
PG&E Corp...................... 72,023 2,829
Pinnacle West Capital Corp..... 20,581 821
PPL Corp....................... 79,236 2,559
Progress Energy, Inc........... 52,408 2,247
Public Service Enterprise
Group, Inc................... 52,422 3,466
Sempra Energy.................. 53,789 2,446
Southern Co.................... 154,958 4,966
TECO Energy, Inc............... 43,276 647
TXU Corp....................... 96,496 5,770
Xcel Energy, Inc............... 83,797 1,607
----------
80,928
----------
TOTAL COMMON STOCKS (COST
$1,666,913,046).......... ......... 2,395,126
----------
<Caption>
PAR
AMOUNT
--------------
(IN THOUSANDS)
U.S. GOVERNMENT SECURITIES - 0.2%
United States Treasury Bill
4.70% due 09/07/06 (c)(d).... $ 4,299 4,261
----------
TOTAL U.S. GOVERNMENT
SECURITIES (COST
$4,260,834).............. ........... 4,261
----------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
26
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
-------------- ----------
(DOLLARS IN THOUSANDS)
MONEY MARKET FUNDS - 0.9%
AIM Short Term Investment Prime
Portfolio.................... 21,566 $ 21,566
Federated Money Market
Obligations Trust............ 513 513
----------
TOTAL MONEY MARKET FUNDS
(COST $22,078,843)....... 22,079
----------
TOTAL INVESTMENTS - 99.3%
(IDENTIFIED COST
$1,693,252,723).............. 2,421,466
----------
OTHER ASSETS IN EXCESS OF
LIABILITIES - 0.7%........... 16,265
----------
NET ASSETS - 100.0%............ $2,437,731
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
(DOLLARS IN THOUSANDS)
S&P 500 Financial Futures
Contracts (long) Expiration
Date 09/2006............... 666 $1,041
------
Total unrealized appreciation
on open futures contracts
purchased.................. $1,041
======
</Table>
- ---------------
(a) Non-income producing security.
(b) Affiliated issuer.
(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>
SHARES PURCHASED INCOME EARNED
NUMBER OF FOR THE SIX SHARES SOLD FOR NUMBER OF FOR THE SIX REALIZED GAIN
SHARES HELD MONTHS ENDED THE SIX MONTHS SHARES HELD AT MONTHS ENDED ON SHARES SOLD
SECURITY DESCRIPTION 12/31/2005 6/30/06 ENDED 6/30/06 6/30/06 6/30/06 (000) (000)
- -------------------- ----------- ---------------- --------------- -------------- ------------- --------------
State Street Corp. 70,325 1,200 2,000 69,525 $27 $42
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
27
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (Unaudited) (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in unaffiliated issuers at market
(identified cost $1,690,939).......................... $2,417,427
Investments in non-controlled affiliates at market
(identified cost $2,314) (Note 4)..................... 4,039
----------
2,421,466
Receivables:
Investment securities sold........................ 13,639
Dividends and interest............................ 2,921
----------
TOTAL ASSETS...................................... 2,438,026
----------
LIABILITIES
Payables:
Daily variation margin on futures contracts....... 110
Management fees (Note 4).......................... 185
----------
TOTAL LIABILITIES................................. 295
----------
NET ASSETS.................................................. $2,437,731
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
28
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited) (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME
Dividend income -- unaffiliated issuers................ $22,997
Dividend income -- non-controlled affiliated issuer.... 27
Interest............................................... 1,312
-------
TOTAL INVESTMENT INCOME........................... 24,336
-------
EXPENSES
Management fees (Note 4)............................... $ 557
-------
TOTAL EXPENSES.................................... 557
-------
NET INVESTMENT INCOME....................................... 23,779
-------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments -- unaffiliated issuers............... (4,121)
Investments -- non-controlled affiliated issuer... 42
Futures contracts................................. (1,439)
-------
(5,518)
Net change in net unrealized appreciation
(depreciation) on:
Investments....................................... 45,905
Futures contracts................................. 1,807
-------
47,712
-------
Net realized and unrealized gain............................ 42,194
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $65,973
=======
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
29
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
----------- ------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income.................................. $ 23,779 $ 45,936
Net realized loss on investments and futures
contracts............................................. (5,518) (7,186)
Net change in net unrealized appreciation
(depreciation)................................. 47,712 63,727
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... 65,973 102,477
---------- ----------
CAPITAL TRANSACTIONS
Proceeds from contributions............................ 117,084 278,352
Fair value of withdrawals.............................. (198,435) (457,339)
Withdrawals in-kind.................................... -- (237,848)
---------- ----------
NET DECREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... (81,351) (416,835)
---------- ----------
TOTAL NET DECREASE IN NET ASSETS............................ (15,378) (314,358)
NET ASSETS
Beginning of period.................................... 2,453,109 2,767,467
---------- ----------
END OF PERIOD.......................................... $2,437,731 $2,453,109
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
30
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
FOR THE
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------------------------------
6/30/06 2005 2004 2003 2002 2001
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in
thousands)................. $2,437,731 $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% 0.045%
Net investment income.... 1.92%+ 1.84% 1.97% 1.74% 1.57% 1.34%
Portfolio turnover rate*..... 4%++ 8% 9% 12% 13% 14%
Total return(a).............. 2.69%++ 4.87% 10.86% 28.62% (22.16)% (11.94)%
</Table>
- ---------------
* The portfolio turnover rate excludes in-kind security transactions.
+ Annualized
++ Not Annualized
(a) Results represent past performance and are not indicative of future results.
See notes to financial statements.
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
The State Street Master Funds (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company, and 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 June 30, 2006,
only the Portfolio and State Street Money Market Portfolio were in operation.
The Portfolio is authorized to 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.
- --------------------------------------------------------------------------------
32
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
All of the net investment income and realized and unrealized gains and
losses from the security transactions of the Portfolio are allocated pro rata
among the partners in the Portfolio based on each partner's daily ownership
percentage.
Federal income taxes
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gains because it is treated as a partnership
for federal income tax purposes. All interest, dividends, gains and losses of
the Portfolio are deemed to have been "passed through" to the Portfolio's
partners in proportion to their holdings in the Portfolio, regardless of whether
such items have been distributed by the Portfolio. Each partner is responsible
for tax liability based on its distributive share; therefore, no provision has
been made for federal income taxes.
Futures
The Portfolio may enter into financial futures contracts as part of its
strategy to track the performance of the S&P 500(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.
Use of Estimates
The Portfolio's financial statements are prepared in accordance with U.S.
generally accepted accounting principles that require the use of management
estimates. Actual results could differ from those estimates.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 2006, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
withdrawals, aggregated to $94,209,892 and $139,808,353, respectively. The
aggregate value of in-kind withdrawals was $0.
At June 30, 2006, the book cost of investments was $1,693,252,723 which
approximates cost computed on a federal tax basis. The aggregate gross
unrealized appreciation and gross unrealized depreciation was $821,744,395 and
$93,531,438, respectively, resulting in net appreciation of $728,212,957 for all
securities as computed on a federal income tax basis.
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,
- --------------------------------------------------------------------------------
33
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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 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 this investment at June 30,
2006 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 in unknown as this could involve future claims against
the Trust
GENERAL INFORMATION (UNAUDITED)
Proxy Voting Policies and Procedures and Record
The Trust has adopted proxy voting procedures relating to portfolio
securities held by the Portfolio. A description of the policies and procedures
are available (i) without charge, upon request, by 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.
- --------------------------------------------------------------------------------
34
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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 25,400 aQuantive, Inc. (a) $ 643,382 0.1%
Other Securities 2,177,885 0.5
------------ -----
2,821,267 0.6
------------ -----
Aerospace Other Securities 2,630,482 0.5
Agriculture, Fishing & Ranching Other Securities 949,400 0.2
Air Transport 65,800 JetBlue Airways Corp. (a) 798,812 0.2
Other Securities 4,207,986 0.8
------------ -----
5,006,798 1.0
------------ -----
Aluminum Other Securities 774,675 0.2
Auto Parts: After Market Other Securities 777,544 0.2
Auto Parts: Original Equipment Other Securities 2,149,742 0.4
Auto, Trucks & Parts Other Securities 1,101,829 0.2
Banks: New York City Other Securities 391,798 0.1
Banks: Outside New York City 19,644 Cathay General Bancorp 714,649 0.2
18,900 First Midwest Bancorp, Inc. 700,812 0.2
31,100 FirstMerit Corp. 651,234 0.1
13,600 SVB Financial Group (a) 618,256 0.1
17,113 Texas Regional Bancshares, Inc. Class
A 648,925 0.1
Other Securities 29,847,302 5.8
------------ -----
33,181,178 6.5
------------ -----
Beverage: Brewers (Wineries) Other Securities 591,278 0.1
Biotechnology Research & Production 21,600 OSI Pharmaceuticals, Inc. (a) 711,936 0.1
Other Securities 11,623,460 2.3
------------ -----
12,335,396 2.4
------------ -----
Building Materials 10,665 Watsco, Inc. 637,980 0.1
Other Securities 2,366,527 0.5
------------ -----
3,004,507 0.6
------------ -----
Building: Cement Other Securities 166,855 0.0
Building: Heating & Plumbing Other Securities 455,804 0.1
Building: Miscellaneous Other Securities 772,267 0.2
Building: Roofing & Wallboard Other Securities 629,866 0.1
Cable Television Services Other Securities 431,090 0.1
Casinos & Gambling 12,091 Aztar Corp. (a) 628,248 0.1
Other Securities 2,885,896 0.6
------------ -----
3,514,144 0.7
------------ -----
Chemicals Other Securities 6,284,751 1.2
Coal Other Securities 791,734 0.2
Commercial Information Services Other Securities 1,171,903 0.2
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
35
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Communications & Media Other Securities $ 458,234 0.1%
Communications Technology 145,600 3Com Corp. (a) 745,472 0.1
100,600 Brocade Communications Systems, Inc.
(a) 617,684 0.1
Other Securities 11,617,732 2.3
------------ -----
12,980,888 2.5
------------ -----
Computer Services Software & Systems 14,898 Micros Systems, Inc. (a) 650,745 0.1
Other Securities 21,457,551 4.2
------------ -----
22,108,296 4.3
------------ -----
Computer Technology 27,962 RSA Security, Inc. (a) 760,287 0.2
Other Securities 6,880,043 1.3
------------ -----
7,640,330 1.5
------------ -----
Construction Other Securities 2,087,603 0.4
Consumer Electronics Other Securities 3,872,547 0.8
Consumer Products Other Securities 3,221,222 0.6
Containers & Packaging: Metal & Glass Other Securities 2,008,729 0.4
Copper Other Securities 405,674 0.1
Cosmetics Other Securities 597,151 0.1
Diversified Financial Services Other Securities 2,352,456 0.5
Diversified Materials & Processing Other Securities 3,007,538 0.6
Drug & Grocery Store Chains Other Securities 2,501,935 0.5
Drugs & Pharmaceuticals 29,000 MGI Pharma, Inc. (a) 623,500 0.1
33,400 Nektar Therapeutics (a) (e) 612,556 0.1
Other Securities 10,890,656 2.2
------------ -----
12,126,712 2.4
------------ -----
Education Services Other Securities 2,086,461 0.4
Electrical & Electronics Other Securities 1,713,076 0.3
Electrical Equipment & Components Other Securities 4,416,467 0.9
Electrical: Household Appliance Other Securities 81,034 0.0
Electronics Other Securities 3,342,558 0.7
Electronics: Instruments, Gauges & Other Securities 939,246 0.2
Meters
Electronics: Medical Systems 16,700 Hologic, Inc. (a) 824,312 0.1
Other Securities 3,924,454 0.8
------------ -----
4,748,766 0.9
------------ -----
Electronics: Semi- 15,700 Formfactor, Inc. (a) 700,691 0.1
Conductors/Components
Other Securities 8,545,174 1.7
------------ -----
9,245,865 1.8
------------ -----
Electronics: Technology Other Securities 3,199,799 0.6
Energy Equipment Other Securities 245,600 0.1
Energy Miscellaneous 13,497 Veritas DGC, Inc. (a) 696,175 0.1
Other Securities 2,509,805 0.5
------------ -----
3,205,980 0.6
------------ -----
Engineering & Contracting Services Other Securities 897,447 0.2
Entertainment Other Securities 1,510,067 0.3
Fertilizers Other Securities 201,929 0.0
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
36
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Finance Companies Other Securities $ 1,465,200 0.3%
Finance: Small Loan Other Securities 462,934 0.1
Financial Data Processing Other Securities 4,533,837 0.9
Services & Systems
Financial Information Services Other Securities 1,127,634 0.2
Financial Miscellaneous Other Securities 4,101,729 0.8
Foods Other Securities 4,596,469 0.9
Forest Products Other Securities 608,316 0.1
Forms and Bulk Printing Services Other Securities 265,280 0.1
Funeral Parlors & Cemeteries Other Securities 475,774 0.1
Glass Other Securities 192,570 0.0
Gold Other Securities 727,883 0.1
Health Care Facilities Other Securities 3,131,303 0.6
Health Care Management Services Other Securities 3,089,914 0.6
Health Care Services 13,000 Healthways, Inc. (a) 684,320 0.1
Other Securities 2,298,389 0.5
------------ -----
2,982,709 0.6
------------ -----
Homebuilding Other Securities 1,509,334 0.3
Hotel/Motel Other Securities 359,504 0.1
Household Furnishings Other Securities 2,504,679 0.5
Identification Control & Filter Other Securities 2,597,933 0.5
Devices
Industrial Producers Other Securities 153,940 0.0
Insurance: Life Other Securities 1,898,432 0.4
Insurance: Multi-Line Other Securities 2,252,576 0.4
Insurance: Property-Casualty 21,515 Ohio Casualty Corp. 639,641 0.1
Other Securities 5,922,847 1.2
------------ -----
6,562,488 1.3
------------ -----
Investment Management Companies Other Securities 2,872,355 0.6
Jewelry, Watches & Gemstones Other Securities 499,269 0.1
Leisure Time Other Securities 1,746,095 0.3
Machinery & Engineering Other Securities 361,976 0.1
Machinery: Agricultural Other Securities 240,303 0.1
Machinery: Construction & Handling Other Securities 588,238 0.1
Machinery: Engines Other Securities 572,250 0.1
Machinery: Industrial/Specialty Other Securities 2,236,839 0.4
Machinery: Oil Well Equipment & 33,743 Hanover Compressor Co. (a)(e) 633,694 0.1
Services
9,826 Universal Compression Holdings, Inc.
(a) 618,743 0.1
Other Securities 4,830,956 1.0
------------ -----
6,083,393 1.2
------------ -----
Machinery: Specialty Other Securities 1,111,050 0.2
Manufactured Housing Other Securities 554,843 0.1
Manufacturing Other Securities 368,509 0.1
Medical & Dental Instruments & 14,844 Mentor Corp. (e) 645,714 0.1
Supplies
Other Securities 12,394,551 2.4
------------ -----
13,040,265 2.5
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
37
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Medical Services 14,300 Magellan Health Services, Inc. (a) $ 647,933 0.1%
Other Securities 735,315 0.2
------------ -----
1,383,248 0.3
------------ -----
Metal Fabricating 11,758 Lone Star Technologies, Inc. (a) 635,167 0.1
13,463 Maverick Tube Corp. (a) 850,727 0.2
Other Securities 4,011,150 0.8
------------ -----
5,497,044 1.1
------------ -----
Metals & Minerals Miscellaneous 8,218 Cleveland-Cliffs, Inc. 651,605 0.2
Other Securities 1,633,871 0.3
------------ -----
2,285,476 0.5
------------ -----
Milling: Fruit and Grain Processing Other Securities 106,812 0.0
Miscellaneous Business & Consumer Other Securities 93,080 0.0
Discretionary
Miscellaneous Consumer Staples Other Securities 160,765 0.0
Miscellaneous Materials & Commodities Other Securities 1,033,243 0.2
Miscellaneous Materials & Processing Other Securities 1,211,235 0.2
Miscellaneous Producer Durables 28,900 BE Aerospace, Inc. (a) 660,654 0.1
Other Securities 133,422 0.1
------------ -----
794,076 0.2
------------ -----
Miscellaneous Technology Other Securities 259,771 0.1
Multi-Sector Companies Other Securities 1,328,343 0.3
Office Furniture & Business Equipment Other Securities 1,316,919 0.3
Offshore Drilling Other Securities 737,668 0.1
Oil: Crude Producers 11,083 Houston Exploration Co. (a) 678,169 0.1
Other Securities 9,721,717 1.9
------------ -----
10,399,886 2.0
------------ -----
Oil: Integrated Domestic Other Securities 1,352,136 0.3
Oil: Integrated International Other Securities 240,096 0.1
Paints & Coatings Other Securities 832,097 0.2
Paper Other Securities 1,947,004 0.4
Plastics Other Securities 619,184 0.1
Pollution Control & Environmental Other Securities 798,014 0.2
Services
Power Transmission Equipment Other Securities 452,582 0.1
Printing & Copying Services Other Securities 629,678 0.1
Production Technology Equipment 19,113 Varian Semiconductor Equipment
Associates, Inc. (a) 623,275 0.1
Other Securities 5,706,523 1.1
------------ -----
6,329,798 1.2
------------ -----
Publishing: Miscellaneous Other Securities 2,000,111 0.4
Publishing: Newspapers Other Securities 1,771,267 0.3
Radio & TV Broadcasters Other Securities 2,500,439 0.5
Railroad Equipment Other Securities 1,066,066 0.2
Railroads Other Securities 1,143,820 0.2
Real Estate Other Securities 1,193,776 0.2
Real Estate Investment Trusts (REITs) 8,556 Alexandria Real Estate Equities, Inc. 758,746 0.2
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
38
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
20,600 Highwoods Properties, Inc. $ 745,308 0.2%
13,120 Home Properties, Inc. 728,291 0.1
13,320 LaSalle Hotel Properties 616,716 0.1
28,559 Nationwide Health Properties, Inc. 642,863 0.1
14,286 Post Properties, Inc. 647,727 0.1
Other Securities 27,265,495 5.3
------------ -----
31,405,146 6.1
------------ -----
Recreational Vehicles & Boats Other Securities 1,401,860 0.3
Rental & Leasing Services: Commercial Other Securities 747,941 0.1
Rental & Leasing Services: Consumer Other Securities 1,656,009 0.3
Restaurants Other Securities 8,415,948 1.6
Retail 42,300 Big Lots, Inc. (a) 722,484 0.1
Other Securities 17,969,347 3.5
------------ -----
18,691,831 3.6
------------ -----
Savings & Loan Other Securities 10,172,554 2.0
Scientific Equipment & Suppliers Other Securities 647,190 0.1
Securities Brokerage & Services Other Securities 2,334,511 0.5
Services: Commercial 17,500 Regis Corp. 623,175 0.1
17,018 Waste Connections, Inc. (a) 619,455 0.1
Other Securities 14,976,201 3.0
------------ -----
16,218,831 3.2
------------ -----
Shipping 11,900 American Commercial Lines, Inc. (a) 716,975 0.1
Other Securities 363,534 0.1
------------ -----
1,080,509 0.2
------------ -----
Shoes Other Securities 2,751,292 0.5
Steel 8,545 Chaparral Steel Co. (a) 615,411 0.1
12,500 Oregon Steel Mills, Inc. (a) 633,250 0.1
Other Securities 1,860,103 0.4
------------ -----
3,108,764 0.6
------------ -----
Sugar Other Securities 123,344 0.0
Telecommunications Equipment 20,100 Interdigital Communications Corp. (a) 701,691 0.1
31,900 Polycom, Inc. (a) 699,248 0.1
Other Securities 2,869,907 0.6
------------ -----
4,270,846 0.8
------------ -----
Textile Products Other Securities 195,351 0.0
Textiles Apparel Manufacturers 20,854 Phillips-Van Heusen Corp. 795,789 0.1
Other Securities 3,406,798 0.7
------------ -----
4,202,587 0.8
------------ -----
Tires & Rubber Other Securities 492,902 0.1
Tobacco Other Securities 920,136 0.2
Toys Other Securities 726,720 0.1
Transportation Miscellaneous Other Securities 1,253,203 0.2
Truckers Other Securities 2,707,389 0.5
Utilities: Cable TV & Radio Other Securities 118,993 0.0
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
39
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Utilities: Electrical 29,200 Westar Energy, Inc. $ 614,660 0.1%
Other Securities 6,269,615 1.2
------------ -----
6,884,275 1.3
------------ -----
Utilities: Gas Distributors 15,600 Nicor, Inc. (e) 647,400 0.1
25,500 Piedmont Natural Gas Co. 619,650 0.1
Other Securities 3,007,326 0.6
------------ -----
4,274,376 0.8
------------ -----
Utilities: Gas Pipelines Other Securities 159,530 0.0
Utilities: Miscellaneous Other Securities 507,305 0.1
Utilities: Telecommunications Other Securities 5,489,182 1.1
Utilities: Water Other Securities 685,376 0.1
Wholesale & International Trade Other Securities 317,645 0.1
Wholesalers Other Securities 1,163,651 0.2
------------ -----
TOTAL COMMON STOCKS
(COST - $374,034,401) 449,622,572 87.7
------------ -----
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
169,590 iShares Russell 2000 Index Fund (e) 12,159,603 2.4
------------ -----
TOTAL EXCHANGE-TRADED FUNDS
(COST - $12,341,064) 12,159,603 2.4
------------ -----
<Caption>
MUTUAL FUNDS
------------
Investment Management Companies Other Securities 94,116 0.0
------------ -----
TOTAL MUTUAL FUNDS
(COST - $92,876) 94,116 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
----------- ---------------------
$46,332,365 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 4.78% (c)(f).... 46,332,365 9.0
36,252,065 Merrill Lynch Liquidity Series, LLC
Money Market Series, 5.22%
(c)(d)(f)............................ 36,252,065 7.1
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST - $82,584,430)................. 82,584,430 16.1
------------ -----
TOTAL INVESTMENTS (COST - $469,052,771*) 544,460,721 106.2
LIABILITIES IN EXCESS OF OTHER ASSETS (31,816,511) (6.2)
------------ -----
NET ASSETS - 100.0% $512,644,210 100.0%
============ =====
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
40
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
- ---------------
* The cost and unrealized appreciation (depreciation) of investments, as of
June 30, 2006, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $472,784,415
------------
Gross unrealized appreciation............................... $ 93,085,630
Gross unrealized depreciation............................... (21,409,324)
------------
Net unrealized appreciation................................. $ 71,676,306
============
</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..... $45,690,690 $1,655,673
Merrill Lynch Liquidity Series, LLC Money Market Series..... $22,787,010 $ 185,901
</Table>
(d) Security was purchased with the cash proceeds from securities loans.
(e) Security, or a portion of security, is on loan.
(f) Represents the current yield as of 6/30/2006.
-- "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 purposes of this
report, which may combine such industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
-- Financial futures contracts purchased as of June 30, 2006, were as follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE APPRECIATION
--------- ----- -------------- ---------- ------------
133 Russell 2000 Index September 2006 $46,934,608 $1,710,142
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
41
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value
(including securities loaned of $35,300,162)
(identified cost - $386,468,341)....................... $461,876,291
Investments in affiliated securities, at value
(identified cost - $82,584,430)............................. 82,584,430
Cash.................................................... 235,786
Cash on deposit for financial futures contracts......... 2,092,500
Receivables:
Securities sold....................................... $81,675,732
Contributions......................................... 2,241,230
Variation margin...................................... 671,651
Dividends............................................. 613,302
Securities lending.................................... 27,629 85,229,544
-----------
Prepaid expenses and other assets....................... 6,364
------------
TOTAL ASSETS........................................ 632,024,915
------------
LIABILITIES:
Collateral on securities loaned, at value............... 36,252,065
Payables:
Securities purchased.................................. 77,575,202
Withdrawals........................................... 5,327,839
Investment adviser.................................... 3,993
Other affiliates...................................... 3,924 82,910,958
-----------
Accrued expenses and other liabilities.................. 217,682
------------
TOTAL LIABILITIES................................... 119,380,705
------------
NET ASSETS:
Net assets.............................................. $512,644,210
============
NET ASSETS CONSIST OF
Investors' capital...................................... $435,526,118
Unrealized appreciation - net........................... 77,118,092
------------
NET ASSETS.................................................. $512,644,210
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
42
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $1,162 foreign withholding tax)....... $ 2,143,381
Interest from affiliates................................ 1,655,673
Securities lending - net................................ 185,901
-----------
TOTAL INCOME........................................ 3,984,955
-----------
EXPENSES:
Professional fees....................................... $ 59,545
Accounting services..................................... 36,018
Custodian fees.......................................... 33,454
Investment advisory fees................................ 25,199
Trustees' fees and expenses............................. 1,802
Printing and shareholder reports........................ 128
Pricing fees............................................ 47
Other................................................... 3,613
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 159,806
Waiver of expenses...................................... (92)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 159,714
-----------
INVESTMENT INCOME - NET..................................... 3,825,241
-----------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain (loss) on:
Investments - net..................................... 29,811,057
In-kind redemption - net.............................. (1,199,610)
Financial futures contracts - net..................... (5,851,887) 22,759,560
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... (1,541,293)
Financial futures contracts - net..................... 1,710,990 169,697
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 22,929,257
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $26,754,498
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
43
MASTER SMALL CAP INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
------------- --------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 3,825,241 $ 4,325,603
Realized gain - net..................................... 22,759,560 13,549,496
Change in unrealized appreciation/depreciation - net.... 169,697 (5,151,541)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 26,754,498 12,723,558
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 365,892,683 267,164,255
Fair value of withdrawals............................... (250,148,320) (275,403,741)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL TRANSACTIONS................................... 115,744,363 (8,239,486)
------------- -------------
NET ASSETS:
Total increase in net assets............................ 142,498,861 4,484,072
Beginning of period..................................... 370,145,349 365,661,277
------------- -------------
END OF PERIOD........................................... $ 512,644,210 $ 370,145,349
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
44
MASTER SMALL CAP INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
2006 2005 2004 2003 2002
----------- -------- -------- -------- --------
(UNAUDITED)
TOTAL INVESTMENT RETURN................................. 8.19%+ 4.63% 18.15% 47.11% (20.19%)
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement...................... .06% .07% .08% .09% .08%
-------- -------- -------- -------- --------
Expenses............................................ .06% .08% .08% .10% .14%
-------- -------- -------- -------- --------
Investment income - net............................. 1.52% 1.17% 1.11% 1.13% 1.26%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $512,644 $370,145 $365,661 $335,659 $181,915
-------- -------- -------- -------- --------
Portfolio turnover.................................. 29.38% 36.63% 37.74% 28.57% 39.00%
-------- -------- -------- -------- --------
</Table>
- ---------------
+ Aggregate total investment return.
See notes to financial statements.
- --------------------------------------------------------------------------------
45
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period. All such adjustments are of a normal, recurring
nature. The following is a summary of significant accounting policies followed
by the Series.
(a) Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available 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. Valuation of other short-term investment vehicles is generally
based on net asset value of the underlying investment vehicle or amortized cost.
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.
- --------------------------------------------------------------------------------
46
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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
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
- --------------------------------------------------------------------------------
47
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
required. Under the applicable foreign tax law, a withholding tax may be imposed
on interest, dividends and capital gains at various rates. It is intended that
the Series' assets will be managed so an investor in the Series can satisfy the
requirements of Subchapter M of the Internal Revenue Code.
(d) Security transactions and investment income
Security transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost 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 $92.
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 June 30, 2006, the Series lent securities with a value of $92,016 to
MLPF&S or its affiliates. Pursuant to that order, the Trust also has retained
Merrill
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. MLIM, LLC may, on behalf of the Trust and the Series, invest
cash collateral received by the Series for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate
of FAM. For the six months ended June 30, 2006, MLIM, LLC received $79,192 in
securities lending agent fees.
In addition, MLPF&S received $208 in commissions on the execution of
portfolio security transactions for the Series for the six months ended June 30,
2006.
For the six months ended June 30, 2006, the Series reimbursed FAM $3,808
for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors
of FAM, PSI, MLTC, ML & Co., MLIM, and/or MLIM, LLC.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close at the end of the third quarter of 2006.
3. INVESTMENTS:
Purchases and sales (including in-kind redemptions) of investments,
excluding short-term securities, for the six months ended June 30, 2006 were
$193,153,094 and $126,684,470, 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, which expires November 2006. 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 six months ended
June 30, 2006.
- --------------------------------------------------------------------------------
49
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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 $ 3,498,278 0.6%
Air Freight & Logistics Other Securities 2,418,070 0.4
Airlines Other Securities 1,489,956 0.2
Auto Components Other Securities 4,399,792 0.7
Automobiles 48,144 DaimlerChrysler AG 2,378,051 0.4
80,500 Honda Motor Co., Ltd. 2,556,226 0.4
145,300 Toyota Motor Corp. 7,613,585 1.2
Other Securities 4,061,185 0.6
------------ -----
16,609,047 2.6
------------ -----
Beverages 153,488 Diageo Plc 2,581,932 0.4
Other Securities 5,074,479 0.8
------------ -----
7,656,411 1.2
------------ -----
Biotechnology Other Securities 842,602 0.1
Building Products Other Securities 3,515,967 0.6
Capital Markets 63,432 Credit Suisse Group 3,541,836 0.6
26,296 Deutsche Bank AG Registered
Shares 2,958,876 0.5
55,029 UBS AG Registered Shares 6,019,499 0.9
Other Securities 7,340,984 1.2
------------ -----
19,861,195 3.2
------------ -----
Chemicals Other Securities 17,404,467 2.8
Commercial Banks 91,876 ABN AMRO Holding NV 2,512,854 0.4
42,556 BNP Paribas 4,072,930 0.6
181,006 Banco Bilbao Vizcaya Argentaria
SA 3,721,632 0.6
306,300 Banco Santander Central Hispano
SA 4,472,676 0.7
346,680 Barclays Plc 3,940,201 0.6
204,250 HBOS Plc 3,551,057 0.6
594,963 HSBC Holdings Plc 10,470,477 1.7
301,627 Lloyds TSB Group Plc 2,965,113 0.5
437 Mitsubishi UFJ Financial Group,
Inc. 6,116,433 1.0
490 Mizuho Financial Group, Inc. 4,153,523 0.7
164,849 Royal Bank of Scotland Group Plc 5,421,080 0.9
17,830 Societe Generale 2,621,824 0.4
300 Sumitomo Mitsui Financial Group,
Inc. 3,175,436 0.5
393,632 UniCredito Italiano SpA 3,081,832 0.5
Other Securities 34,818,591 5.5
------------ -----
95,095,659 15.2
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ --------------
Commercial Services & Supplies Other Securities $ 5,097,171 0.8%
Communications Equipment 223,091 Nokia Oyj 4,552,703 0.7
714,376 Telefonaktiebolaget LM Ericsson 2,360,279 0.4
Other Securities 1,614,285 0.3
------------ -----
8,527,267 1.4
------------ -----
Computers & Peripherals Other Securities 2,924,504 0.5
Construction & Engineering Other Securities 5,195,393 0.8
Construction Materials Other Securities 4,840,749 0.8
Consumer Finance Other Securities 2,647,322 0.4
Containers & Packaging Other Securities 670,533 0.1
Distributors Other Securities 388,003 0.1
Diversified Consumer Services Other Securities 239,970 0.0
Diversified Financial Services 96,491 ING Groep NV CVA 3,791,436 0.6
Other Securities 5,387,461 0.9
------------ -----
9,178,897 1.5
------------ -----
Diversified Telecommunication 233,917 Telefonica SA 3,894,280 0.6
Services Other Securities 15,810,690 2.5
------------ -----
19,704,970 3.1
------------ -----
Electric Utilities 33,498 E.ON AG 3,855,780 0.6
Other Securities 14,071,469 2.3
------------ -----
17,927,249 2.9
------------ -----
Electrical Equipment Other Securities 5,914,104 0.9
Electronic Equipment & Other Securities 6,059,149 1.0
Instruments
Energy Equipment & Services Other Securities 1,530,735 0.2
Food & Staples Retailing 398,904 Tesco Plc 2,464,238 0.4
Other Securities 8,261,731 1.3
------------ -----
10,725,969 1.7
------------ -----
Food Products 21,394 Nestle SA Registered Shares 6,706,364 1.1
Other Securities 9,046,259 1.4
------------ -----
15,752,623 2.5
------------ -----
Gas Utilities Other Securities 2,007,207 0.3
Health Care Equipment & Supplies Other Securities 3,058,093 0.5
Health Care Providers & Services Other Securities 1,024,549 0.2
Hotels, Restaurants & Leisure Other Securities 5,970,400 0.9
Household Durables Other Securities 11,593,824 1.9
Household Products Other Securities 2,183,588 0.3
IT Services Other Securities 2,133,835 0.3
Independent Power Producers & Other Securities 737,484 0.1
Energy Traders
Industrial Conglomerates 42,682 Siemens AG 3,712,783 0.6
Other Securities 4,014,511 0.6
------------ -----
7,727,294 1.2
------------ -----
Insurance 87,501 AXA 2,870,940 0.5
20,777 Allianz AG Registered Shares 3,281,516 0.5
Other Securities 20,484,261 3.3
------------ -----
26,636,717 4.3
------------ -----
Internet & Catalog Retail Other Securities 1,117,660 0.2
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ --------------
Internet Software & Services Other Securities $ 552,550 0.1%
Leisure Equipment & Products Other Securities 2,312,276 0.4
Life Sciences Tools & Services Other Securities 62,512 0.0
Machinery Other Securities 11,830,827 1.9
Marine Other Securities 1,751,889 0.3
Media Other Securities 12,415,888 2.0
Metals & Mining 72,979 Anglo American Plc 2,993,830 0.5
178,905 BHP Billiton Ltd. 3,854,594 0.6
133,948 BHP Billiton Plc 2,598,839 0.4
56,351 Rio Tinto Plc Registered Shares 2,979,775 0.5
Other Securities 11,748,961 1.9
------------ -----
24,175,999 3.9
------------ -----
Multi-Utilities Other Securities 8,671,007 1.4
Multiline Retail Other Securities 3,042,245 0.5
Office Electronics 56,400 Canon, Inc. 2,767,826 0.4
Other Securities 1,176,098 0.2
------------ -----
3,943,924 0.6
------------ -----
Oil, Gas & Consumable Fuels 193,718 BG Group Plc 2,588,663 0.4
1,068,495 BP Plc 12,460,209 2.0
3,749 BP Plc (b) 260,968 0.0
111,634 ENI SpA 3,284,486 0.5
204,390 Royal Dutch Shell Plc 6,880,164 1.1
143,015 Royal Dutch Shell Plc Class B 5,001,967 0.8
115,027 Total SA 7,567,276 1.2
Other Securities 8,311,905 1.4
------------ -----
46,355,638 7.4
------------ -----
Paper & Forest Products Other Securities 2,280,824 0.4
Personal Products Other Securities 1,896,752 0.3
Pharmaceuticals 84,007 AstraZeneca Plc 5,071,464 0.8
304,144 GlaxoSmithKline Plc 8,499,854 1.4
800 GlaxoSmithKline Plc (b) 44,640 0.0
123,337 Novartis AG Registered Shares 6,665,232 1.1
37,298 Roche Holding AG 6,153,409 1.0
52,111 Sanofi-Aventis 5,084,033 0.8
46,600 Takeda Pharmaceutical Co., Ltd. 2,902,436 0.4
Other Securities 5,919,897 0.9
------------ -----
40,340,965 6.4
------------ -----
Real Estate Investment Trusts Other Securities 4,760,097 0.8
(REITs)
Real Estate Management & Other Securities 10,879,985 1.7
Development
Road & Rail Other Securities 5,172,990 0.8
Semiconductors & Semiconductor Other Securities 4,536,589 0.7
Equipment
Software Other Securities 4,455,545 0.7
Specialty Retail Other Securities 4,620,449 0.7
Textiles, Apparel & Luxury Goods Other Securities 5,276,692 0.8
Thrifts & Mortgage Finance Other Securities 408,365 0.1
Tobacco Other Securities 5,787,667 0.9
Trading Companies & Distributors Other Securities 5,992,141 1.0
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ --------------
Transportation Infrastructure Other Securities $ 1,947,103 0.3%
Water Utilities Other Securities 712,756 0.1
Wireless Telecommunication 3,120,505 Vodafone Group Plc 6,651,714 1.1
Services
4,178 Vodafone Group Plc (b) 88,991 0.0
Other Securities 3,942,793 0.6
------------ -----
10,683,498 1.7
------------ -----
TOTAL COMMON STOCKS
(COST - $440,955,183) 579,173,876 92.4
------------ -----
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
Diversified Financial Services 284,277 iShares MSCI EAFE Index Fund 18,537,703 3.0
------------ -----
TOTAL EXCHANGE-TRADED FUNDS
(COST - $17,644,632) 18,537,703 3.0
------------ -----
<Caption>
PREFERRED STOCKS
----------------
Automobiles Other Securities 735,751 0.1
Chemicals Other Securities 307,933 0.1
Media Other Securities 125,136 0.0
Multi-Utilities Other Securities 140,736 0.0
------------ -----
TOTAL PREFERRED STOCKS
(COST - $821,955) 1,309,556 0.2
------------ -----
<Caption>
RIGHTS
------
Chemicals Other Securities 21,165 0.0
Machinery Other Securities 6,435 0.0
------------ -----
TOTAL RIGHTS (COST - $0) 27,600 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
-------------- ---------------------
USD$12,041,829 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I, 4.78%
(a)(c)........................... 12,041,829 1.9
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST - $12,041,829)............. 12,041,829 1.9
------------ -----
TOTAL INVESTMENTS (COST - $471,463,599*) 611,090,564 97.5
OTHER ASSETS LESS LIABILITIES 15,502,170 2.5
------------ -----
NET ASSETS $626,592,734 100.0%
============ =====
</Table>
- ---------------
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2006, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $476,995,253
------------
Gross unrealized appreciation............................... $143,003,774
Gross unrealized depreciation............................... (8,908,463)
------------
Net unrealized appreciation................................. $134,095,311
============
</Table>
(a) Represents the current yield as of 6/30/2006.
(b) Depositary receipts.
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
(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..... $(8,287,046) $358,356
</Table>
-- "Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
-- 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.
-- Financial futures contracts purchased as of June 30, 2006 were as follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE EXCHANGE DATE FACE VALUE APPRECIATION
--------- ----- -------- -------------- ---------- ------------
15 Hang Seng Index Future Hong Kong July 2006 $1,531,094 $ 44,514
63 OMX Stock Index Future Stockholm July 2006 $ 801,261 36,369
2 DAX Index 25 Euro Future Eurex September 2006 $ 355,419 10,693
114 DJ Euro Stoxx 50 Eurex September 2006 $5,102,330 235,658
36 FTSE 100 Index Future LIFFE September 2006 $3,773,687 104,834
1 S&P/MIB Index Future Eurex September 2006 $ 230,699 3,749
28 SPI 200 Index Future Sydney September 2006 $2,543,440 98,482
73 TOPIX Index Future Tokyo September 2006 $9,816,395 333,935
--------
TOTAL UNREALIZED APPRECIATION - NET $868,234
========
</Table>
Forward foreign exchange contracts purchased as of June 30, 2006 were as
follows:
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
PURCHASED DATE (DEPRECIATION)
---------------- ----------- --------------
AUD 3,222,700 August 2006 $ (56,513)
CHF 4,526,600 August 2006 (17,435)
EUR 13,231,800 August 2006 18,608
GBP 5,051,600 August 2006 (41,744)
HKD 3,680,000 August 2006 (1,142)
JPY 1,630,758,700 August 2006 (372,110)
SEK 8,668,900 August 2006 11,550
SGD 80,800 August 2006 150
---------
TOTAL UNREALIZED DEPRECIATION ON FORWARD FOREIGN
EXCHANGE
CONTRACTS - NET (USD
COMMITMENT - $48,976,148) $(458,636)
=========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
- - Forward foreign exchange contracts sold as of June 30, 2006 were as follows:
<Table>
<Caption>
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
SOLD DATE (DEPRECIATION)
---------------- ----------- --------------
AUD 2,240,900 August 2006 $ 32,899
CHF 3,092,500 August 2006 28,178
EUR 8,444,400 August 2006 (10,655)
GBP 4,177,200 August 2006 81,067
HKD 3,680,000 August 2006 808
JPY 979,262,000 August 2006 266,062
SEK 5,478,000 August 2006 (14,060)
SGD 80,800 August 2006 (145)
--------
TOTAL UNREALIZED APPRECIATION ON FORWARD
FOREIGN EXCHANGE
CONTRACTS - NET (USD
COMMITMENT - $33,057,761) $384,154
========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
AUD Australian
Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
HKD Hong Kong Dollar
JPY Japanese Yen
SEK Swedish Krona
SGD Singapore Dollar
USD U.S. Dollar
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities,at value
(identified cost - $459,421,770)....................... $599,048,735
Investments in affiliated securities,at value
(identified cost - $12,041,829)........................ 12,041,829
Cash on deposit for financial futures contracts......... 1,995,570
Foreign cash (cost - $8,001,968)........................ 7,952,577
Unrealized appreciation on forward foreign exchange
contracts.............................................. 439,322
Receivables:
Dividends............................................. $2,054,400
Securities sold....................................... 1,673,636
Variation margin...................................... 1,347,995
Contributions......................................... 1,339,010 6,415,041
----------
Prepaid expenses........................................ 5,708
------------
TOTAL ASSETS........................................ 627,898,782
------------
LIABILITIES:
Unrealized depreciation on forward foreign exchange
contracts.............................................. 513,804
Payables:
Withdrawals........................................... 510,933
Securities purchased.................................. 222,920
Other affiliates...................................... 5,358
Investment adviser.................................... 3,196 742,407
----------
Accrued expenses and other liabilities.................. 49,837
------------
TOTAL LIABILITIES................................... 1,306,048
------------
NET ASSETS:
Net assets.............................................. $626,592,734
============
NET ASSETS CONSIST OF:
Investors' capital...................................... $486,071,616
Unrealized appreciation - net........................... 140,521,118
------------
NET ASSETS.................................................. $626,592,734
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
56
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $944,972 foreign withholding tax)..... $10,376,817
Interest (including $358,356 from affiliates)........... 412,440
Securities lending - net................................ 19
-----------
TOTAL INCOME........................................ 10,789,276
-----------
EXPENSES:
Custodian fees.......................................... $ 132,318
Accounting services..................................... 32,574
Investment advisory fees................................ 30,551
Professional fees....................................... 25,898
Pricing fees............................................ 18,227
Trustees' fees and expenses............................. 1,733
Other................................................... 5,893
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT................. 247,194
Reimbursement of expenses............................... (1,502)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT.................. 245,692
-----------
INVESTMENT INCOME - NET..................................... 10,543,584
-----------
REALIZED & UNREALIZED GAIN (LOSS) - NET:
Realized gain (loss) on:
Investments - net..................................... 4,157,993
In-kind redemption - net.............................. (76,039)
Financial futures contracts - net..................... (297,314)
Foreign currency transactions - net................... 1,952,006 5,736,646
-----------
Change in unrealized appreciation/depreciation on:
Investments - net..................................... 38,299,823
Financial futures contracts - net..................... 302,239
Foreign currency transactions - net................... 316,804 38,918,866
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN - NET............ 44,655,512
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $55,199,096
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
------------- --------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net................................. $ 10,543,584 $ 10,676,216
Realized gain - net..................................... 5,736,646 3,554,079
Change in unrealized appreciation/depreciation - net.... 38,918,866 44,436,350
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 55,199,096 58,666,645
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................. 285,565,783 274,141,104
Fair value of withdrawals............................... (237,327,440) (131,719,318)
------------- -------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS.......................................... 48,238,343 142,421,786
------------- -------------
NET ASSETS:
Total increase in net assets............................ 103,437,439 201,088,431
Beginning of period..................................... 523,155,295 322,066,864
------------- -------------
END OF PERIOD........................................... $626,592,734 $ 523,155,295
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
58
MASTER INTERNATIONAL INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED -----------------------------------------
JUNE 30, 2006 2005 2004 2003 2002
------------- -------- -------- -------- --------
(UNAUDITED)
TOTAL INVESTMENT RETURN............................. 10.29%+ 13.64% 20.32% 38.97% (15.81%)
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement.................. .08%* .10% .09% .09% .08%
-------- -------- -------- -------- --------
Expenses........................................ .08%* .10% .10% .10% .16%
-------- -------- -------- -------- --------
Investment income - net......................... 3.45%* 2.53% 2.55% 2.23% 2.21%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $626,593 $523,155 $322,067 $553,129 $166,820
-------- -------- -------- -------- --------
Portfolio turnover.............................. 19.89% 11.33% 13.50% 8.55% 19.52%
-------- -------- -------- -------- --------
</Table>
- ---------------
* Annualized.
+ Aggregated total investment return.
See notes to financial statements.
- --------------------------------------------------------------------------------
59
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period. All such adjustments are of a normal, recurring
nature. The following is a summary of significant accounting policies followed
by the Series.
(a) Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the Nasdaq National Market are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available 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 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. Valuation
of other short-term investment vehicles is generally based on the net asset
value of the underlying investment vehicle or amortized cost.
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 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
- --------------------------------------------------------------------------------
60
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
securities used in computing the net assets of the Series are determined as of
such times. Foreign currency exchange rates also are generally determined prior
to the close of business on the NYSE. Occasionally, events affecting the values
of such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of 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 OTC 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
- --------------------------------------------------------------------------------
61
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
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.
(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.
- --------------------------------------------------------------------------------
62
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P.("FAM"). The general partner of FAM is Princeton Services,
Inc.("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Series' portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Series. For such services, the Series pays a
monthly fee at an annual rate of .01% of the average daily value of the Series'
net assets. FAM has entered into a contractual arrangement with the Series under
which the expenses incurred by the Series will not exceed .12%. This arrangement
has a one-year term and is renewable. For the six months ended June 30, 2006,
FAM reimbursed the Series in the amount of $1,502.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
affiliate of FAM, received $16,197 in commissions on the execution of portfolio
security transactions for the Series for the six months ended June 30, 2006.
For the six months ended June 30, 2006, the Series reimbursed FAM $3,935
for certain accounting services.
Certain officers and/or trustees of the Series are officers and/or
directors of FAM, PSI, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close at the end of the third quarter of 2006.
3. INVESTMENTS:
Purchases and sales (including in-kind redemptions) of investments,
excluding short-term securities, for the six months ended June 30, 2006 were
$182,814,349 and $115,477,218, respectively.
4. COMMITMENTS:
At June 30, 2006, the Series had entered into foreign exchange contracts,
in addition to the contracts listed on the Schedule of Investments, under which
it had agreed to buy various foreign currencies with an approximate value of
$24,000.
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, which expires November 2006. 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 six months ended
June 30, 2006.
- --------------------------------------------------------------------------------
63
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENT OF THE FUNDS
(Unaudited)
- --------------------------------------------------------------------------------
At its February 17, 2006 meeting, the Board of Trustees (the "Board")
considered the renewal of the existing Management Agreement (the "Agreement")
between the Manager and the American Beacon Funds (the "Funds"), on behalf of
the American Beacon International Equity Index Fund, American Beacon S&P 500
Index Fund, and the American Beacon Small Cap Index Fund. In preparation for the
Board's consideration to renew the Agreement, the Board and its Investment
Committee undertook steps to gather and consider information furnished by the
Manager and Lipper, Inc. ("Lipper"). The Board, with the assistance of
independent legal counsel, requested and received certain relevant information
from the Manager. In addition, the Board's Investment Committee worked with
Lipper to obtain relevant comparative information regarding the performance,
fees and expenses of the Funds. The Investment Committee held separate meetings
on December 8, 2005, February 8, 2006 and February 17, 2006 to consider the
information provided by Lipper. Further, the Board took into consideration
information furnished for the Board's review and consideration throughout the
year at regular Board and Investment Committee meetings, as well as information
specifically prepared in connection with the renewal process.
The Board considered, among other materials, responses by the Manager to
inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or any
other area, including how these changes might affect the Funds;
- a copy of the Manager's most recent audited or unaudited financial
statements as well as Parts I and II of its Form ADV;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the Manager or its personnel, including
the results of any recent regulatory examination or independent audit;
- a cost/profitability analysis of the Manager and any actual or
anticipated economies of scale in relation to the services it provides to
the Funds, if available;
- an analysis of compensation, including a comparison with fees charged to
other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of any other benefits to the Manager or Funds as a result
of their relationship, if any;
- confirmation that the Manager's financial condition does not raise
concerns that it would be unable to continue providing the same scope and
quality of services to the Funds;
- a description of the scope of portfolio management services provided to
the Funds, including whether such services differ from the services
provided to other clients, including other registered investment
companies;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year;
- a description of the basis upon which portfolio managers are compensated,
including any "incentive" arrangements;
- a discussion regarding the Manager's participation in "soft dollar"
arrangements, if any;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
- --------------------------------------------------------------------------------
64
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENT OF THE FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
- a summary of any material changes to the Manager's compliance program
with regard to federal, state, corporate and Fund requirements;
- a discussion of any material compliance problems and remedial actions;
- information regarding the Manager's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the Manager's affiliation with any broker-dealer;
- a discussion of any anticipated change in the Manager's controlling
persons;
- verification of the Manager's insurance coverage with regards to the
services provided to the Funds;
- a comparison of the performance of each Fund to appropriate indices,
including comments on the relative performance of each Fund versus
comparable indices;
- a discussion, if applicable, of any underperformance by a Fund relative
to its peer group;
- an analysis of any material complaints received from Fund shareholders;
- a description of the Manager's securities lending practices and the fees
received from such practices;
- a description of the portfolio turnover rate and average execution costs
for each Fund;
- a discussion of whether the Manager receives, with respect to trade
execution for the Funds, other special compensation, including any
payment for order flow; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared: (i)
investment performance of each Fund versus comparable investment companies and
appropriate indices; (ii) total Fund expenses of each Fund versus comparable
mutual funds, and (iii) each Fund's investment advisory fees versus comparable
mutual funds. For each Fund, the class used for comparative purposes was the
Institutional Class because it has the longest performance history. References
below to each Fund's Lipper peer group are to the group of comparable mutual
funds included in the analysis provided by Lipper.
The Trustees also received a memorandum from their legal counsel detailing
the Board's responsibilities pertaining to the renewal of the Agreement. This
memorandum explained the regulatory requirements surrounding the Board's process
for evaluating investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board considered
at its February 2006 meeting. The Board did not identify any particular
information that was most relevant to its consideration to renew the Agreement,
and each Trustee may have afforded different weight to the various factors.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to approve the continuance of the Agreement, the
Board considered the best interests of each Fund separately. In addition, while
the Agreement for all of the Funds was considered at the same Board meeting, the
Board considered each Fund's investment management relationship separately. In
each instance, the Board considered, among other things, the following factors:
(1) the nature and quality of the services provided; (2) the investment
performance of the Fund and the investment advisor; (3) the Manager's cost for
providing the services and the profitability of the advisory business to the
Manager; (4) the extent to which economies of scale have been taken into account
in setting the fee schedule; and (5) whether fee levels reflect these economies
of scale for the benefit of Fund investors. The Trustees posed questions to
- --------------------------------------------------------------------------------
65
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENT OF THE FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
various management personnel of the Manager regarding certain key aspects of the
material submitted in support of the renewal.
Nature, Extent and Quality of Services
With respect to the renewal of the Agreement, the Board considered: the
Manager's ability to retain key investment personnel and to provide consistent
performance and an active client service program; the Manager's goal to provide
consistent above average long-term performance at low cost; the continuing
efforts by the Manager to add new Funds so as to enhance the Trusts' product
line; the Manager's record in building improved compliance, control and credit
functions that reduce risks to the Funds; the addition of personnel to manage
the Funds, promote sales and improve services; and the active role played by the
Manager in monitoring and, as appropriate, recommending replacements for the
master portfolios. Based on this information, the Board concluded that the
nature, extent and quality of the management services provided by the Manager
were appropriate for each Fund and, thus, supported a decision to renew the
Agreement.
Investment Performance
The Board evaluated the comparative information provided by Lipper and the
Manager regarding each Fund's investment performance relative to its benchmark
index(es) and peer group. The Board also considered the performance reports and
discussions with management at Board and Committee meetings throughout the year.
Discussions regarding the Board's considerations with respect to each Fund's
performance are below under "Additional Considerations and Conclusions with
Respect to each Fund."
Cost of Services and Profits Realized
In analyzing the cost of services and profitability of the Manager in
connection with its investment advisory services to a Fund, the Board considered
the Manager's operations and low cost structure. The Board considered that the
Manager receives service and administrative fees to compensate the Manager for
providing administrative services to the Funds and to compensate third-party
administrators and broker-dealers for services to Fund shareholders. Discussions
regarding the Board's considerations with respect to each Fund's fee rates are
set forth below under "Additional Considerations and Conclusions with Respect to
each Fund."
Economies of Scale
In considering the reasonableness of the management fees, the Board
considered whether economies of scale will be realized as the Funds grow and
whether fee levels reflect these economies of scale for the benefit of Fund
shareholders. With respect to the management fee, the Board acknowledged the
Manager's low cost structure and the increasing costs of personnel, technology
and operations. Based on these considerations, the Board concluded that the
Funds' fee structures are reasonably designed to pass on economies of scale to
Fund shareholders.
Benefits to be Derived from the Relationship with the Funds
The Board considered the "fall-out" or ancillary benefits that accrue to
the Manager as a result of the advisory relationships with the Funds, including
greater exposure in the marketplace with respect to the Manager's investment
process and expanding the level of assets under management by the Manager. After
consideration of this information, the Board concluded that the potential
benefits accruing to the Manager by virtue of its relationships with the Funds
appear to be fair and reasonable.
- --------------------------------------------------------------------------------
66
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENT OF THE FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
The target indices referred to below represent the respective index the
performance of which each Fund seeks to match before the deduction of Fund
expenses. Each Lipper Index includes up to the 30 largest funds in the
respective Lipper category where the Fund is classified by Lipper.
Additional Considerations and Conclusions with Respect to the International
Equity Index Fund
In considering the renewal of the Agreement with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the total return performance of the Fund was
in the 1st quintile for all relevant periods except the five-year period where
its performance was in the 2nd quintile compared to the returns of a peer group
of mutual funds identified by Lipper as having an investment objective similar
to the Fund ("Lipper Universe"); (2) the performance of the Fund's master
portfolio was higher than its target index for all relevant periods; (3) the
Fund outperformed the Lipper International Multi-Cap Core Index for all relevant
periods except the one-year period, but the Lipper Index is comprised of funds
with an active management style versus the Fund's passive management style.
In addition, the Board considered the fees payable under the Agreement. In
this regard, they considered that: (1) the Institutional Class total expenses
and actual management fees (including administrative fees) were in the 1st
quintile compared to the expenses and fees of a peer group of similar funds
classified by Lipper ("Fee Universe") where the 1st quintile represents the
lowest fees or expenses among the group, and (2) the Manager's profitability
analysis indicated that it incurred a loss on the services it provided to the
Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreement are fair and reasonable; (2) concluded that the profits to the Manager
are reasonable in light of the quality of services provided to the Fund; (3)
determined that the Fund and its shareholders would benefit from the Manager's
continued management of the Fund; and (4) approved the renewal of the Agreement
with respect to the Fund.
Additional Considerations and Conclusions with Respect to the S&P 500 Index
Fund
In considering the renewal of the Agreement with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the total return performance of the Fund was
in the 1st quintile for all relevant periods except the five-year period where
its performance was in the 2nd quintile compared to the Lipper Universe; (2) the
Fund's master portfolio equaled the performance of its target index for the
one-, three- and five-year and since inception periods; and (3) the Fund
outperformed the Lipper S&P 500 Index Objective Index for all relevant periods.
In addition, the Board considered the fees payable under the Agreement. In
this regard, they considered that the Institutional Class total expenses and
actual management fees (including administrative fees) were in the 1st quintile
compared to the Fee Universe where the 1st quintile represents the lowest fees
or expenses among the group.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreement are fair and reasonable; (2) concluded that the profits to the Manager
are reasonable in light of the quality of services provided to the Fund; (3)
determined that the Fund and its shareholders would benefit from the Manager's
continued management of the Fund; and (4) approved the renewal of the Agreement
with respect to the Fund.
- --------------------------------------------------------------------------------
67
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE
MANAGEMENT AGREEMENT OF THE FUNDS -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
Additional Considerations and Conclusions with Respect to the Small Cap Index
Fund
In considering the renewal of the Agreement with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the total return performance of the Fund was
in the 2nd quintile for the three-year period, the 3rd quintile for the one-,
four-and five-year periods and the 4th quintile for the two-year period compared
to the Lipper Universe; (2) the Fund's master portfolio equaled or outperformed
the performance of its target index for the one-, three- and five-year and since
inception periods; and (3) the Fund underperformed the Lipper Small-Cap Core
Index for all relevant periods except the three-year period, but the Lipper
Index is comprised of funds with an active management style versus the Fund's
passive management style.
In addition, the Board considered the fees payable under the Agreement. In
this regard, they considered that: (1) the Institutional Class total expenses
and actual management fees (including administrative fees) were in the 1st
quintile compared to the Fee Universe where the 1st quintile represents the
lowest fees or expenses among the group, and (2) the Manager's profitability
analysis indicated that it incurred a loss on the services it provided to the
Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreement are fair and reasonable; (2) concluded that the profits to the Manager
are reasonable in light of the quality of services provided to the Fund; (3)
determined that the Fund and its shareholders would benefit from the Manager's
continued management of the Fund; and (4) approved the renewal of the Agreement
with respect to the Fund.
- --------------------------------------------------------------------------------
68
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
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69
(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.
SAR 06/06
537884
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]
SEMI-ANNUAL REPORT
[PHOTO]
JUNE 30, 2006
TREASURY INFLATION PROTECTED SECURITIES FUND
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
- --------------------------------------------------------------------------------
<Table>
President's Message........................... 1
Schedule of Investments....................... 5
Financial Highlights.......................... 15
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 June 30, 2006
FELLOW SHAREHOLDERS:
Enclosed please find the Semi-Annual Report for the American Beacon Treasury
Inflation Protected Securities Fund for the six months ended June 30, 2006.
The Federal Reserve (the "Fed") raised overnight rates four times during
the period, resulting in a Fed Funds target rate of 5.25% as of June 30, 2006.
In its June statement, the Fed acknowledged that economic growth is moderating
but remained concerned that "the high levels of resource utilization and the
prices of energy and other commodities have the potential to sustain inflation
pressures."
The American Beacon Treasury Inflation Protected Securities Fund realized a
slight decline of 0.21% for the six-month period, outperforming the Lipper TIPS
Index, which declined 2.16%. 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
(BILL QUINN PHOTO)
1
MARKET OVERVIEW
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Economic data released during the first half of 2006 suggests that we have
entered a more mature phase of the business cycle where consumers take a back
seat, while the corporate sector drives the economy forward. Consumer spending
and housing activity are gradually slowing, but production activity, business
investment, and government spending are proving to be powerful engines of
growth. For the period, the year-over-year change in the Consumer Price Index
("CPI") rose from 3.4% in December 2005 to 4.3% in June 2006. Overall, continued
economic strength, hints of increased inflation expectations, and uncertainty
over the path of monetary policy all played a part in driving interest rates
higher during the period.
In the first half of 2006, we clearly entered a period of tighter monetary
policy on a global scale. In the month of June alone, central banks in Canada,
Europe, Switzerland, Sweden, China, India, Korea, Thailand, Australia, Colombia,
South Africa, and of course the U.S. have all tightened policy. The early months
of Fed Chairman Bernanke's leadership of the Fed have brought a great deal of
uncertainty relative to the path of monetary policy tightening here in the U.S.
Early comments about a desire to "pause" were followed by tough talk on
inflation readings ("an unwelcome development"), which were followed by a dovish
communique following the June 29 Federal Open Market Committee ("FOMC") meeting.
As a direct result, the September 2006 Eurodollar futures contract, an indicator
of short term market sentiment, fluctuated across a wider than usual range in
June and break-even inflation rates (the yield differential between Treasury
inflation-protected securities ("TIPS") and nominal bonds of similar maturity)
were volatile. During the first half of the year, the Fed lifted short term
interest rates 1.00% with the Fed Funds rate settling at 5.25% on June 30, 2006.
TIPS performance in the first half of 2006 was a good news -- bad news
story. Intermediate maturity TIPS produced a negative return for the period when
looked at in absolute terms (Lehman 1-10 Year TIPS Index at -0.09%) but managed
to deliver positive results when evaluated in relative terms (TIPS outperformed
similar maturity nominal bonds). Overall, yields on intermediate maturity TIPS
rose 0.40% to 0.50%, and the yield curve steepened marginally. The strong
relative performance of TIPS was driven by strong demand and was reflected in
rising break-even inflation rates. For the period, break-even inflation rates
for 5-year maturities rose 0.36% to close at 2.70%. The strong demand for TIPS
was directly attributable to the inflation storm clouds that had gathered
throughout the period and peaked in May. The catalysts included a classic brew
of rising utilization rates, a surge in metal and energy prices, growing
geopolitical tension, a weakening U.S. Dollar, and increased concerns about the
inflation fighting backbone of the Bernanke Fed -- all very supportive of TIPS
relative to nominal bonds. As we closed the period, 5-year and 10-year TIPS were
yielding 2.43% and 2.54%, respectively.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Institutional Class of the Fund returned -0.21% for the period from
January 1, 2006 through June 30, 2006, trailing the Lehman Brothers 1-10 Yr U.S.
TIPS Index (the "Index") return of -0.09%. The Fund outperformed the Lipper TIPS
Index return of -2.16% for the same time period.
<Table>
<Caption>
TOTAL RETURNS
-------------------------
PERIODS ENDED
06/30/06
-------------------------
3 MOS. 6 MOS. 1 YR.
------ ------ -----
Institutional Class(1)......... 0.93% (0.21)% 0.01%
Lehman Bros. 1-10 Yr. U.S. TIPS
Index(2)..................... 1.15% (0.09)% 0.24%
Lehman Bros. U.S. TIPS
Index(2)..................... 0.49% (1.77)% (1.64)%
Lipper TIPS Index(2)........... 0.22% (2.16)% (2.21)%
</Table>
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 purchases Performance
shown is as of date indicated, and current performance may be lower or
higher than the performance data quoted. To obtain performance as 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.
2. The Lehman Bros. 1-10 Yr. U.S. TIPS Index is an unmanaged market index
comprised of U.S. Treasury Inflation-indexed securities with maturities
between one and ten years while the Lehman Bros. U.S. TIPS index includes
all maturities. The Lipper TIPS Index tracks the results of the 30 largest
mutual funds in the Lipper TIPS Fund category. Lipper is an independent
mutual fund research and ranking service. One cannot directly invest in an
index.
The Fund underperformed the Index for the six-month period by 0.12%.
Although the Fund modestly outperformed on a gross basis, the sub-advisors'
excess returns were not sufficient to fully offset Fund expenses. The Fund
outperformed in January, underperformed in April and posted returns similar to
the Index during the other four months in the six-month period. In January, the
Fund added value by reducing its exposure to areas of the yield curve where new
supply was auctioned (10 and 20 year securities) and by overweighting the 1-8
year sector. However, in April, a steepening of the yield curve and a widening
of break-even inflation rates hurt performance as the Fund held longer maturity
TIPS and had an exposure to nominal bonds.
The Fund remains focused on investing primarily in TIPS to provide
inflation protection and income to its shareholders.
PORTFOLIO DIVERSIFICATION
<Table>
<Caption>
% OF
RATING FIXED INCOME
- ------ ------------
A 1.1%
AA 0.3%
AAA 98.6%
</Table>
(Bar Chart)
<Table>
U.S. Government Sponsored Agency
Instruments........................... 0.7%
Corporate Obligations................... 1.4%
U.S. Government Treasury Obligations.... 97.9%
</Table>
3
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period and held for the entire period from January 1, 2006 through June
30, 2006.
ACTUAL EXPENSES
The "Actual" line of the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
Institutional Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the Institutional Class that invest in the Fund through an IRA may be subject
to a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD *
VALUE VALUE 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- ---------------
INSTITUTIONAL CLASS
Actual $1,000.00 $ 997.95 $2.04
Hypothetical (5% return
before expenses) $1,000.00 $1,022.75 $2.07
</Table>
* 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 (181) by days in the year (365) to
reflect the half-year period.
4
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
CORPORATE OBLIGATIONS - 1.42%
FINANCE - 1.42%
Allstate Life Global Funding, 4.41%, Due 3/1/2010 ++ .......... $ 100 $ 95
Lehman Brothers Holdings, Inc., 4.82%, Due 6/2/2009 ++ ........ 80 77
SLM Corp., 5.48%, Due 1/31/2014 ++ ............................ 167 158
Toyota Motor Credit Corp., 5.61%, Due 2/5/2016 ++ ............. 100 98
------------
TOTAL CORPORATE OBLIGATIONS ................................... 428
------------
U.S. AGENCY OBLIGATIONS - 0.66%
FEDERAL HOME LOAN BANK - 0.34%
------------
6.045%, Due 2/20/2007 ++ ..................................... 100 100
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.32%
------------
4.503%, Due 2/17/2009 ++ ..................................... 100 97
------------
TOTAL U.S. AGENCY OBLIGATIONS ................................. 197
------------
U.S. TREASURY OBLIGATIONS - 96.53%
U.S. TREASURY NOTES - 96.53%
3.625%, Due 1/15/2008 # ...................................... 1,241 1,262
3.875%, Due 1/15/2009 # ...................................... 891 922
4.25%, Due 1/15/2010 # ....................................... 2,095 2,226
0.875%, Due 4/15/2010 # ...................................... 3,966 3,741
3.50%, Due 1/15/2011 # ....................................... 1,331 1,392
2.375%, Due 4/15/2011 # ...................................... 974 970
3.375%, Due 1/15/2012 # ...................................... 1,974 2,068
3.00%, Due 7/15/2012 # ....................................... 4,790 4,932
1.875%, Due 7/15/2013 # ...................................... 2,051 1,970
2.00%, Due 1/15/2014 # ....................................... 1,494 1,442
4.00%, Due 2/15/2014 ......................................... 500 465
2.00%, Due 7/15/2014 # ....................................... 347 335
1.625%, Due 1/15/2015 # ...................................... 1,883 1,756
1.875%, Due 7/15/2015 # ...................................... 787 747
2.00%, Due 1/15/2016 # ....................................... 4,263 4,071
5.125%, Due 5/15/2016 ........................................ 750 747
------------
TOTAL U.S. TREASURY OBLIGATIONS ............................... 29,046
------------
SHARES
------------
SHORT TERM INVESTMENTS - 4.09%
------------
American Beacon Money Market Select Fund ss. .................. 1,231,933 1,232
------------
TOTAL INVESTMENTS - 102.70% (COST $31,449) ....................... $ 30,903
LIABILITIES, NET OF OTHER ASSETS - (2.70%) ....................... (812)
------------
TOTAL NET ASSETS - 100.00% ....................................... $ 30,091
============
See accompanying notes
5
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
Percentages are stated as a percent of net assets.
++ 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.
# U.S. Treasury Inflation-Indexed Note
ss. The Fund/Trust is affiliated by having the same investment advisor.
See accompanying notes
6
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value(A)................... $ 29,671
Investments in affiliated securities, at value(B)..................... 1,232
Dividends and interest receivable..................................... 325
Receivable for investments sold....................................... 8
Prepaid expenses...................................................... 18
----------
TOTAL ASSETS..................................................... 31,254
----------
LIABILITIES:
Payable for investments purchased..................................... 753
Payable for fund shares redeemed...................................... 373
Payable under excess expense reimbursement plan....................... 15
Management and investment advisory fees payable (Note 2).............. 12
Administrative service fees payable................................... 2
Other liabilities..................................................... 8
----------
TOTAL LIABILITIES................................................ 1,163
----------
NET ASSETS................................................................. $ 30,091
==========
ANALYSIS OF NET ASSETS:
Paid-in-capital....................................................... 31,230
Undistributed net investment income (loss)............................ 604
Accumulated net realized gain (loss).................................. (1,198)
Unrealized appreciation (depreciation) of investments and foreign
currency............................................................ (545)
----------
NET ASSETS................................................................. $ 30,091
==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class................................................... 3,095,553
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class................................................... $ 9.72
==========
- --------
(A) Cost of investments in unaffiliated securities......................... $ 30,217
(B) Cost of investments in affiliated securities........................... $ 1,232
</Table>
See accompanying notes
7
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest income.......................................................... $ 621
Dividend income from affiliated securities............................... 19
-----
TOTAL INVESTMENT INCOME............................................. 640
-----
EXPENSES:
Management and investment advisory fees (Note 2)......................... 33
Administrative service fees (Note 2)..................................... 15
Transfer agent fees...................................................... 3
Custodian and fund accounting fees....................................... 3
Professional fees........................................................ 5
Registration fees and expenses........................................... 1
Other expenses........................................................... 2
-----
TOTAL EXPENSES...................................................... 62
-----
NET INVESTMENT INCOME......................................................... 578
-----
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments............................................................ (718)
Change in net unrealized appreciation or depreciation of:
Investments............................................................ 56
-----
NET GAIN (LOSS) ON INVESTMENTS...................................... (662)
-----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............... $ (84)
=====
</Table>
See accompanying notes
8
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
----------- ------------
(UNAUDITED)
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income......................................... $ 578 $ 1,561
Net realized gain (loss) on investments....................... (718) (413)
Change in net unrealized appreciation or depreciation of
investments and foreign currency contracts.................. 56 (699)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (84) 449
------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income......................................... -- (1,588)
Net realized gain on investments.............................. -- (147)
------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS........................ -- (1,735)
------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares................................. 6,299 44,770
Reinvestment of dividends and distributions................... -- 1,735
Cost of shares redeemed....................................... (6,708) (35,578)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS).......................................... (409) 10,927
------- --------
NET INCREASE (DECREASE) IN NET ASSETS.............................. (493) 9,641
NET ASSETS:
Beginning of period........................................... 30,584 20,943
------- --------
END OF PERIOD*................................................ $30,091 $ 30,584
======= ========
* Includes undistributed net investment income (loss) of...... $ 604 $ 25
======= ========
</Table>
See accompanying notes
9
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust"), 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"), 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.
Dividends to Shareholders
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.
10
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 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 six months ended June 30, 2006, the management fee rate,
including fees paid to investment advisors, was 22%. Total management fees were
$33,022, of which $18,072 was paid to investment advisors and $14,950 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.
11
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 $406.
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
plus a fee for each Board meeting attended.
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 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 six months ended June 30, 2006.
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 June 30, 2006 and
December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
---------- ------------
DISTRIBUTIONS PAID FROM:
Ordinary income*............................................... $-- $1,735
</Table>
* For tax purposes, short-term capital gains distributions are considered
ordinary income distributions.
12
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For the year ended June 30, 2006, the components of distributable earnings
were as follows (in thousands):
<Table>
Cost basis of investments for federal income tax purposes.................... $31,715
Unrealized appreciation...................................................... --
Unrealized depreciation...................................................... (812)
-------
Net unrealized appreciation (depreciation)................................... (812)
Undistributed ordinary income................................................ 604
Undistributed long-term gain (loss).......................................... (946)
-------
Distributable earnings....................................................... $(1,154)
=======
</Table>
Financial reporting records are adjusted for permanent book/tax differences
to reflect tax character. Financial records are not adjusted for temporary
differences. The temporary differences between financial reporting and tax-basis
reporting of unrealized appreciation/(depreciation) are attributable primarily
to the tax deferral of wash sales and current recognition of unrealized
appreciation/(depreciation) on open foreign currency transactions.
Due to the inherent differences in the recognition of income, expenses and
realized gains/(losses) under U.S. generally accepted accounting principles and
federal income tax regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities without impacting the net assets of the Fund. These
differences are due primarily to the recognition of certain foreign currency
gains/(losses) as ordinary income for tax purposes.
Accordingly, the following amounts represent current year permanent
differences that have been reclassified as of June 30, 2006 (in thousands):
<Table>
Paid-in-capital................................................................. $--
Undistributed net investment income............................................. 1
Accumulated net realized gain (loss)............................................ (1)
Unrealized appreciation (depreciation) of investments, futures contracts and
foreign currency.............................................................. --
</Table>
At June 30, 2006, the Fund had capital loss carryovers of $144,311 and
$801,330 expiring in 2013 and 2014, respectively.
4. INVESTMENT TRANSACTIONS
Purchases and redemptions of investments for the six months ended June 30,
2006, excluding short-term investments, were $46,045,737 and $46,128,045,
respectively. The Fund had purchases and sales of U.S. government securities of
$45,729,450 and $45,541,596, respectively.
A summary of the Fund's direct transactions in the Select Fund for the six
months ended June 30, 2006 is as follows:
<Table>
<Caption>
DECEMBER 31, 2005 JUNE 30, 2006
SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- ------------------- --------- ----- -------------------
$1,071,309 $16,098,533 $15,937,909 $1,231,933
</Table>
13
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
The table below summarizes the activity in capital shares (in thousands):
Six Months ended June 30, 2006
<Table>
<Caption>
SHARES AMOUNT
------ -------
Shares sold............................................................. 650 $ 6,299
Reinvestment of dividends............................................... -- --
Shares redeemed......................................................... (692) (6,708)
---- -------
Net decrease in shares outstanding...................................... (42) $ (409)
==== =======
</Table>
Year ended December 31, 2005
<Table>
<Caption>
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
====== ========
</Table>
14
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004 (A)
----------- ------------ ------------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.75 $ 10.16 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.19 0.56 0.18(B)
Net gains (loss) on securities (both realized and
unrealized).......................................... (0.22) (0.37) 0.21
------- ------- -------
Total income from investment operations..................... (0.03) 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.............................. $ 9.72 $ 9.75 $ 10.16
======= ======= =======
TOTAL RETURN................................................ (0.21%)(C) 1.86% 3.94%(C)
======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $30,091 $30,584 $20,943
Ratios to average net assets (annualized):
Expenses, after expense reimbursements
(recoupments)..................................... 0.41% 0.44% 0.46%
Expenses, before expense reimbursements
(recoupments)..................................... 0.41% 0.39% 0.62%
Net investment income, after expense reimbursements
(recoupments)..................................... 3.85% 5.45% 3.34%
Net investment income, before expense reimbursements
(recoupments)..................................... 3.85% 5.50% 3.18%
Portfolio turnover rate................................ 154%(C) 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.
15
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND
(UNAUDITED)
- --------------------------------------------------------------------------------
At its February 17, 2006 meeting, the Board of Trustees (the "Board")
considered the renewal of the existing Management Agreement between the Manager
and the American Beacon Funds (the "Funds") and each Investment Advisory
Agreement between the Manager and the subadvisors, on behalf of the American
Beacon Treasury Inflation Protected Securities Fund. In preparation for the
Board's consideration to renew these Agreements, the Board and its Investment
Committee undertook steps to gather and consider information furnished by the
Manager, the subadvisors and Lipper, Inc. ("Lipper"). The Board, with the
assistance of independent legal counsel, requested and received certain relevant
information from the Manager and each subadvisor. In addition, the Board's
Investment Committee worked with Lipper to obtain relevant comparative
information regarding the performance, fees and expenses of the Funds. The
Investment Committee held separate meetings on December 8, 2005, February 8,
2006 and February 17, 2006 to consider the information provided by Lipper.
Further, the Board took into consideration information furnished for the Board's
review and consideration throughout the year at regular Board and Investment
Committee meetings, as well as information specifically prepared in connection
with the renewal process.
The Board considered, among other materials, responses by the Manager and
the subadvisors to inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or any
other area, including how these changes might affect the Funds;
- a copy of the firm's most recent audited or unaudited financial
statements as well as Parts I and II of its Form ADV;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the firm or its personnel, including the
results of any recent regulatory examination or independent audit;
- a comparison of the performance of that portion of Fund assets managed by
each firm with performance of other similar accounts managed by the firm,
including a discussion of relative performance versus a peer group
average and any remedial measures if the firm's performance was
materially below that of the peer group;
- a cost/profitability analysis of the firm and any actual or anticipated
economies of scale in relation to the services it provides to the Funds,
if available;
- an analysis of compensation, including a comparison with fees charged to
other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of any other benefits to the firm or Funds as a result of
their relationship, if any;
- confirmation that the firm's financial condition does not raise concerns
that the firm would be unable to continue providing the same scope and
quality of services to the Funds;
- a description of the scope of portfolio management services provided to
the Funds, including whether such services differ from the services
provided to other clients, including other registered investment
companies;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year;
- a description of the basis upon which portfolio managers are compensated,
including any "incentive" arrangements;
- a discussion regarding the firm's participation in "soft dollar"
arrangements, if any, or other brokerage allocation policies with respect
to Fund transactions, including the firm's methodology for obtaining the
most favorable execution and the use of any affiliated broker-dealers;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
16
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
- a description of trade allocation procedures among accounts managed by
the firm;
- a summary of any material changes to the firm's compliance program with
regard to federal, state, corporate and Fund requirements;
- a discussion of any material compliance problems and remedial actions;
- information regarding the firm's code of ethics, insider trading policy
and disaster recovery plan, including a description of any material
changes thereto;
- a description of the firm's affiliation with any broker-dealer;
- a discussion of any anticipated change in the firm's controlling persons;
and
- verification of the firm's insurance coverage with regards to the
services provided to the Funds.
In addition to the foregoing, the Manager provided the following
information specific to the renewal of the Management Agreement:
- a comparison of the performance of each Fund to appropriate indices,
including comments on the relative performance of each subadvisor and
each Fund versus comparable indices;
- a discussion, if applicable, of any underperformance by a subadvisor
relative to its peer group and whether (and if so, why) such subadvisor
should have its contract renewed;
- a comparison of advisory fees and expense ratios for comparable mutual
funds;
- a table detailing the Manager's profitability with respect to each Fund;
- an analysis of any material complaints received from Fund shareholders;
- a description of the Manager's securities lending practices and the fees
received from such practices;
- a description of the portfolio turnover rate and average execution costs
for each Fund and each subadvisor to a Fund;
- a discussion of whether the Manager receives, with respect to trade
execution for the Funds, other special compensation, including any
payment for order flow; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared: (i)
investment performance of each Fund versus comparable investment companies and
appropriate indices; (ii) total Fund expenses of each Fund versus comparable
mutual funds, and (iii) each Fund's investment advisory fees versus comparable
mutual funds. References below to the Treasury Inflation Protected Securities
Fund's Lipper peer group are to the group of comparable mutual funds included in
the analysis provided by Lipper.
The Trustees also received a memorandum from their legal counsel detailing
the Board's responsibilities pertaining to the renewal of the Management and
Investment Advisory Agreements. This memorandum explained the regulatory
requirements surrounding the Board's process for evaluating investment advisors
and the terms of the contracts.
Provided below is an overview of the primary factors the Board considered
at its February 2006 meeting. The Board did not identify any particular
information that was most relevant to its consideration to renew the Management
and Investment Advisory Agreements, and each Trustee may have afforded different
weight to the various factors.
17
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to approve the continuance of the Management
Agreement and each Investment Advisory Agreement, the Board considered the best
interests of each Fund separately. In addition, while the Management Agreement
and the Investment Advisory Agreements for all of the Funds were considered at
the same Board meeting, the Board considered each Fund's investment management
and subadvisory relationships separately. In each instance, the Board
considered, among other things, the following factors: (1) the nature and
quality of the services provided; (2) the investment performance of the Fund and
the investment advisor; (3) the Manager's or subadvisor's cost for providing the
services and the profitability of the advisory business to the Manager or
subadvisor; (4) the extent to which economies of scale have been taken into
account in setting the fee schedule; and (5) whether fee levels reflect these
economies of scale for the benefit of Fund investors. The Trustees posed
questions to various management personnel of the Manager regarding certain key
aspects of the material submitted in support of the renewal.
Nature, Extent and Quality of Services. With respect to the renewal of the
Management Agreement, the Board considered: the Manager's ability to retain key
investment personnel and to provide consistent performance and an active client
service program; the Manager's goal to provide consistent above average long-
term performance at low cost; the continuing efforts by the Manager to add new
series so as to enhance the Funds' product line; the Manager's record in
building improved compliance, control and credit functions that reduce risks to
the Funds; the addition of personnel to manage the Funds, promote sales and
improve services; and the active role played by the Manager in monitoring and,
as appropriate, recommending replacements for the investment subadvisors and
master portfolios. Based on this information, the Board concluded that the
nature, extent and quality of the management and advisory services provided by
the Manager and each subadvisor were appropriate for each Fund and, thus,
supported a decision to renew the Management and each Investment Advisory
Agreement.
Investment Performance. The Board evaluated the comparative information
provided by Lipper and the Manager regarding each Fund's investment performance
relative to its benchmark index(es) and peer group. The Board also considered
the performance reports and discussions with management at Board and Committee
meetings throughout the year. A discussion regarding the Board's considerations
with respect to the Treasury Inflation Protected Securities Fund's performance
appears below under "Additional Considerations and Conclusions with Respect to
the Treasury Inflation Protected Securities Fund."
Cost of Services and Profits Realized. In analyzing the cost of services
and profitability of the Manager in connection with its investment advisory
services to a Fund, the Board considered the Manager's operations and low cost
structure. The Board noted that the Manager proposed to continue most of the
expense waivers and reimbursements that were in place for each applicable Fund's
2005 fiscal year. The Board also noted that each sub-advised Fund pays the
Manager the amounts due to its subadvisors, and the Manager remits these amounts
directly to the applicable subadvisors. The Board considered that the Manager
receives service and administrative fees to compensate the Manager for providing
administrative services to the Funds and to compensate third-party
administrators and broker-dealers for services to Fund shareholders. In
addition, the Board considered that the Manager receives management fees for
overseeing the securities lending relationships on behalf of various Funds.
In analyzing the cost of services and profitability of each subadvisor in
connection with its investment advisory services to a Fund, the Board considered
that, in many cases, the Manager has negotiated the lowest subadvisory fee a
subadvisor charges for any comparable client accounts. The Board gave less
weight to profitability considerations or did not view this data as imperative
to its deliberations given the arms-length nature of the relationship between
the Manager and the subadvisors with respect to the negotiation of subadvisory
fees.
A discussion regarding the Board's considerations with respect to the
Treasury Inflation Protected Securities Fund's fee rates is set forth below
under "Additional Considerations and Conclusions with Respect to the Treasury
Inflation Protected Securities Fund."
18
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT AGREEMENT
AND INVESTMENT ADVISORY AGREEMENTS OF THE FUND -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Economies of Scale. In considering the reasonableness of the management
and investment advisory fees, the Board considered whether economies of scale
will be realized as the Funds grow and whether fee levels reflect these
economies of scale for the benefit of Fund shareholders. In this regard, the
Board noted that, in many cases, the Manager has negotiated breakpoints in the
subadvisory fee rate. The Board also noted, where applicable, for purposes of
determining the investment advisory fee charged to the Funds, the fee schedule
to each Investment Advisory Agreement specifies that all other assets managed by
a subadvisor on behalf of AMR Corporation and its pension plans shall be
considered. Thus, the Funds are able to receive additional breakpoint benefits
resulting from the subadvisor's management of a larger pool of assets. With
respect to the management fee, the Board acknowledged the Manager's low cost
structure and the increasing costs of personnel, technology and operations.
Based on these considerations, the Board concluded that the Funds' fee
structures are reasonably designed to pass on economies of scale to Fund
shareholders.
Benefits to be Derived from the Relationship with the Funds. The Board
considered the "fall-out" or ancillary benefits that accrue to the Manager
and/or the subadvisors as a result of the advisory relationships with the Funds,
including greater exposure in the marketplace with respect to the Manager's or
subadvisor's investment process and expanding the level of assets under
management by the Manager and the subadvisors. The Board noted that the Manager
and the subadvisors may not direct the Funds' brokerage transactions to certain
brokers to obtain research and other services and that the Funds participate in
a brokerage recapture program. After consideration of this information, the
Board concluded that the potential benefits accruing to the Manager and the
subadvisors by virtue of their relationships with the Funds appear to be fair
and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO THE TREASURY INFLATION
PROTECTED SECURITIES FUND
In considering the renewal of the Management Agreement and each Investment
Advisory Agreement (collectively, the "Agreements") with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the total return performance of the Fund was
in the 4th quintile for the one-year period compared to the returns of a peer
group of mutual funds identified by Lipper as having an investment objective
similar to the Fund; (2) the Fund's total return performance underperformed the
Lipper Treasury Inflation Protected Securities Fund Index for that same period;
(3) the portion of Fund assets allocated to Brown Brothers Harriman & Co.
("BBH") outperformed the Fund's benchmark index for all relevant periods; (4)
the portion of Fund assets allocated to NISA Investment Advisors LLC ("NISA")
underperformed the Fund's benchmark index for all relevant periods; and (5) the
Manager's explanation that the Fund's underperformance for the since-inception
period was primarily due to investment of the Fund's initial assets shortly
after a strong rally in the Treasury inflation protected securities market.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Institutional Class total expenses
were in the 2nd quintile and actual management fees (including administrative
fees) were in the 3rd quintile compared to the expenses and fees of a peer group
of similar funds classified by Lipper where the 1st quintile represents the
lowest fees or expenses among the group; (2) BBH and NISA indicated that they do
not charge a lower fee rate for comparable client services; (3) BBH waived its
standard minimum annual fee; (4) the fee schedules of each subadvisor include
breakpoints, which reduce fee rates as the assets of the Fund increase; and (5)
the Manager's profitability analysis indicated that it incurred a loss on the
services it provided to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager and the
subadvisors under the Agreements are fair and reasonable; (2) concluded that the
profits to the Manager are reasonable in light of the quality of services
provided to the Fund, including oversight of the Fund's subadvisors; (3)
determined that the Fund and its shareholders would benefit from the Manager's
and subadvisors' continued management of the Fund; and (4) approved the renewal
of the Agreements with respect to the Fund.
19
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20
(LIGHTHOUSE LOGO)
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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
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
American Beacon Funds
Call (800) 658-5811 P.O. Box 219643
Kansas City, MO 64121-9643
</Table>
- --------------------------------------------------------------------------------
<Table>
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES AVAILABILITY OF PROXY VOTING POLICY AND
RECORDS
In addition to the Schedule of Investments A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule of proxies relating to portfolio securities is
its portfolio holdings with the Securities and available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of Additional Information, which may be obtained
the first and third fiscal quarters. The free of charge by calling 1-800-967-9009 or by
Funds' Forms N-Q are available on the SEC's accessing the SEC's website at www.sec.gov.
website at www.sec.gov. The Forms N-Q may also Each Fund's proxy voting record for the most
be reviewed and copied at the SEC's Public recent year ended June 30 is filed annually
Reference Room, 450 Fifth Street, NW, with the SEC on Form N-PX. The Funds' Forms N-
Washington, DC 20549. Information regarding PX are available on the SEC's website at
the operation of the SEC's Public Reference www.sec.gov. Each Fund's proxy voting record
Room may be obtained by calling 1-800-SEC- may also be obtained by calling 1-800-967-
0330. A complete schedule of each Fund's 9009.
portfolio holdings is also available on the
Funds' website (www.americanbeaconfunds.com)
approximately thirty days after the end of
each quarter.
</Table>
FUND SERVICE PROVIDERS:
<Table>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts SERVICES ERNST & YOUNG LLP Portland, Maine
Kansas City, Missouri 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]
SEMI-ANNUAL REPORT
[PHOTO]
JUNE 30, 2006
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
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
- --------------------------------------------------------------------------------
<Table>
President's Message........................... 1
Financial Highlights
Money Market Fund........................... 20
U.S. Government Money Market Fund........... 22
Municipal Money Market Fund................. 24
Schedule of Investments
Money Market Portfolio...................... 25
U.S. Government Money Market Portfolio...... 28
Municipal Money Market Portfolio............ 29
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 June 30, 2006
FELLOW SHAREHOLDERS:
Enclosed please find the Semi-Annual Report for the American Beacon Money Market
Funds for the six months ended June 30, 2006. During this time, the Funds
outperformed their respective peer groups.
The Federal Reserve (the "Fed") raised overnight rates four times during
the period, resulting in a Fed Funds target rate of 5.25% as of June 30, 2006.
In its June statement, the Fed acknowledged that economic growth is moderating
but remained concerned that "the high levels of resource utilization and the
prices of energy and other commodities have the potential to sustain inflation
pressures."
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 2.32% for the six months, outperforming the
Lipper Institutional Money Market Average return of 2.14%. The U.S. Government
Money Market Fund -- Cash Management Class outpaced the Lipper Institutional
U.S. Government Money Market Average with a return of 2.28% versus 2.15% for the
Average. Both Funds surpassed their respective Lipper peer groups over all time
periods.
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
(BILL QUINN PICTURE)
1
ECONOMIC OVERVIEW
(UNAUDITED)
- --------------------------------------------------------------------------------
The U.S. economy expanded at an annual rate of 5.6% in the first quarter of 2006
thanks to strong consumer spending and business investment. However, soaring
gasoline prices and a slowdown in the housing market caused the second quarter
gross domestic product ("GDP") growth to slow to an estimated 2.5%. It also
appeared that the labor market was cooling as payroll gains came in below
consensus, rising 325,000 during the second quarter versus a revised 629,000 in
the first quarter. Despite the slowdown in payroll growth, the unemployment rate
continued to decline during the second quarter, coming in at a low 4.6% for the
month of June. In addition, June average hourly earnings climbed 3.9% from the
prior year, fueling concerns that the low unemployment rate was putting upward
pressure on inflation.
The Federal Reserve Board raised overnight rates by 25 percentage points at
each of the first four meetings in 2006, resulting in a Fed Funds target rate of
5.25% as of June 30, 2006. In its June statement, the Fed acknowledged that
economic growth was moderating but remained concerned that "the high levels of
resource utilization and the prices of energy and other commodities have the
potential to sustain inflation pressures." They did remove the phrase "some
further policy firming may yet be needed" and stated that the extent and timing
of any additional firming "will depend on the evolution of the outlook for both
inflation and economic growth." The Fed remains data dependent, leaving the door
open for either a pause or another rate hike at their next several meetings.
As expected, we began to see higher energy and commodity prices being
passed on to the consumer in the form of higher goods prices during the period.
The core Consumer Price Index ("CPI") rose more than forecast in June, up 0.3%
for the month and 2.6% year over year. This was the fourth consecutive month of
core inflation rising 0.3%, which according to Bloomberg, is the longest such
stretch since January to April 1995. Fed chairman Bernanke called the recent
increases in core prices "unwelcome developments" and said central bankers "will
be vigilant" to ensure inflation doesn't become entrenched. As a result, if core
inflation numbers continue to rise in the coming months, the Fed may likely
prolong its tightening cycle. At the end of the second quarter, the Fed Funds
futures market was indicating a chance of another 0.25% rate increase by the end
of the third quarter.
The yield curve shifted up as the Fed Funds rate rose during the second
quarter 2006. However, the curve continued to invert as yields on the 6-month
Treasury bill ended the quarter at 5.23% versus 5.15% for the 2-year note and
5.14% for the 10-year note.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The Money Market Fund maintained the strategy of purchasing 3-month
variable rate securities based on the London Interbank Offered Rate (LIBOR) in
addition to short-dated commercial paper during the period in response to the
rising interest rate environment.
With the Fed Funds futures market indicating a chance of another 25
percentage point rate increase by the end of the third quarter, the Money Market
Fund continued to keep its weighted-average maturity relatively short. However,
we will continue to monitor economic trends and adjust our weighted-average
maturity accordingly. In addition, we remain conservative on credit risk given
the tight credit spread environment.
For the six months ended June 30, 2006, the total return of the Cash
Management Class of the American Beacon Money Market Fund was 2.32%. The Fund
outperformed the Lipper Institutional Money Market Average return of 2.14% by 18
percentage points. Lipper Inc. ranked the Cash Management Class of the Fund 19th
among 324 and 14th among 280 Institutional Money Market Funds for the one-year
and three-year periods ended June 30, 2006, 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.
<Table>
<Caption>
CASH MANAGEMENT CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon Money
Market Fund........... 4.21% 2.44% 2.24% 3.92%
Lipper Institutional
Money Market Fund
Average............... 3.85% 2.11% 1.96% 3.70%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------
AS OF 6/30/2006
-------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management(1,2).......... 4.21% 2.24% 3.92%
Institutional(1).............. 4.09% 2.15% 3.88%
PlanAhead(1).................. 3.82% 1.87% 3.58%
Platinum Class(1)............. 3.34% 1.42% 3.14%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and shares may be worth more or
less at redemption than at original purchase. An investment in this 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 the 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 period 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
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
PORTFOLIO STATISTICS AS OF JUNE 30, 2006
<Table>
<Caption>
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
---------- ------------- --------- --------
7-day Current Yield* 5.06% 5.03% 4.80% 4.22%
7-day Effective
Yield* 5.19% 5.15% 4.92% 4.31%
30-day Yield* 4.99% 4.94% 4.66% 4.15%
Weighted Average
Maturity 36 Days 36 Days 36 Days 36 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 Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
TOP TEN HOLDINGS AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Royal Bank of Scotland 5.1%
US Bank, NA 4.2%
ASIF Global Financing 4.1%
Wells Fargo & Co. 4.1%
FCAR Owner Trust 3.9%
American Honda Finance Corp. 3.6%
Citigroup Global Markets Holdings,
Inc. 3.4%
Goldman Sachs Group, Inc. 3.3%
Barclays US Funding LLC 3.3%
General Electric Capital Corp. 3.1%
</Table>
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Bank CDs, TDs, and Notes 48.0%
Corporate Notes 37.0%
Commercial Paper 11.4%
Funding Agreements 1.7%
Repurchase Agreements 1.6%
Net Other Assets 0.3%
</Table>
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 January 1, 2006 through June
30, 2006.
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 "Actual" 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.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM) -- CONTINUED
JUNE 30, 2006 (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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,023.16 $0.75
Hypothetical (5% return
before expenses) $1,000.00 $1,024.05 $0.75
INSTITUTIONAL CLASS
Actual $1,000.00 $1,022.72 $1.15
Hypothetical (5% return
before expenses) $1,000.00 $1,023.66 $1.15
PLANAHEAD CLASS
Actual $1,000.00 $1,021.29 $2.61
Hypothetical (5% return
before expenses) $1,000.00 $1,022.23 $2.61
PLATINUM CLASS
Actual $1,000.00 $1,018.92 $4.96
Hypothetical (5% return
before expenses) $1,000.00 $1,019.89 $4.95
</Table>
* Expenses are equal to the Fund's annualized expense ratio for the six-
month period of 0.15%, 0.23%, 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
(181) by days in the year (365) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The U.S. Government Money Market Fund maintained the strategy of purchasing
3-month LIBOR-based variable rate securities in addition to short-dated
commercial paper during the period in response to the rising interest rate
environment.
With the Fed Funds futures market indicating greater than a 50% chance of
another 25 percentage point rate increase at the Fed meeting in August, the U.S.
Government Money Market Fund continued to keep its weighted-average maturity
relatively short. However, we will continue to monitor economic trends and
adjust our duration posture accordingly. In addition, we remain conservative on
credit risk given the tight credit spread environment.
For the six months ended June 30, 2006, the total return of the Cash
Management Class of the American Beacon U.S. Government Money Market Fund was
2.28%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 2.15% by 13 percentage points. Lipper Inc. ranked the
Cash Management Class of the Fund 9th among 140, 11th among 103 and 11th among
61 Institutional U.S. Government Money Market Funds for the one-year, five-year
and ten-year periods ended June 30, 2006, 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.
<Table>
<Caption>
CASH MANAGEMENT CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon U.S.
Government Money
Market Fund........... 4.14% 2.37% 2.18% 3.81%
Lipper Institutional
U.S. Government Money
Market Average........ 3.87% 2.11% 1.93% 3.64%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 6/30/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class(1,2)... 4.14% 2.18% 3.81%
PlanAhead Class(1)........... 3.67% 1.78% 3.44%
Platinum Class(1)............ 3.31% 1.39% 3.02%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or less
at redemption than at original purchase. An investment in this 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 the 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.
PORTFOLIO STATISTICS AS OF JUNE 30, 2006
<Table>
<Caption>
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
---------- --------- --------
7-day Current Yield* 4.98% 4.52% 4.18%
7-day Effective Yield* 5.10% 4.62% 4.26%
30-day Yield* 4.90% 4.44% 4.10%
Weighted Average Maturity 11 Days 11 Days 11 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 Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Repurchase Agreements 84.7%
Variable Rate Agency 15.3%
</Table>
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
6
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
held for the entire period from January 1, 2006 through June 30, 2006.
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 "Actual" 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 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,022.80 $0.95
Hypothetical (5% return
before expenses) $1,000.00 $1,023.85 $0.95
PLANAHEAD CLASS
Actual $1,000.00 $1,020.48 $3.26
Hypothetical (5% return
before expenses) $1,000.00 $1,021.57 $3.26
PLATINUM CLASS
Actual $1,000.00 $1,018.77 $4.96
Hypothetical (5% return
before expenses) $1,000.00 $1,019.89 $4.96
</Table>
* Expenses are equal to the Fund's annualized expense ratio for the six-
month period of 0.19%, 0.65% 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 (181) by days in the
year (365) to reflect the half-year period.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM)
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The American Beacon Municipal Money Market Fund maintained a relatively
short average maturity in the first half of 2006. The variable rate demand note
(VRDN) market provided the most attractive investment option throughout the
period. Rates on these securities remained appealing, as short-term interest
rates were increased at seventeen consecutive Fed meetings since June 2004.
We will continue to focus purchases on attractively priced VRDNs backed by
letters of credit or bond insurance and may buy selective fixed rate instruments
when evidence emerges that the Fed has completed its current tightening cycle.
For the six months ended June 30, 2006, the total return of the PlanAhead
Class of the American Beacon Municipal Money Market Fund was 1.16%. The Fund
under-performed the Lipper Tax-Exempt Money Market Average return of 1.27%. 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.
<Table>
<Caption>
PLANAHEAD CLASS TOTAL RETURNS
-------------------------------------
AS OF JUNE 30, 2006
-------------------------------------
1 YEAR 3 YEARS* 5 YEARS* 10 YEARS*
------ -------- -------- ---------
American Beacon
Municipal Money Market
Fund.................. 2.01% 1.01% 1.01% 2.06%
Lipper Tax-Exempt Money
Mkt Avg............... 2.26% 1.24% 1.15% 2.12%
</Table>
* Annualized
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 6/30/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class(1)........... 2.01% 1.01% 2.06%
Platinum Class(1)............ 2.01% 0.85% 1.78%
</Table>
1 Performance shown is historical and may not be indicative of future
returns. Investment returns will vary, and share may be worth more or less
at redemption than at original purchase. An investment in this 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 the 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 JUNE 30, 2006
<Table>
<Caption>
PLANAHEAD PLATINUM
CLASS CLASS
--------- --------
7-day Current Yield* 3.00% 3.00%
7-day Effective Yield* 3.05% 3.05%
30-day Yield* 2.73% 2.73%
Weighted Average Maturity 4 Days 4 Days
</Table>
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven
day yield. Yield is a more accurate reflection of the Fund's current
earnings than total returns.
TOP TEN HOLDINGS AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Alachua County, Florida Housing
Financial Authority 5.3%
Village of Richton Park,
Illinois -- Industrial Development
Revenue Bonds 5.2%
Michigan State Housing Development
Authority 5.1%
Ohio Water Development Authority 4.9%
Montgomery County, Maryland Variable
Rate Housing Revenue Bonds 4.9%
New York State Housing Finance Agency 4.6%
Sweetwater County, Wyoming Pollution
Control Revenue Refunding Bonds 4.3%
Indiana County Industrial Development
Authority Refunding Bonds 4.3%
City of Farmington Pollution Control
Revenue Bonds 4.3%
University Athletic Association, Inc.
Revenue Bonds 4.1%
</Table>
ASSET ALLOCATION AS OF JUNE 30, 2006
<Table>
<Caption>
% OF
NET ASSETS
----------
Municipal Obligations 98.3%
Other Investments 1.7%
</Table>
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 January 1, 2006 through June
30, 2006.
8
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM) -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 "Actual" 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 1/1/06-
1/1/06 6/30/06 6/30/06
--------- --------- --------------
PLANAHEAD CLASS
Actual $1,000.00 $1,011.61 $4.94
Hypothetical (5% return
before expenses) $1,000.00 $1,019.98 $4.96
PLATINUM CLASS
Actual $1,000.00 $1,011.61 $4.94
Hypothetical (5% return
before expenses) $1,000.00 $1,019.89 $4.96
</Table>
* Expenses are equal to the Fund's annualized expense ratio 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 (181) by days in the year (365) to reflect
the half-year period.
9
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
ASSETS:
Investment in Portfolio, at value............... $ 708,616 $ 10,188 $ 8,248
Receivable for fund shares sold................. 359 -- --
Receivable from Manager for expense
reimbursement (Note 2)........................ 25 7 4
Prepaid expenses................................ 35 9 11
------------ ---------- ----------
TOTAL ASSETS............................... 709,035 10,204 8,263
------------ ---------- ----------
LIABILITIES:
Payable for fund shares redeemed................ 3,315 -- --
Dividends payable............................... 260 18 --
Administrative service and service fees payable
(Note 2)...................................... 111 2 2
Distribution fees payable (Note 2).............. 9 1 1
Other liabilities............................... 122 18 8
------------ ---------- ----------
TOTAL LIABILITIES.......................... 3,817 39 11
------------ ---------- ----------
NET ASSETS........................................... $ 705,218 $ 10,165 $ 8,252
============ ========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital................................. 705,218 10,165 8,252
------------ ---------- ----------
NET ASSETS........................................... $ 705,218 $ 10,165 $ 8,252
============ ========== ==========
SHARES OUTSTANDING (NO PAR VALUE):
Cash Management Class........................... 388,533,942 3,001,399 N/A
============ ========== ==========
Institutional Class............................. 52,893,999 N/A N/A
============ ========== ==========
PlanAhead Class................................. 223,284,905 2,145,936 1,166,200
============ ========== ==========
Platinum Class.................................. 40,505,197 5,017,372 7,086,039
============ ========== ==========
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
10
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income................................. $13,896 $394 $76
Portfolio expenses.............................. (317) (11) (3)
------- ---- ---
NET INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO................................ 13,579 383 73
------- ---- ---
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class......................... 104 3 --
Institutional Class........................... 23 -- --
PlanAhead Class............................... 100 1 1
Platinum Class................................ 120 16 11
Transfer agent fees:
Cash Management Class......................... 20 3 --
Institutional Class........................... 7 -- --
PlanAhead Class............................... 16 -- 3
Platinum Class................................ 1 1 2
Professional fees............................... 12 3 3
Registration fees and expenses.................. 40 29 15
Distribution fees -- Platinum Class (Note 2).... 46 6 4
Service Fees -- PlanAhead Class (Note 2)........ 249 3 1
Other expenses.................................. 80 6 3
------- ---- ---
TOTAL FUND EXPENSES........................ 818 71 43
------- ---- ---
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2)... 157 41 24
------- ---- ---
NET FUND EXPENSES.......................... 661 30 19
------- ---- ---
NET INVESTMENT INCOME................................ 12,918 353 54
------- ---- ---
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments................ -- -- --
------- ---- ---
NET GAIN ON INVESTMENTS.................... -- -- --
------- ---- ---
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $12,918 $353 $54
======= ==== ===
</Table>
See accompanying notes
11
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
---------------------------- ---------------------------- ----------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 2006 2005 JUNE 30, 2006 2005 JUNE 30, 2006 2005
------------- ------------ ------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income... $ 12,918 $ 20,577 $ 353 $ 850 $ 54 $ 97
Net realized gain on
investments........... -- 2 -- 1 -- --
----------- ----------- -------- --------- ------- --------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.. 12,918 20,579 353 851 54 97
----------- ----------- -------- --------- ------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income:
Cash Management
Class.............. (6,915) (10,861) (207) (619) -- --
Institutional Class... (1,066) (1,545) -- -- -- --
PlanAhead Class....... (4,238) (7,158) (56) (108) (13) (30)
Platinum Class........ (699) (1,013) (90) (123) (41) (67)
Net realized gain on
investments:
Cash Management
Class.............. -- (1) -- (1) -- --
Institutional Class... -- -- -- -- -- --
PlanAhead Class....... -- (1) -- -- -- --
Platinum Class........ -- -- -- -- -- --
----------- ----------- -------- --------- ------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:.... (12,918) (20,579) (353) (851) (54) (97)
----------- ----------- -------- --------- ------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares................ 1,893,383 4,429,630 30,402 144,480 13,056 15,294
Reinvestment of
dividends and
distributions......... 11,409 18,064 109 162 54 97
Cost of shares
redeemed.............. (1,713,396) (4,580,001) (48,712) (156,852) (9,271) (16,156)
----------- ----------- -------- --------- ------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM
CAPITAL SHARE
TRANSACTIONS..... 191,396 (132,307) (18,201) (12,210) 3,839 (765)
----------- ----------- -------- --------- ------- --------
NET INCREASE (DECREASE) IN
NET ASSETS................. 191,396 (132,307) (18,201) (12,210) 3,839 (765)
NET ASSETS:
Beginning of period..... 513,822 646,129 28,366 40,576 4,413 5,178
----------- ----------- -------- --------- ------- --------
END OF PERIOD........... $ 705,218 $ 513,822 $ 10,165 $ 28,366 $ 8,252 $ 4,413
=========== =========== ======== ========= ======= ========
</Table>
See accompanying notes
12
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a 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: INVESTS ASSETS IN AMERICAN BEACON MASTER TRUST:
- ---------------- -----------------------------
Money Market Fund Money Market Portfolio
U.S. Government Money Market Fund U.S. Government Money Market Portfolio
Municipal Money Market Fund Municipal Money Market Portfolio
</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 (7.83%,
4.19% and 23.84% at June 30, 2006 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") 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:
CLASS OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- ----- ----------- ------------------------------
CASH MANAGEMENT CLASS Investors making an initial investment of $10 Administrative Service Fee -- 0.07%
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 investment of $2 Administrative Service Fee -- 0.10%
million
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.10%
intermediary Service Fee -- 0.25%
PLATINUM CLASS Investors investing through selected financial Administrative Service Fee -- 0.65%
institutions (such as banks and broker-dealers) Distribution Fee -- 0.25%
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
13
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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.
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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, 2007 to the extent that total
annual fund operating expenses exceed 0.15% and 0.19% for the Money Market and
U.S. Government Money Market Funds, respectively.
The Manager contractually agreed to reimburse the PlanAhead Class of the
Municipal Money Market Fund for other expenses through February 28, 2007 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, 2007 to the
extent that total annual fund operating expenses exceed 0.65%. Beginning June
26, 2006 the Manager voluntarily agreed to reimburse the Institutional Class of
the Money Market Fund for other expenses to the extent annualized operating
expenses exceed 0.18%.
The Manager contractually agreed to reimburse the Platinum Class of each
Fund for distribution fees and other expenses through February 28, 2007 to the
extent that total annual fund operating expenses exceed 0.99%. During the six
months ended June 30, 2006, the Manager waived or reimbursed expenses as
follows:
<Table>
<Caption>
FUND AMOUNT
- ---- ------
Money Market Fund
Cash Management Class...................................................... $128,082
Institutional Class........................................................ 12,148
Platinum Class............................................................. 13,295
U.S. Government Money Market Fund
Cash Management Class...................................................... 21,011
PlanAhead Class............................................................ 5,484
Platinum Class............................................................. 14,552
Municipal Money Market Fund
PlanAhead Class............................................................ 5,584
Platinum Class............................................................. 18,274
</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'
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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
2009................................................. 141,377 41,047 23,858
</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. Mr. O'Sullivan, as a retiree of American,
already receives flight benefits. This Trustee receives an annual retainer plus
a fee 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.
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The tax character of distributions during the six months ended June 30,
2006 and the year ended December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
MUNICIPAL MONEY
MONEY MARKET U.S. GOVERNMENT MONEY MARKET MARKET
------------------------------- -------------------------------- ----------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
2006 2005 2006 2005 2006
---------------- ------------ ---------------- ------------ ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME:*
Cash Management Class.. $ 6,915 $10,862 $207 $620 $--
Institutional Class.... 1,066 1,545 -- -- --
PlanAhead Class........ 4,238 7,159 56 108 --
Platinum Class......... 699 1,013 90 123 --
TAX-EXEMPT INCOME:
Cash Management Class.. -- -- --
Institutional Class.... -- -- --
PlanAhead Class........ -- -- 13
Platinum Class......... -- -- 41
------- ------- ---- ---- ---
TOTAL
DISTRIBUTIONS
PAID............ $12,918 $20,579 $353 $851 $54
------- ------- ---- ---- ---
<Caption>
MUNICIPAL
MONEY MARKET
------------
YEAR ENDED
DECEMBER 31,
2005
------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME:*
Cash Management Class.. $--
Institutional Class.... --
PlanAhead Class........ --
Platinum Class......... --
TAX-EXEMPT INCOME:
Cash Management Class.. --
Institutional Class.... --
PlanAhead Class........ 30
Platinum Class......... 67
---
TOTAL
DISTRIBUTIONS
PAID............ $97
---
</Table>
- --------
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of June 30, 2006 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.
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:
Six Months Ended June 30, 2006 (Unaudited)
<Table>
<Caption>
CASH
MONEY MARKET FUND MANAGEMENT CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- ---------------- ------------------- --------------- --------------
Shares sold............................. 1,416,754 132,369 316,744 27,516
Reinvestment of dividends............... 6,351 693 3,666 699
Shares redeemed......................... (1,234,580) (116,589) (334,029) (28,198)
---------- -------- -------- -------
Net increase (decrease) in shares
outstanding........................... 188,525 16,473 (13,619) 17
========== ======== ======== =======
<Caption>
CASH
U.S. GOVERNMENT MONEY MARKET FUND MANAGEMENT CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- ---------------- --------------- --------------
Shares sold............................. 16,539 4,794 9,069
Reinvestment of dividends............... -- 19 90
Shares redeemed......................... (36,055) (4,600) (8,057)
---------- -------- -------
Net increase (decrease) in shares
outstanding........................... (19,516) 213 1,102
========== ======== =======
<Caption>
MUNICIPAL MONEY MARKET FUND PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- --------------- --------------
Shares sold............................. 1,179 11,877
Reinvestment of dividends............... 13 41
Shares redeemed......................... (1,672) (7,599)
-------- -------
Net increase (decrease) in shares
outstanding........................... (480) 4,319
======== =======
</Table>
17
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
<Table>
<Caption>
CASH
MONEY MARKET FUND MANAGEMENT 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)
========== ======== ======== =======
<Caption>
CASH
U.S. GOVERNMENT MONEY MARKET FUND MANAGEMENT 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)
========== ======== =======
<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>
18
(LIGHTHOUSE LOGO)
(This page intentionally left blank)
19
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CASH MANAGEMENT CLASS
------------------------------------------------------------------------------
SIX MONTHS ONE MONTH
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, --------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001(B)
----------- -------- -------- -------- ------ ------------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)........ 0.02 0.03 0.01 0.01 0.02 --(D)
Net realized gain on
investments................... --(D) --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- ------ -------
Total income from investment
operations......................... 0.02 0.03 0.01 0.01 0.02 --
-------- -------- -------- -------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.02) (0.03) (0.01) (0.01) (0.02) --(D)
Distributions from net realized
gain on investments........... --(D) --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- ------ -------
Total distributions.................. (0.02) (0.03) (0.01) (0.01) (0.02) --
-------- -------- -------- -------- ------ -------
NET ASSET VALUE, END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ====== =======
TOTAL RETURN......................... 2.32%(C) 3.19% 1.30% 1.08% 1.73% 0.19%(C)
======== ======== ======== ======== ====== =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................... $388,534 $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% 0.15% 0.16% 0.19% 0.19%
Expenses, before waivers...... 0.24% 0.23% 0.23% 0.24% 0.22% 0.19%
Net investment income, net of
waivers.................... 4.67% 3.08% 1.34% 1.03% 1.73% 1.96%
Net investment income, before
waivers.................... 4.58% 3.00% 1.26% 0.95% 1.70% 1.96%
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- ------- ------- -------- -------- --------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)........ 0.02 0.03 0.01 0.01 0.02 0.04
Net realized gain on
investments................... --(D) --(D) --(D) --(D) --(D) --(D)
------- ------- ------- -------- -------- --------
Total income from investment
operations......................... 0.02 0.03 0.01 0.01 0.02 0.04
------- ------- ------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.02) 0.03) (0.01) (0.01) (0.02) (0.04)
Distributions from net realized
gain on investments........... --(D) --(D) --(D) --(D) --(D) --(D)
------- ------- ------- -------- -------- --------
Total distributions.................. (0.02) (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 $ 1.00
======= ======= ======= ======== ======== ========
TOTAL RETURN......................... 2.27%(C) 3.06% 1.20% 0.97% 1.67% 4.15%
======= ======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................... $52,894 $36,421 $34,146 $159,092 $474,922 $805,843
Ratios to average net assets
(annualized)(A):
Expenses, net of waivers...... 0.23% 0.28% 0.24% 0.27% 0.24% 0.25%
Expenses, before waivers...... 0.28% 0.28% 0.24% 0.27% 0.24% 0.25%
Net investment income, net of
waivers.................... 4.59% 3.07% 1.05% 1.00% 1.68% 4.13%
Net investment income, before
waivers.................... 4.53% 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.
20
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS PLATINUM CLASS
- ------------------------------------------------------------- ----------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------ JUNE 30, ---------------------------------------------
2006 2005 2004 2003 2002 2001 2006 2005 2004 2003 2002 2001
- ----------- -------- -------- -------- -------- -------- ----------- ------- ------- ------- -------- --------
(UNAUDITED) (UNAUDITED)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------- --------
0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 --(D) --(D) 0.01 0.03
--(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------- --------
0.02 0.03 0.01 0.01 0.01 0.04 0.02 0.02 -- -- 0.01 0.03
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------- --------
(0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (0.02) --(D) --(D) (0.01) (0.03)
--(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D) --(D)
-------- -------- -------- -------- -------- -------- ------- ------- ------- ------- -------- --------
(0.02) (0.03) (0.01) (0.01) (0.01) (0.04) (0.02) (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 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======= ======= ======= ======= ======== ========
2.13%(C) 2.82% 0.93% 0.70% 1.37% 3.83% 1.89%(C) 2.33% 0.46% 0.25% 0.98% 3.45%
======== ======== ======== ======== ======== ======== ======= ======= ======= ======= ======== ========
$223,285 $236,903 $132,438 $126,972 $155,535 $163,825 $40,505 $40,488 $44,958 $48,920 $913,240 $868,395
0.52% 0.51% 0.51% 0.54% 0.54% 0.55% 0.99% 0.99% 0.99% 0.96% 0.93% 0.93%
0.52% 0.51% 0.51% 0.54% 0.54% 0.55% 1.06% 1.06% 1.06% 1.09% 0.94% 0.93%
4.25% 2.83% 0.94% 0.71% 1.36% 3.83% 3.78% 2.27% 0.43% 0.38% 0.97% 3.36%
4.25% 2.83% 0.94% 0.71% 1.36% 3.83% 3.70% 2.20% 0.36% 0.25% 0.96% 3.36%
</Table>
21
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CASH MANAGEMENT CLASS
---------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------
2006 2005 2004 2003 2002 2001(B)
----------- ------- ------- ------- ------- -------
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A)......................... 0.02 0.03 0.01 0.01 0.02 0.04
Net realized gain on investments................. --(C) --(C) --(C) --(C) --(C) --(C)
------ ------- ------- ------- ------- -------
Total income from investment operations............... 0.02 0.03 0.01 0.01 0.02 0.04
------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income............. (0.02) (0.03) (0.01) (0.01) (0.02) (0.04)
Distributions from net realized gain on
investments.................................... --(C) --(C) --(C) --(C) --(C) --(C)
------ ------- ------- ------- ------- -------
Total distributions................................... (0.02) (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 $ 1.00
====== ======= ======= ======= ======= =======
TOTAL RETURN.......................................... 2.28%(D) 3.12% 1.22% 1.04% 1.67% 4.09%
====== ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $3,002 $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% 0.19% 0.25%
Expenses, before waivers....................... 0.64% 0.38% 0.29% 0.37% 0.23% 0.25%
Net investment income, net of waivers.......... 4.38% 2.99% 1.21% 1.04% 1.69% 3.74%
Net investment income, before waivers.......... 3.93% 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.
(D) Not annualized.
22
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS PLATINUM CLASS
- ------------------------------------------------------- -------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------ JUNE 30, ------------------------------------------
2006 2005 2004 2003 2002 2001 2006 2005 2004 2003 2002 2001
- ----------- ------ ------ ------- -------- ------- ----------- ------ ------ ------ -------- --------
(UNAUDITED) (unaudited)
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------- -------- ------- ------ ------ ------ ------ -------- --------
0.02 0.03 --(C) 0.01 0.01 0.04 0.02 0.02 --(C) --(C) 0.01 0.03
--(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C)
------ ------ ------ ------- -------- ------- ------ ------ ------ ------ -------- --------
0.02 0.03 -- 0.01 0.01 0.04 0.02 0.02 -- -- 0.01 0.03
------ ------ ------ ------- -------- ------- ------ ------ ------ ------ -------- --------
(0.02) (0.03) --(C) (0.01) (0.01) (0.04) (0.02) (0.02) --(C) --(C) (0.01) (0.03)
--(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C) --(C)
------ ------ ------ ------- -------- ------- ------ ------ ------ ------ -------- --------
(0.02) (0.03) -- (0.01) (0.01) (0.04) (0.02) (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 $ 1.00 $ 1.00
====== ====== ====== ======= ======== ======= ====== ====== ====== ====== ======== ========
2.05%(D) 2.71% 0.85% 0.61% 1.30% 3.79% 1.88%(D) 2.30% 0.42% 0.24% 0.90% 3.37%
====== ====== ====== ======= ======== ======= ====== ====== ====== ====== ======== ========
$2,146 $1,933 $5,370 $26,785 $175,115 $78,934 $5,017 $3,915 $6,615 $6,752 $119,833 $112,670
0.65% 0.58% 0.56% 0.58% 0.55% 0.55% 0.99% 0.99% 0.98% 1.00% 0.95% 0.95%
1.05% 0.61% 0.57% 0.62% 0.55% 0.55% 1.59% 1.25% 1.15% 1.20% 0.98% 0.95%
4.08% 2.47% 0.68% 0.72% 1.25% 3.59% 3.73% 2.19% 0.40% 0.31% 0.88% 3.20%
3.69% 2.44% 0.67% 0.68% 1.25% 3.59% 3.12% 1.93% 0.23% 0.11% 0.85% 3.20%
</Table>
23
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS PLATINUM CLASS
----------------------------------------------------- ---------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31, SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------- ENDED ------------------------
JUNE 30, 2006 2005 2004 2003 2002 2001 JUNE 30, 2006 2005 2004 2003
------------- ------ ------ ------ ------ ------ ------------- ------ ------- -------
(UNAUDITED) (UNAUDITED)
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Net investment
income(A)........... 0.01 0.02 --(B) --(B) 0.01 0.02 0.01 0.02 --(B) --(B)
Less dividends from
net investment
income.............. (0.01) (0.02) --(B) --(B)(0.01) (0.02) (0.01) (0.02) --(B) --(B)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
NET ASSET VALUE, END OF
PERIOD................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
TOTAL RETURN............... 1.16%(C) 1.49% 0.31% 0.32% 0.93% 2.25% 1.16%(C) 1.49% 0.31% 0.20%
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in
thousands):......... $1,166 $1,647 $1,706 $3,072 $7,346 $3,669 $7,086 $2,766 $ 3,472 $ 3,271
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers.......... 0.99% 0.98% 0.94% 0.81% 0.57% 0.58% 0.99% 0.99% 0.97% 1.01%
Expenses, before
waivers.......... 1.99% 1.22% 1.04% 0.93% 0.57% 0.58% 2.05% 1.55% 1.58% 1.35%
Net investment
income, net of
waivers.......... 2.30% 1.52% 0.24% 0.36% 0.94% 2.30% 2.39% 1.51% 0.29% 0.21%
Net investment
income (loss),
before waivers... 1.29% 1.28% 0.14% 0.24% 0.94% 2.30% 1.32% 0.95% (0.32%) (0.13%)
<Caption>
PLATINUM CLASS
----------------
YEAR ENDED
DECEMBER 31,
----------------
2002 2001
------- -------
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 1.00 $ 1.00
------- -------
Net investment
income(A)........... --(B) 0.02
Less dividends from
net investment
income.............. --(B) 0.02
------- -------
NET ASSET VALUE, END OF
PERIOD................... $ 1.00 $ 1.00
======= =======
TOTAL RETURN............... 0.51% 1.82%
======= =======
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of
period (in
thousands):......... $71,132 $59,427
Ratios to average net
assets
(annualized)(A):
Expenses, net of
waivers.......... 0.99% 1.00%
Expenses, before
waivers.......... 1.01% 1.00%
Net investment
income, net of
waivers.......... 0.52% 1.87%
Net investment
income (loss),
before waivers... 0.50% 1.87%
</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.
(C) Not annualized.
24
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
FUNDING AGREEMENTS - 1.66%
------------
Metropolitan Life Insurance Co., 5.281%, Due 3/1/2007 ............................. $ 150,000 $ 150,000
------------
MEDIUM-TERM NOTES - 33.72%
ABN Amro Bank NV, 5.222%, Due 5/11/2007 ++ ......................................... 18,200 18,214
American Honda Finance Corp.,
5.198%, Due 7/11/2006 ++# ....................................................... 37,100 37,102
5.34%, Due 8/15/2006 ++# ........................................................ 10,000 10,002
5.053%, Due 10/10/2006 ++# ...................................................... 30,000 30,003
5.068%, Due 10/18/2006 ++# ...................................................... 47,000 47,000
5.12%, Due 11/7/2006 ++# ........................................................ 55,000 55,000
5.26%, Due 12/12/2006 ++# ....................................................... 63,000 62,997
5.208%, Due 1/16/2007 ++# ....................................................... 25,000 25,021
5.068%, Due 1/26/2007 ++# ....................................................... 50,000 49,999
5.319%, Due 2/20/2007 ++# ....................................................... 10,000 10,009
ASIF Global Financing,
5.172%, Due 8/11/2006 ++# ....................................................... 135,000 135,004
5.38%, Due 12/11/2006 ++# ....................................................... 30,000 30,013
5.194%, Due 2/23/2007 ++# ....................................................... 209,250 209,260
Bank of America Corp., 5.481%, Due 9/1/2006 ++ .................................... 9,500 9,504
Bank One Corp., 5.284%, Due 8/11/2006 ++ .......................................... 30,000 30,005
Citigroup Global Markets Holdings, Inc.,
5.225%, Due 7/25/2006 ++ ........................................................ 129,750 129,763
5.41%, Due 12/12/2006 ++ ........................................................ 28,933 28,950
5.411%, Due 3/16/2007 ++ ........................................................ 149,300 149,405
Credit Suisse First Boston USA, Inc.,
5.67%, Due 2/15/2007 ++ ......................................................... 21,904 21,974
5.10%, Due 4/5/2007 ++ .......................................................... 215,443 215,620
General Electric Capital Corp.,
5.373%, Due 3/9/2007 ++ ......................................................... 32,500 32,530
5.497%, Due 6/22/2007 ++ ........................................................ 68,268 68,334
5.352%, Due 8/17/2007 ++ ........................................................ 180,000 180,000
Goldman Sachs Group, Inc.,
5.28%, Due 10/27/2006 ++ ........................................................ 50,000 50,028
5.599%, Due 3/30/2007 ++ ........................................................ 34,000 34,026
HBOS Treasury Services Plc, 5.214%, Due 8/28/2006 ++# ............................. 40,000 40,003
HSBC Finance Corp.,
5.16%, Due 10/27/2006 ++ ........................................................ 40,000 40,008
5.26%, Due 2/28/2007 ++ ......................................................... 23,500 23,510
JP Morgan Chase & Co., 5.43%, Due 12/12/2006 ++ ................................... 24,500 24,517
Merrill Lynch & Company, Inc.,
5.137%, Due 10/19/2006 ++ ....................................................... 153,000 153,029
5.28%, Due 10/27/2006 ++ ........................................................ 48,100 48,127
Metropolitan Life Global Funding I, 5.37%, Due 8/28/2006 ++# ...................... 32,620 32,628
Monumental Global Funding II, 5.49%, Due 12/27/2006 ++# ........................... 40,000 40,005
Morgan Stanley, 5.226%, Due 11/9/2006 ++ .......................................... 40,000 40,011
</Table>
See accompanying notes
25
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
PACCAR Financial Corp.,
5.334%, Due 9/20/2006 ++ ........................................................ $ 33,000 $ 32,995
5.191%, Due 12/4/2006 ++ ........................................................ 125,000 124,973
Toyota Motor Credit Corp.,
5.038%, Due 7/14/2006 ++ ........................................................ 175,000 175,001
5.274%, Due 9/15/2006 ++ ........................................................ 84,200 84,201
Wachovia Corp., 5.22%, Due 2/6/2007 ++ ............................................ 153,925 154,007
Wells Fargo & Co.,
5.419%, Due 9/15/2006 ++ ........................................................ 42,975 42,986
5.509%, Due 3/23/2007 ++ ........................................................ 174,100 174,230
5.189%, Due 7/17/2007 ++# ....................................................... 150,000 150,000
------------
TOTAL MEDIUM-TERM NOTES ........................................................... 3,049,994
------------
PROMISSORY NOTES - 3.32%
------------
Goldman Sachs Group, Inc., 5.226%, Due 8/9/2006 ++# ............................... 300,000 300,000
------------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 24.55%
BB&T Corp., 5.038%, Due 1/24/2007 ++ .............................................. 150,000 149,998
Credit Suisse, 5.28%, Due 6/12/2007 ++ ............................................ 150,000 150,000
Fifth Third Bancorp, 5.06%, Due 8/3/2006 ++ ....................................... 35,000 34,999
HSBC Bank USA, 5.339%, Due 12/14/2006 ++ .......................................... 268,700 268,757
JP Morgan Chase Bank, NA, 5.095%, Due 1/12/2007 ++ ................................ 63,000 63,024
Royal Bank of Canada,
5.367%, Due 12/22/2006 .......................................................... 30,000 29,993
5.065%, Due 1/12/2007 ........................................................... 10,000 10,002
Royal Bank of Scotland Plc,
5.269%, Due 11/21/2006 ++# ...................................................... 150,000 150,000
5.218%, Due 11/24/2006 ++# ...................................................... 30,200 30,205
5.499%, Due 3/30/2007 ++# ....................................................... 278,000 278,051
SouthTrust Bank, 5.456%, Due 3/19/2007 ++ ......................................... 46,000 46,029
State Street Bank & Trust Co.,
5.299%, Due 12/15/2006 ++ ....................................................... 16,950 16,949
5.02%, Due 1/16/2007 ++ ......................................................... 59,500 59,505
SunTrust Banks, Inc., 5.231%, Due 5/17/2007 ++ .................................... 167,000 167,109
US Bank, NA,
5.126%, Due 7/28/2006 ++ ........................................................ 135,845 135,848
5.06%, Due 1/25/2007 ++ ......................................................... 190,000 190,004
5.341%, Due 3/16/2007 ++ ........................................................ 50,000 50,014
Wachovia Bank, NA,
5.221%, Due 12/4/2006 ++ ........................................................ 27,000 27,000
5.459%, Due 3/30/2007 ++ ........................................................ 200,000 199,998
World Savings Bank FSB, 5.291%, Due 6/1/2007 ++ ................................... 162,460 162,571
------------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ...................................... 2,220,056
------------
COMMERCIAL PAPER - 11.36%
Barclays US Funding LLC, 5.135%, Due 8/22/2006 .................................... 300,000 297,775
FCAR Owner Trust,
Series II, 5.30%, Due 8/4/2006 .................................................. 100,000 99,499
</Table>
See accompanying notes
26
AMERICAN BEACON MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Series I, 5.31%, Due 8/4/2006 ................................................... $ 250,000 $ 248,746
HSBC Finance Corp., 5.31%, Due 8/4/2006 ........................................... 100,000 99,499
Long Lane Master Trust IV, 5.32%, Due 7/28/2006 # ................................. 200,000 199,202
Stanfield Victoria,
5.05%, Due 7/20/2006 # .......................................................... 26,000 25,931
5.07%, Due 7/31/2006 # .......................................................... 57,000 56,759
------------
TOTAL COMMERCIAL PAPER ............................................................ 1,027,411
------------
TIME DEPOSITS - 23.49%
Allied Irish Banks Plc, 5.28%, Due 7/3/2006 ....................................... 400,000 400,000
BNP Paribas, 5.28%, Due 7/3/2006 .................................................. 425,000 425,000
Deutsche Bank AG, 5.313%, Due 7/3/2006 ............................................ 250,000 250,000
Fifth Third Bank, 5.25%, Due 7/3/2006 ............................................. 200,000 200,000
Lloyds TSB Bank Plc, 5.31%, Due 7/3/2006 .......................................... 425,000 425,000
Societe Generale, 5.29%, Due 7/3/2006 ............................................. 425,000 425,000
------------
TOTAL TIME DEPOSITS ............................................................... 2,125,000
------------
REPURCHASE AGREEMENTS - 1.56%
------------
Goldman Sachs, 5.28%, Due 7/3/2006 (Collateral held at the Bank of New York for
Goldman Sachs, FNMA, 5.00% - 7.50%, Due 10/1/2025 - 6/1/2036,
Total Value - $143,148.) ......................................................... 141,015 141,015
------------
TOTAL INVESTMENTS - 99.66% (COST $9,013,476) ........................................ $ 9,013,476
OTHER ASSETS, NET OF LIABILITIES - 0.34% ............................................ 31,139
------------
TOTAL NET ASSETS - 100.00% .......................................................... $ 9,044,615
============
</Table>
Percentages are stated as a percent of net assets.
Based on cost of investments of $9,013,476 for federal income tax purposes
at June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
++ 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.
# 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 $2,004,194 or 22.16% of net
assets.
See accompanying notes
27
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 12.33%
FEDERAL HOME LOAN BANK - 4.11%
------------
4.86%, Due 4/4/2007 ++ .......................................................... $ 10,000 $ 9,997
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.11%
------------
5.35%, Due 12/27/2006 ++ ........................................................ 10,000 9,997
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.11%
------------
5.307%, Due 12/22/2006 ++ ....................................................... 10,000 9,997
------------
TOTAL U.S. AGENCY OBLIGATIONS ..................................................... 29,991
------------
U.S. TREASURY OBLIGATIONS - 2.93%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.58%
Discount Note, Due 8/1/2006 ..................................................... 2,305 2,295
Discount Note, Due 8/4/2006 ..................................................... 4,000 3,981
------------
6,276
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.35%
------------
Discount Note, Due 10/25/2006 ................................................... 850 836
------------
TOTAL U.S. TREASURY OBLIGATIONS ................................................... 7,112
------------
REPURCHASE AGREEMENTS - 84.69%
Banc of America Securities, LLC, 5.313%, Due 7/3/2006 (Collateral held at the
Bank of New York for Banc of America Securities, LLC, FNMA, 5.00%,
Due 3/1/2035, Total Value - $86,328.) ............................................ 85,000 85,000
Barclays Capital, Inc., 5.25%, Due 7/3/2006 (Collateral held at the Bank of
New York for Barclays Capital, Incorporated, FHLMC, 5.50%, Due 5/1/2033,
Total Value - $2,032 and FNMA, 5.00% - 5.385%, Due 4/1/2036 - 5/1/2036,
Total Value - $48,745.) .......................................................... 50,000 50,000
Goldman Sachs, 5.28%, Due 7/3/2006 (Collateral held at the Bank of New York
for Goldman Sachs, FNMA, 5.00% - 7.50%, Due 11/1/2029 - 9/1/2035,
Total Value - $72,067.) .......................................................... 70,990 70,990
------------
TOTAL REPURCHASE AGREEMENTS ......................................................... 205,990
------------
TOTAL INVESTMENTS - 99.95% (COST $243,093) .......................................... $ 243,093
OTHER ASSETS, NET OF LIABILITIES - 0.05% ............................................ 131
------------
TOTAL NET ASSETS - 100.00% .......................................................... $ 243,224
============
</Table>
Percentages are stated as a percent of net assets.
Based on cost of investments of $243,093 for federal income tax purposes at
June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
++ 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
28
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
ALABAMA - 2.89%
------------
Infirmary Health System Special Care Facilities Financial Authority of Mobile
Revenue Bonds, Series 2006A, 3.97%, Due 2/1/2040, LOC Bank of Nova Scotia ........ $ 1,000 $ 1,000
------------
COLORADO - 9.83%
Colorado Educational & Cultural Facilities Authority Revenue Bonds, Series
C-3, 4.03%, Due 1/1/2031, LOC US Bank, NA ........................................ 500 500
Colorado Educational and Cultural Facilities Variable Rate Demand Revenue
Bonds, Series A7, (National Jewish Federation Bond Program), 4.03%,
Due 7/1/2029, LOC Bank Of America, NA ............................................ 1,000 1,000
Colorado Health Facilities Authority Revenue Bonds, Series 2002B, 3.92%,
Due 1/1/2033, LOC US Bank, NA .................................................... 900 900
University of Colorado Hospital System Revenue Bonds, Series 2004B, 3.97%,
Due 11/15/2035, LOC Citibank, NA ................................................. 1,000 1,000
------------
TOTAL COLORADO .................................................................... 3,400
------------
FLORIDA - 18.60%
Alachua County, Florida Housing Financial Authority, Multifamily Housing
Revenue Bonds, Series 2001, (University Cove Apartment Project), 4.01%,
Due 6/15/2034, LOC Fannie Mae .................................................... 1,830 1,830
Collier County Health Facilities Authority Revenue Bonds, Series 2003 C,
4.00%, Due 1/1/2035, LOC JP Morgan Chase ......................................... 1,300 1,300
Florida Gulf Coast University Financing Corp. Revenue Bonds, Series 2003,
4.01%, Due 12/1/2033, LOC Wachovia Bank, NA ...................................... 1,000 1,000
Orange County Health Facilities Authority, Variable Rate Demand Revenue Bonds,
Series 1992, (Adventist Health System/Sunbelt, Inc.), 4.05%, Due 11/15/2014,
LOC Suntrust Bank ................................................................ 900 900
University Athletic Association, Inc. Revenue Bonds, Series 2001 Bonds, 4.05%,
Due 10/1/2031, LOC Suntrust Bank ................................................. 1,405 1,405
------------
TOTAL FLORIDA ..................................................................... 6,435
------------
ILLINOIS - 7.49%
Illinois Finance Authority Variable Rate Revenue Bonds, Series 2005B, 4.03%,
Due 5/15/2035, LOC JP Morgan Chase ............................................... 790 790
Village of Richton Park, Illinois-Industrial Development Revenue Bonds,
Series 1997, (Avatar Corporation Project), 4.07%, Due 4/1/2027, LOC
Fifth Third Bank ................................................................. 1,800 1,800
------------
TOTAL ILLINOIS .................................................................... 2,590
------------
INDIANA - 2.89%
------------
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds,
Series 1989, (ND-Tech Corporation Project), 4.08%, Due 7/1/2009, LOC
Comerica Bank .................................................................... 1,000 1,000
------------
KENTUCKY - 6.64%
Breckinridge County, Kentucky Lease Program Revenue Bonds, Series A, 4.03%,
Due 2/1/2032, LOC US Bank, NA .................................................... 1,196 1,196
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds, Series 2001,
(North American Stainless, L.P.), 3.99%, Due 5/1/2031, LOC Fifth Third Bank ...... 1,100 1,100
------------
TOTAL KENTUCKY ...................................................................... 2,296
------------
MARYLAND - 4.86%
------------
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997,
Issue I (The Grand), 4.02%, Due 6/1/2030, LOC Federal National
Mortgage Association ............................................................. 1,680 1,680
------------
</Table>
See accompanying notes
29
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
MICHIGAN - 5.13%
------------
Michigan State Housing Development Authority, Variable Rate Limited Obligation
Multifamily Housing Revenue Refunding Bonds, 4.03%, Due 6/1/2018, LOC
Bank of New York ................................................................. $ 1,775 $ 1,775
------------
NEVADA - 2.89%
------------
Nevada Housing Division-Variable Rate Demand Multi-Unit Housing Revenue Bonds,
Series 2004, (Sundance Village Apartments), 4.03%, Due 10/1/2035,
LOC Citibank, NA ................................................................. 1,000 1,000
------------
NEW MEXICO - 4.34%
------------
City of Farmington Pollution Control Revenue Bonds, Series 1994B, (Arizona
Public Service Company), 3.99%, Due 9/1/2024, LOC Barclays Bank PLC .............. 1,500 1,500
------------
NEW YORK - 9.83%
Dutchess County Industrial Development Agency Variable Rate Demand Civic
Facility Revenue Bonds, Series 2002, 3.98%, Due 10/1/2032, LOC Allied
Irish Bank, PLC .................................................................. 1,000 1,000
New York City Housing Development Corporation, Multi-Family Mortgage Revenue
Bonds, Series 2002A, (First Avenue Development), 4.00%, Due 10/15/2035, LOC
Fannie Mae ....................................................................... 800 800
New York State Housing Finance Agency, 66 West 38th Street Housing Revenue
Bonds, Series 2000A, 4.00%, Due 5/15/2033, LOC Fannie Mae ........................ 1,600 1,600
------------
TOTAL NEW YORK .................................................................... 3,400
------------
OHIO - 4.91%
------------
Ohio Water Development Authority, Environmental Improvement Revenue Bonds,
Series 2000B, (Waste Management, Incorporated Project), 4.06%, Due 7/1/2020,
LOC Fleet National Bank .......................................................... 1,700 1,700
------------
PENNSYLVANIA - 6.65%
Delaware County Pennsylvania Pollution Control, Series 1999A, 4.05%,
Due 4/1/2021, LOC Wachovia Bank, NA .............................................. 800 800
Indiana County Industrial Development Authority Refunding Bonds, Series 2003A
(Exelon Generation), 4.07%, Due 6/1/2027, LOC BNP Paribas ........................ 1,500 1,500
------------
TOTAL PENNSYLVANIA ................................................................ 2,300
------------
TEXAS - 3.47%
------------
City of Midlothian, Texas Industrial Development Corporation, Environmental
Facilities Revenue Bonds, Series 1999, (Holnam Texas Limited Partnership
Project), 4.05%, Due 9/1/2031, LOC Bank One ...................................... 1,200 1,200
------------
UTAH - 3.32%
------------
Morgan County UT Solid Waste Disposal Revenue Bonds, Series 1996,
(Holman, Inc. Project), 4.03%, Due 8/1/2031, LOC Wachovia Bank, NA ............... 1,150 1,150
------------
WYOMING - 4.34%
------------
Sweetwater County, Wyoming Pollution Control Revenue Refunding Bonds,
Series 1990A, (Pacificorp Project), 3.97%, Due 7/1/2015,
LOC Barclays Bank PLC ............................................................ 1,500 1,500
------------
</Table>
<Table>
<Caption>
SHARES
------------
SHORT TERM INVESTMENTS - 1.67%
BlackRock Provident MuniCash Fund ................................................. 32,554 33
</Table>
See accompanying notes
30
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
SCHEDULE OF INVESTMENTS - CONTINUED
June 30, 2006 (Unaudited)
<Table>
<Caption>
SHARES VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
Federated Municipal Obligations Fund,
------------
TOTAL SHORT TERM INVESTMENTS 585
------------
TOTAL INVESTMENTS - 99.75% (COST $34,511) $ 34,511
OTHER ASSETS, NET OF LIABILITIES - 0.25% 86
------------
TOTAL NET ASSETS - 100.00% $ 34,597
============
</Table>
Percentages are stated as a percent of net assets.
For municipal obligations, rates associated with money market securities
represent yield to maturity or yield to next reset date.
Based on cost of investments of $34,511 for federal income tax purposes at
June 30, 2006, there was no unrealized appreciation or depreciation of
investments.
See accompanying notes
31
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
ASSETS:
Investments in securities at value (cost -
$8,872,461, $37,103 and $34,511,
respectively)................................. $8,872,461 $ 37,103 $34,511
Repurchase agreements (cost - $141,015, $205,990
and $0 respectively) 141,015 205,990 --
Dividends and interest receivable............... 31,847 168 99
Prepaid expenses................................ 105 2 --
---------- -------- -------
TOTAL ASSETS............................... 9,045,428 243,263 34,610
---------- -------- -------
LIABILITIES:
Management and investment advisory fees payable
(Note 2)...................................... 760 24 3
Other liabilities............................... 53 15 10
---------- -------- -------
TOTAL LIABILITIES.......................... 813 39 13
---------- -------- -------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS.......................................... $9,044,615 $243,224 $34,597
========== ======== =======
</Table>
See accompanying notes
32
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
------------ --------------- ------------
INVESTMENT INCOME:
Interest income................................. $204,069 $6,635 $516
-------- ------ ----
TOTAL INVESTMENT INCOME.................... 204,069 6,635 516
-------- ------ ----
EXPENSES:
Management and investment advisory fees (Note
2)............................................ 4,274 140 15
Custodian fees.................................. 191 6 1
Professional fees............................... 47 8 6
Other expenses.................................. 161 18 1
-------- ------ ----
TOTAL EXPENSES............................. 4,673 172 23
-------- ------ ----
NET INVESTMENT INCOME................................ 199,396 6,463 493
-------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................ 3 1 --
-------- ------ ----
NET GAIN ON INVESTMENTS.................... 3 1 --
-------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $199,399 $6,464 $493
======== ====== ====
</Table>
See accompanying notes
33
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MONEY MARKET MONEY MARKET MUNICIPAL MONEY MARKET
------------------------------ ------------------------------ ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2006 2005 2006 2005 2006 2005
---------------- ------------ ---------------- ------------ ---------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income..... $ 199,396 $ 218,128 $ 6,463 $ 7,700 $ 493 $ 837
Net realized gain on
investments............. 3 18 1 6 -- --
------------ ------------ ----------- ----------- -------- --------
TOTAL INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.... 199,399 218,146 6,464 7,706 493 837
------------ ------------ ----------- ----------- -------- --------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS:
Contributions............. 55,472,099 98,275,830 1,322,006 1,782,252 24,379 56,703
Withdrawals............... (53,412,924) (97,114,356) (1,324,806) (1,799,917) (20,771) (62,338)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM TRANSACTIONS
IN INVESTORS'
BENEFICIAL
INTERESTS.......... 2,059,175 1,161,474 (2,800) (17,665) 3,608 (5,635)
------------ ------------ ----------- ----------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS............. 2,258,574 1,379,620 3,664 (9,959) 4,101 (4,798)
------------ ------------ ----------- ----------- -------- --------
NET ASSETS:
Beginning of period....... 6,786,041 5,406,421 239,560 249,519 30,496 35,294
------------ ------------ ----------- ----------- -------- --------
END OF PERIOD............. $ 9,044,615 $ 6,786,041 $ 243,224 $ 239,560 $ 34,597 $ 30,496
============ ============ =========== =========== ======== ========
</Table>
See accompanying notes
34
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET
-----------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------
2006 2005 2004 2003 2002 2001
-------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return......................................... 2.34%(A) 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% 0.11%
Net investment income........................... 4.66% 3.20% 1.30% 1.14% 1.81% 3.95%
</Table>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET
-----------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------
2006 2005 2004 2003 2002 2001
-------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return......................................... 2.32%(A) 3.19% 1.30% 1.11% 1.74% 4.24%
Ratios to average net assets (annualized):
Expenses........................................ 0.12% 0.12% 0.11% 0.12% 0.12% 0.11%
Net investment income........................... 4.61% 3.15% 1.30% 1.13% 1.71% 3.99%
</Table>
<Table>
<Caption>
MUNICIPAL MONEY MARKET
-----------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------
2006 2005 2004 2003 2002 2001
-------------- ----- ----- ----- ----- -----
(UNAUDITED)
Total return......................................... 1.58%(A) 2.38% 1.18% 1.08% 1.39% 2.71%
Ratios to average net assets (annualized):
Expenses........................................ 0.15% 0.11% 0.11% 0.12% 0.12% 0.13%
Net investment income........................... 3.18% 2.35% 1.14% 1.05% 1.39% 2.71%
</Table>
- --------
(A) Not annualized.
35
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 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.
36
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
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 six months ended June 30, 2006, the Money Market Portfolio
earned $79 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 plus a fee for each Board meeting attended.
37
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS
(UNAUDITED)
- --------------------------------------------------------------------------------
At its February 17, 2006 meeting, the Board of Trustees (the "Board")
considered the renewal of the existing Management Agreements (the "Agreements")
between the Manager and the American Beacon Funds, on behalf of the American
Beacon Money Market Fund, American Beacon Municipal Money Market Fund, and the
American Beacon U.S. Government Money Market Fund (collectively, the "Funds"),
and between the Manager and the American Beacon Master Trust, on behalf of the
American Beacon Master Money Market Portfolio, American Beacon Master Municipal
Money Market Portfolio, and the American Beacon Master U.S. Government Money
Market Portfolio (collectively, the "Portfolios"). The term "Funds" is used
throughout this section to refer to both the Funds and the Portfolios. In
preparation for the Board's consideration to renew the Agreements, the Board and
its Investment Committee undertook steps to gather and consider information
furnished by the Manager and Lipper, Inc. ("Lipper"). The Board, with the
assistance of independent legal counsel, requested and received certain relevant
information from the Manager. In addition, the Board's Investment Committee
worked with Lipper to obtain relevant comparative information regarding the
performance, fees and expenses of the Funds. The Investment Committee held
separate meetings on December 8, 2005, February 8, 2006 and February 17, 2006 to
consider the information provided by Lipper. Further, the Board took into
consideration information furnished for the Board's review and consideration
throughout the year at regular Board and Investment Committee meetings, as well
as information specifically prepared in connection with the renewal process.
The Board considered, among other materials, responses by the Manager to
inquiries requesting:
- a description of any significant changes (actual or anticipated) to
principal activities, personnel, services provided to the Funds, or any
other area, including how these changes might affect the Funds;
- a copy of the Manager's most recent audited or unaudited financial
statements as well as Parts I and II of its Form ADV;
- a summary of any material past, pending or anticipated litigation or
regulatory proceedings involving the Manager or its personnel, including
the results of any recent regulatory examination or independent audit;
- a cost/profitability analysis of the Manager and any actual or
anticipated economies of scale in relation to the services it provides to
the Funds, if available;
- an analysis of compensation, including a comparison with fees charged to
other clients for which similar services are provided, any proposed
changes to the fee schedule and the effect of any fee waivers;
- an evaluation of any other benefits to the Manager or Funds as a result
of their relationship, if any;
- confirmation that the Manager's financial condition does not raise
concerns that it would be unable to continue providing the same scope and
quality of services to the Funds;
- a description of the scope of portfolio management services provided to
the Funds, including whether such services differ from the services
provided to other clients, including other registered investment
companies;
- a description of the personnel who are assigned primary responsibility
for managing the Funds, including any changes during the past year;
- a description of the basis upon which portfolio managers are compensated,
including any "incentive" arrangements;
- a discussion regarding the Manager's participation in "soft dollar"
arrangements, if any;
- a description of any actual or potential conflicts of interest
anticipated in managing Fund assets;
- a description of trade allocation procedures among accounts managed by
the firm;
- a summary of any material changes to the Manager's compliance program
with regard to federal, state, corporate and Fund requirements;
38
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
- a discussion of any material compliance problems and remedial actions;
- information regarding the Manager's code of ethics, insider trading
policy and disaster recovery plan, including a description of any
material changes thereto;
- a description of the Manager's affiliation with any broker-dealer;
- a discussion of any anticipated change in the Manager's controlling
persons;
- verification of the Manager's insurance coverage with regards to the
services provided to the Funds;
- a comparison of the performance of each Fund to appropriate indices,
including comments on the relative performance of each Fund versus
comparable indices;
- a discussion, if applicable, of any underperformance by a Fund relative
to its peer group;
- an analysis of any material complaints received from Fund shareholders;
- a description of the Manager's securities lending practices and the fees
received from such practices;
- a description of the portfolio turnover rate and average execution costs
for each Fund;
- a discussion of whether the Manager receives, with respect to trade
execution for the Funds, other special compensation, including any
payment for order flow; and
- a description of how expenses that are not readily identifiable to a
particular Fund are allocated.
The Board also obtained an analysis provided by Lipper that compared: (i)
investment performance of each Fund versus comparable investment companies and
appropriate indices; (ii) total Fund expenses of each Fund versus comparable
mutual funds, and (iii) each Fund's investment advisory fees versus comparable
mutual funds. For each Fund, the class used for comparative purposes was the
class with the longest performance history, which in most cases is the
Institutional Class. References below to each Fund's Lipper peer group are to
the group of comparable mutual funds included in the analysis provided by
Lipper.
The Trustees also received a memorandum from their legal counsel detailing
the Board's responsibilities pertaining to the renewal of the Agreements. This
memorandum explained the regulatory requirements surrounding the Board's process
for evaluating investment advisors and the terms of the contracts.
Provided below is an overview of the primary factors the Board considered
at its February 2006 meeting. The Board did not identify any particular
information that was most relevant to its consideration to renew the Agreements,
and each Trustee may have afforded different weight to the various factors.
CONSIDERATIONS WITH RESPECT TO ALL FUNDS
In determining whether to approve the continuance of the Agreements, the
Board considered the best interests of each Fund separately. In addition, while
the Agreements for all of the Funds were considered at the same Board meeting,
the Board considered each Fund's investment management relationship separately.
In each instance, the Board considered, among other things, the following
factors: (1) the nature and quality of the services provided; (2) the investment
performance of the Fund; (3) the Manager's cost for providing the services and
the profitability of the advisory business to the Manager; (4) the extent to
which economies of scale have been taken into account in setting the fee
schedule; and (5) whether fee levels reflect these economies of scale for the
benefit of Fund investors. The Trustees posed questions to various management
personnel of the Manager regarding certain key aspects of the material submitted
in support of the renewal.
39
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Nature, Extent and Quality of Services
With respect to the renewal of the Agreements, the Board considered: the
Manager's ability to retain key investment personnel and to provide consistent
performance and an active client service program; the Manager's goal to provide
consistent above average long-term performance at low cost; the continuing
efforts by the Manager to add new Funds so as to enhance the Trusts' product
line; the Manager's record in building improved compliance, control and credit
functions that reduce risks to the Funds; and the addition of personnel to
manage the Funds, promote sales and improve services. Based on this information,
the Board concluded that the nature, extent and quality of the management
services provided by the Manager were appropriate for each Fund and, thus,
supported a decision to renew the Agreements.
Investment Performance
The Board evaluated the comparative information provided by Lipper and the
Manager regarding each Fund's investment performance relative to its benchmark
index(es) and peer group. The Board also considered the performance reports and
discussions with management at Board and Committee meetings throughout the year.
Discussions regarding the Board's considerations with respect to each Fund's
performance are below under "Additional Considerations and Conclusions with
Respect to each Fund."
Cost of Services and Profits Realized
In analyzing the cost of services and profitability of the Manager in
connection with its investment advisory services to a Fund, the Board considered
the Manager's operations and low cost structure. The Board considered that the
Manager receives service and administrative fees to compensate the Manager for
providing administrative services to the Funds and to compensate third-party
administrators and broker-dealers for services to Fund shareholders. Discussions
regarding the Board's considerations with respect to each Fund's fee rates are
set forth below under "Additional Considerations and Conclusions with Respect to
each Fund."
Economies of Scale
In considering the reasonableness of the management fees, the Board
considered whether economies of scale will be realized as the Funds grow and
whether fee levels reflect these economies of scale for the benefit of Fund
shareholders. With respect to the management fee, the Board acknowledged the
Manager's low cost structure and the increasing costs of personnel, technology
and operations. Based on these considerations, the Board concluded that the
Funds' fee structures are reasonably designed to pass on economies of scale to
Fund shareholders.
Benefits to be Derived from the Relationship with the Funds
The Board considered the "fall-out" or ancillary benefits that accrue to
the Manager as a result of the advisory relationships with the Funds, including
greater exposure in the marketplace with respect to the Manager's investment
process and expanding the level of assets under management by the Manager. After
consideration of this information, the Board concluded that the potential
benefits accruing to the Manager by virtue of its relationships with the Funds
appear to be fair and reasonable.
ADDITIONAL CONSIDERATIONS AND CONCLUSIONS WITH RESPECT TO EACH FUND
The Board considered the relative performance of each Fund versus the
respective Lipper Average, which includes all comparable funds in the Lipper
category, and the Lipper Index, which includes up to the 30 largest funds in the
respective Lipper category where the Fund is classified by Lipper.
40
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Additional Considerations and Conclusions with Respect to the Money Market
Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the Institutional Class total return
performance was in the 2nd quintile for all relevant periods compared to the
returns of a peer group of mutual funds identified by Lipper as having an
investment objective similar to the Fund ("Lipper Universe"), and (2) the
Institutional Class outperformed the Lipper Institutional Money Market Average
for all relevant periods and underperformed the Lipper Institutional Money
Market Index for all relevant periods except the ten-year period.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Institutional Class total expenses
were in the 2nd quintile and actual management fees (including administrative
fees) were in the 4th quintile compared to the expenses and fees of a peer group
of similar funds classified by Lipper ("Fee Universe") where the 1st quintile
represents the lowest fees or expenses among the group; (2) the Manager's
explanation that fee schedule "breakpoints" were not warranted due to, among
other factors, the low, base management fee (excluding administrative fees)
charged to the Fund; and (3) the Manager has contractually agreed to waive fees
and/or reimburse expenses to the extent necessary to maintain a competitive
total expense ratio for the Institutional, Cash Management, and Platinum Classes
of the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
Additional Considerations and Conclusions with Respect to the Municipal Money
Market Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the PlanAhead Class total return performance
was in the 5th quintile for all relevant periods except the five-and ten-year
periods in which case its performance was in the 4th and 3rd quintile,
respectively, compared to the Lipper Universe; (2) the PlanAhead Class
underperformed the Lipper Tax Exempt Money Market Average and the Lipper Tax
Exempt Money Market Index for all relevant periods; and (3) the Manager's
explanation that the PlanAhead Class has a relatively low level of assets, which
resulted in a higher expense ratio and a negative impact on performance during
the more recent periods.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the PlanAhead Class total expenses were
in the 5th quintile and actual management fees (including administrative fees)
were in the 1st quintile compared to the Fee Universe where the 1st quintile
represents the lowest fees or expenses among the group; (2) the Manager's
explanation that fee schedule "breakpoints" were not warranted due to, among
other factors, the low, base management fee charged to the Fund; (3) the Manager
has contractually agreed to waive fees and/or reimburse expenses to the extent
necessary to maintain a competitive total expense ratio for the PlanAhead and
Platinum Classes of the Fund; and (4) the Manager's profitability analysis
indicated that it incurred a loss on the services it provided to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
41
DISCLOSURE REGARDING THE BOARD OF TRUSTEES' APPROVAL OF THE MANAGEMENT
AGREEMENTS OF THE FUNDS AND THE PORTFOLIOS -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
Additional Considerations and Conclusions with Respect to the U.S. Government
Money Market Fund
In considering the renewal of the Agreements with the Fund, the Board
considered performance data for various periods ended December 31, 2005. In this
regard, they considered that: (1) the Cash Management Class total return
performance was in the 1st quintile for all relevant periods compared to the
Lipper Universe, and (2) the Cash Management Class outperformed the Lipper
Institutional U.S. Government Money Market Average and the Lipper Institutional
U.S. Government Money Market Index for all relevant periods.
In addition, the Board considered the fees payable under the Agreements. In
this regard, they considered that: (1) the Cash Management Class actual
management fees (including administrative fees) and total expenses were in the
1st quintile compared to the Fee Universe where the 1st quintile represents the
lowest fees or expenses among the group; (2) the Manager's explanation that fee
schedule "breakpoints" were not warranted due to, among other factors, the low,
base management fee charged to the Fund; (3) the Manager has contractually
agreed to waive fees and/or reimburse expenses to the extent necessary to
maintain a competitive total expense ratio for the Cash Management, Platinum,
and PlanAhead Classes of the Fund; and (4) the Manager's profitability analysis
indicated that it incurred a loss on the services it provided to the Fund.
Based on these considerations and those noted above with respect to all
Funds, the Board: (1) concluded that the fees paid to the Manager under the
Agreements are fair and reasonable; (2) concluded that the profits to the
Manager are reasonable in light of the quality of services provided to the Fund,
including direct management of the Fund's assets; (3) determined that the Fund
and its shareholders would benefit from the Manager's continued management of
the Fund; and (4) approved the renewal of the Agreements with respect to the
Fund.
42
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43
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44
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45
(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 A description of the policies and procedures
provided in each semi-annual and annual that the Funds use to determine how to vote
report, each Fund files a complete schedule of proxies relating to portfolio securities is
its portfolio holdings with the Securities and available in each Fund's Statement of
Exchange Commission ("SEC") on Form N-Q as of Additional Information, which may be obtained
the first and third fiscal quarters. The free of charge by calling 1-800-967-9009 or by
Funds' Forms N-Q are available on the SEC's accessing the SEC's website at www.sec.gov.
website at www.sec.gov. The Forms N-Q may also Each Fund's proxy voting record for the most
be reviewed and copied at the SEC's Public recent year ended June 30 is filed annually
Reference Room, 450 Fifth Street, NW, with the SEC on Form N-PX. The Funds' Forms N-
Washington, DC 20549. Information regarding PX are available on the SEC's website at
the operation of the SEC's Public Reference www.sec.gov. Each Fund's proxy voting record
Room may be obtained by calling 1-800-SEC- may also be obtained by calling 1-800-967-
0330. A complete schedule of each Fund's 9009.
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>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
TRUST SERVICES ERNST & YOUNG LLP Portland, Maine
Boston, Massachusetts Kansas City, Missouri 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.
SAR 06/06
537882
ITEM 2. CODE OF ETHICS.
The Trust did not amend the code of ethics that applies to its principal
executive and financial officers (the "Code") nor did it grant any waivers to
the provisions of the Code during the period covered by the shareholder reports
presented in Item 1.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder reports presented in Item 1. The shareholder report for the 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.
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Australia - 4.7% Airlines - 0.0% 32,501 Qantas Airways Ltd. $ 71,474
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 40,082 Coca-Cola Amatil Ltd. 211,132
80,782 Foster's Group Ltd. 328,292
732 Lion Nathan Ltd. 4,242
--------------
543,666
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 10,984 CSL Ltd. 438,629
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 13,704 Macquarie Bank Ltd. 702,513
88 Perpetual Trustees Australia Ltd. 4,783
--------------
707,296
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 14,011 Orica Ltd. 248,681
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.3% 96,429 Australia & New Zealand Banking Group Ltd. 1,904,953
62,940 Commonwealth Bank of Australia 2,076,661
85,085 National Australia Bank Ltd. 2,222,588
94,185 Westpac Banking Corp. 1,629,007
--------------
7,833,209
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 58,017 Brambles Industries Ltd. 474,139
364 Downer EDI Ltd. 2,012
--------------
476,151
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 7,102 Leighton Holdings Ltd. 91,546
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 19,485 Boral Ltd. 117,837
4,886 James Hardie Industries NV 27,951
44,233 Rinker Group Ltd. 538,621
--------------
684,409
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 39,761 Amcor Ltd. 197,329
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 59,199 Pacific Brands Ltd. 94,561
-----------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.0% 36,661 ABC Learning Centres Ltd. 174,318
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 1,247 Australian Stock Exchange Ltd. 30,184
16,255 Babcock & Brown Ltd. 261,942
57,631 Challenger Financial Services Group Ltd. 135,301
14,970 SFE Corp. Ltd. 183,512
21,784 Suncorp-Metway Ltd. 313,168
--------------
924,107
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 132,468 Telstra Corp. Ltd. 362,174
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 8,780 WorleyParsons Ltd. 131,114
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.2% 55,825 Coles Myer Ltd. 471,157
53,744 Woolworths Ltd. 804,569
--------------
1,275,726
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 59,684 Futuris Corp. Ltd. 93,118
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 271 Alinta Ltd. 2,100
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 6,833 Ansell Ltd. $ 49,090
227 Cochlear Ltd. 9,213
--------------
58,303
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 68,222 DCA Group Ltd. 141,412
37,257 Mayne Group Ltd. 84,701
2,433 Sonic Healthcare Ltd. 25,668
--------------
251,781
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 5,323 Aristocrat Leisure Ltd. 50,937
22,614 TABCORP Holdings Ltd. 255,375
13,371 UNiTAB Ltd. 146,625
--------------
452,937
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 11,013 Computershare Ltd. 64,229
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 36,793 CSR Ltd. 91,573
20,114 Wesfarmers Ltd. 527,959
--------------
619,532
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.3% 73,654 AMP Ltd. 499,603
41,638 AXA Asia Pacific Holdings Ltd. 193,962
91,395 Insurance Australia Group Ltd. 363,274
36,870 QBE Insurance Group Ltd. 561,546
--------------
1,618,385
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 223 APN News & Media Ltd. 842
67,858 John Fairfax Holdings Ltd. 189,056
41,100 Macquarie Communications Infrastructure
Group 180,463
5,775 Publishing & Broadcasting Ltd. 78,130
--------------
448,491
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 49,188 Alumina Ltd. 246,673
178,905 BHP Billiton Ltd. 3,854,594
48,010 BlueScope Steel Ltd. 283,568
28,055 Iluka Resources Ltd. 136,524
13,770 Newcrest Mining Ltd. 215,657
23,580 OneSteel Ltd. 71,301
15,573 Rio Tinto Ltd. 900,140
18,525 Zinifex Ltd. 137,906
--------------
5,846,363
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.1% 35,882 Australian Gas Light Co., Ltd. 466,789
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 1,216 Harvey Norman Holdings Ltd. 3,559
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.3% 10,809 Caltex Australia Ltd. 189,520
22,737 Origin Energy Ltd. 124,328
46,774 Paladin Resources Ltd. (a) 142,825
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
32,208 Santos Ltd. $ 289,539
25,476 Woodside Petroleum Ltd. 832,803
--------------
1,579,015
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 5,919 PaperlinX Ltd. 13,720
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 75,099 Mayne Pharma Ltd. (a) 145,066
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 110,868 CFS Retail Property Trust 153,207
(REITs) - 0.4% 15,072 Centro Properties Group/New 74,913
166,094 Commonwealth Property Office Fund 171,525
77,721 DB RREEF Trust 84,593
80,734 ING Industrial Fund 133,758
33,488 Investa Property Group 54,487
1,304 Macquarie Office Trust 1,337
48,443 Macquire Goodman Group 215,944
44,598 Mirvac Group 144,133
1,388 Multiplex Group 3,372
59,977 Stockland 312,810
80,142 Westfield Group 1,031,851
--------------
2,381,930
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 123,927 General Property Trust 399,589
Development - 0.1% 17,727 Lend Lease Corp., Ltd. 184,252
--------------
583,841
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 18,383 Toll Holdings Ltd. 191,889
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 128 Billabong International Ltd. 1,460
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 1,568 Macquarie Airports 3,576
156,245 Macquarie Infrastructure Group 390,035
29,085 Transurban Group 150,180
--------------
543,791
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 29,620,689
- - ---------------------------------------------------------------------------------------------------------------------------------
Austria - 0.6% Building Products - 0.0% 3,296 Wienerberger AG 156,567
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 10,982 Erste Bank der Oesterreichischen
Sparkassen AG 617,858
2,739 Raiffeisen International Bank Holding AG 237,802
--------------
855,660
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 157 RHI AG (a) 5,079
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 509 Mayr-Melnhof Karton AG 81,947
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 18,265 Telekom Austria AG 406,605
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 3,166 Verbund - Oesterreichische
Elektrizitaetswirtschafts AG 152,213
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 43 Wiener Staedtische Allgemeine
Versicherung AG 2,529
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 1,201 Andritz AG 198,470
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 3,329 Boehler-Uddeholm AG 181,972
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
682 Voestalpine AG $ 103,599
--------------
285,571
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.1% 8,826 OMV AG 525,337
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 18,388 IMMOFINANZ Immobilien Anlagen AG (a) 204,084
Development - 0.1% 4,532 Meinl European Land Ltd. (a) 92,312
--------------
296,396
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 101,935 Hagemeyer NV - Registered Shares 470,527
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 1,050 Flughafen Wien AG 80,180
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Austria 3,517,081
- - ---------------------------------------------------------------------------------------------------------------------------------
Belgium - 1.1% Beverages - 0.1% 9,707 InBev NV 475,998
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,617 Solvay SA 300,995
1,590 Umicore 212,252
--------------
513,247
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 31,510 Dexia 757,462
9,249 KBC Bancassurance Holding 992,227
--------------
1,749,689
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 204 D'ieteren SA 65,864
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.3% 58,469 Fortis 1,990,160
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 9,112 Belgacom SA 302,114
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 927 Bekaert SA 89,017
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 493 Barco NV 45,545
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 921 Colruyt SA 143,790
3,633 Delhaize Group 251,779
950 Delhaize Group (b) 65,636
--------------
461,205
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 1,461 Omega Pharma SA 101,999
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.1% 10,766 AGFA-Gevaert NV 260,729
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 1,598 Compagnie Maritime Belge SA (CMB) 46,403
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.1% 1,612 Euronav Sa 49,592
3,359 Groupe Bruxelles Lambert SA 351,761
211 Groupe Bruxelles Lambert SA Strip VVPR (a) 5
--------------
401,358
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 3,959 UCB SA 214,131
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 8 Cofinimmo 1,383
(REITs) - 0.0%
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.0% 849 Mobistar SA 67,360
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 6,786,202
- - ---------------------------------------------------------------------------------------------------------------------------------
Bermuda - 0.0% Energy Equipment & Services - 0.0% 4,604 SeaDrill Ltd. (a) 60,670
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 19,785 Yue Yuen Industrial Holdings 54,385
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 115,055
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Denmark - 0.7% Beverages - 0.0% 412 Carlsberg A/S $ 30,121
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 2,117 Novozymes A/S Class B 142,978
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 21,922 Danske Bank A/S 834,229
2,625 Jyske Bank (a) 152,089
--------------
986,318
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 1,267 FLS Industries A/S Class B 47,781
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1% 13,624 Vestas Wind Systems A/S (a) 372,492
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 2,384 Danisco A/S 173,679
2,910 East Asiatic Co., Ltd. A/S 109,865
--------------
283,544
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 271 Coloplast A/S Class B 20,115
17,200 GN Store Nord 197,540
1,430 William Demant Holding (a) 106,875
--------------
324,530
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 436 Bang & Olufsen A/S Class B 48,206
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 1,751 Topdanmark A/S (a) 244,022
17 TrygVesta A/S 1,061
--------------
245,083
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 720 NKT Holding A/S 44,987
-----------------------------------------------------------------------------------------------------------------
Marine - 0.1% 61 AP Moller - Maersk A/S 474,720
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 3,119 H Lundbeck A/S 71,108
12,315 Novo-Nordisk A/S B 784,234
--------------
855,342
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 1,580 DSV A/S 264,067
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 4,120,169
- - ---------------------------------------------------------------------------------------------------------------------------------
Finland - 1.4% Auto Components - 0.0% 10,665 Nokian Renkaat Oyj 140,187
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 228 Asko Oyj 6,166
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.7% 223,091 Nokia Oyj 4,552,703
1,270 Nokia Oyj (b) 25,730
--------------
4,578,433
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 5,799 YIT Oyj 142,144
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 47 OKO Bank 691
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 5,441 Elisa Corp. 103,592
Services - 0.1% 33,441 TeliaSonera AB 188,997
--------------
292,589
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 26,045 Fortum Oyj 666,053
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 235 Kesko Oyj Class B 9,009
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 5,675 TietoEnator Oyj 163,849
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 22,288 Sampo Oyj $ 425,201
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 5,404 Amer Sports Corp. 112,838
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 2,051 Cargotec Corp. Class B 89,822
10,749 KCI Konecranes Oyj 193,520
4,102 Kone Oyj Class B 170,464
8,456 Metso Oyj 306,746
430 Wartsila Oyj 18,144
--------------
778,696
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 768 Outokumpu Oyj 17,971
7,496 Rautaruukki Oyj 226,393
--------------
244,364
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 6,709 Neste Oil Oyj 236,252
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.2% 33,245 Stora Enso Oyj Class R 464,198
30,754 UPM-Kymmene Oyj 662,607
--------------
1,126,805
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 191 Orion Oyj Class B 3,793
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 8,927,070
- - ---------------------------------------------------------------------------------------------------------------------------------
France - 9.2% Aerospace & Defense - 0.1% 15,052 European Aeronautic Defense and Space Co. 432,273
7,026 Safran SA 152,905
6,060 Thales SA 236,644
2,001 Zodiac SA 112,501
--------------
934,323
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 10,021 Air France-KLM 235,511
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 8,430 Compagnie Generale des Etablissements
Michelin 506,617
4,147 Valeo SA 147,624
--------------
654,241
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 8,120 Peugeot SA 505,118
9,459 Renault SA 1,015,965
--------------
1,521,083
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 4,524 Pernod-Ricard 896,621
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 15,460 Cie de Saint-Gobain 1,105,034
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 6,595 Air Liquide 1,284,327
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.2% 42,556 BNP Paribas 4,072,930
29,323 Credit Agricole SA 1,115,449
17,830 Societe Generale 2,621,824
--------------
7,810,203
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 1,788 Societe BIC SA 115,684
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.1% 65,654 Alcatel SA 832,774
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 11,219 Vinci SA 1,155,408
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 1,109 Imerys SA $ 88,627
8,059 Lafarge SA 1,011,407
--------------
1,100,034
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 85,373 France Telecom SA 1,835,028
Services - 0.3%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 6,646 Alstom (a) 607,179
11,151 Schneider Electric SA 1,162,053
--------------
1,769,232
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.1% 6,935 Technip SA 383,962
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.3% 32,441 Carrefour SA 1,901,486
1,766 Casino Guichard Perrachon SA 134,245
--------------
2,035,731
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.3% 12,771 Groupe Danone 1,622,360
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 9,825 Gaz de France 329,774
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 5,748 Cie Generale d'Optique Essilor
International SA 578,423
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 9,821 Accor SA 597,621
4,916 Sodexho Alliance SA 236,161
--------------
833,782
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 17,020 Thomson 281,392
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 4,426 Atos Origin (a) 289,475
7,442 Cap Gemini SA 424,689
--------------
714,164
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 87,501 AXA 2,870,940
1,415 CNP Assurances 134,522
47,921 SCOR 104,780
--------------
3,110,242
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 322 Vallourec 387,024
-----------------------------------------------------------------------------------------------------------------
Media - 0.5% 7,124 Lagardere S.C.A. 525,598
2,237 PagesJaunes Groupe SA 70,222
9,178 Publicis Groupe 354,413
9,292 Societe Television Francaise 1 302,973
52,379 Vivendi SA 1,835,110
5,853 Vivendi SA (b) 204,328
--------------
3,292,644
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2% 30,913 Arcelor 1,491,755
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.5% 51,152 Suez SA 2,125,692
16,017 Veolia Environnement 827,607
--------------
2,953,299
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 2,658 Pinault-Printemps-Redoute 338,848
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 1,763 Neopost SA 200,856
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.2% 115,027 Total SA 7,567,276
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Personal Products - 0.2% 14,662 L'Oreal SA $ 1,384,516
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.8% 52,111 Sanofi-Aventis 5,084,033
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 492 Gecina SA 64,420
(REITs) - 0.1% 1,410 Klepierre 163,253
2,766 Unibail 482,061
--------------
709,734
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 34,849 STMicroelectronics NV 561,010
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 5,400 Business Objects SA (a) 147,278
2,635 Dassault Systemes SA 141,172
--------------
288,450
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 2,214 Hermes International 195,760
13,533 LVMH Moet Hennessy Louis Vuitton SA 1,342,796
--------------
1,538,556
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 39 Societe Des Autoroutes Paris-Rhin-Rhone 2,673
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.1% 12,881 Bouygues 662,110
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 57,602,117
- - ---------------------------------------------------------------------------------------------------------------------------------
Germany - 6.3% Air Freight & Logistics - 0.2% 40,214 Deutsche Post AG 1,077,762
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 16,156 Deutsche Lufthansa AG 297,475
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 7,026 Continental AG 717,989
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.5% 48,144 DaimlerChrysler AG 2,378,051
9,701 Volkswagen AG 680,126
--------------
3,058,177
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.5% 26,296 Deutsche Bank AG Registered Shares 2,958,876
3,332 MLP AG 68,636
--------------
3,027,512
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.7% 28,099 BASF AG 2,255,623
34,813 Bayer AG 1,599,830
5,274 Linde AG 406,304
--------------
4,261,757
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 35,733 Commerzbank AG 1,299,432
2,841 Deutsche Postbank AG 204,374
--------------
1,503,806
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 64 Wincor Nixdorf AG 8,179
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 1,858 Bilfinger Berger AG 100,993
2,359 Hochtief AG 131,181
--------------
232,174
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 6,556 Deutsche Boerse AG 892,777
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 138,741 Deutsche Telekom AG 2,231,721
Services - 0.4%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 33,498 E.ON AG 3,855,780
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 1,790 Solarworld AG 112,311
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 8,936 Metro AG $ 506,404
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 121 Suedzucker AG 2,683
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1% 1,529 Celesio AG 138,947
2,136 Fresenius Medical Care AG 245,481
--------------
384,428
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 14,762 TUI AG 292,382
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.6% 912 Rheinmetall AG 63,566
42,682 Siemens AG 3,712,783
860 Siemens AG (b) 74,665
--------------
3,851,014
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.8% 20,777 Allianz AG Registered Shares 3,281,516
10,741 Muenchener Rueckversicherungs AG
Registered Shares 1,466,935
--------------
4,748,451
-----------------------------------------------------------------------------------------------------------------
Life Sciences Tools & Services - 0.0% 4,634 Qiagen NV (a) 62,512
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 1,583 Heidelberger Druckmaschn 71,957
7,652 MAN AG 553,987
--------------
625,944
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 4,064 Premiere AG (a) 39,389
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 1,267 Salzgitter AG 107,523
19,807 ThyssenKrupp AG 677,987
--------------
785,510
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.3% 22,007 RWE AG 1,830,470
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 143 KarstadtQuelle AG (a) 3,794
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.0% 530 Beiersdorf AG 79,839
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 4,223 Altana AG 235,214
2,289 Merck KGaA 208,099
--------------
443,313
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 2,617 IVG Immobilien AG 79,038
Development - 0.0%
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 41,983 Infineon Technologies AG (a) 467,569
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Software - 0.4% 11,186 SAP AG 2,360,006
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0% 1,073 Douglas Holding AG 49,557
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 12,101 Adidas-Salomon AG 578,382
815 Puma AG Rudolf Dassler Sport 316,727
--------------
895,109
-----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1% 6,725 Hypo Real Estate Holding AG 408,365
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 39,193,197
- - ---------------------------------------------------------------------------------------------------------------------------------
Greece - 0.6% Beverages - 0.0% 5,270 Coca-Cola Hellenic Bottling Co. SA 157,008
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 21,304 Alpha Bank AE 530,645
10,613 EFG Eurobank Ergasias SA 294,212
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
2,890 Emporiki Bank of Greece SA $ 100,069
20,854 National Bank of Greece SA 823,419
8,091 Piraeus Bank SA 192,417
--------------
1,940,762
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 13,438 Intracom SA 89,350
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 622 Hellenic Technodomiki Tev SA 5,981
9,486 Technical Olympic SA 42,695
--------------
48,676
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 2,652 Titan Cement Co. SA 124,382
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 4,962 Hellenic Exchanges SA 79,816
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 13,486 Hellenic Telecommunications
Services - 0.1% Organization SA 296,941
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 5,799 Public Power Corp. 137,325
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 15,257 OPAP SA 552,090
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 4,010 Viohalco, Hellenic Copper and Aluminum
Industry SA 36,712
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 276 Hellenic Petroleum SA 3,670
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0% 103 Germanos SA 2,463
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.1% 10,850 Cosmote Mobile Telecommunications SA 244,173
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 3,713,368
- - ---------------------------------------------------------------------------------------------------------------------------------
Hong Kong - 1.3% Airlines - 0.0% 6,263 Cathay Pacific Airways Ltd. 10,967
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 234,900 BOC Hong Kong Holdings Ltd. 459,699
56,939 Bank of East Asia Ltd. 234,222
31,953 Hang Seng Bank Ltd. 405,223
--------------
1,099,144
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 89,061 Foxconn International Holdings Ltd. (a) 190,345
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 55,990 Li & Fung Ltd. 113,177
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 64,000 Hong Kong Exchanges and Clearing Ltd. 411,587
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 77,195 PCCW Ltd. 55,161
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 98,687 CLP Holdings Ltd. 577,485
1,500 Cheung Kong Infrastructure Holdings Ltd. 4,336
55,000 HongKong Electric Holdings 248,906
--------------
830,727
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 87,328 Johnson Electric Holdings Ltd. 63,526
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 1,147 Kingboard Chemical Holdings Ltd. 3,234
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 144,240 Hong Kong & China Gas 316,633
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 24,990 Shangri-La Asia Ltd. 48,101
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 62,560 Techtronic Industries Co. 84,573
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 114,176 Hutchison Whampoa Ltd. 1,042,240
56,773 Melco International Development 142,536
--------------
1,184,776
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 1,557 Orient Overseas International Ltd. 5,643
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 164,414 The Link REIT (a) $ 329,167
(REITs) - 0.1%
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 70,835 Cheung Kong Holdings Ltd. 767,448
Development - 0.5% 16,000 Hang Lung Properties Ltd. 28,634
57,491 Henderson Land Development Co., Ltd. 298,669
1,791 Hysan Development Company Ltd. 5,050
1,000 Kerry Properties Ltd. 3,405
185,484 New World Development Ltd. 305,677
52,421 Sino Land Co. 83,690
79,324 Sun Hung Kai Properties Ltd. 808,866
53,077 Swire Pacific Ltd. Class A 547,717
52,107 Wharf Holdings Ltd. 185,162
--------------
3,034,318
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 23,500 MTR Corp. 56,730
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 5,004 ASM Pacific Technology 24,385
Equipment - 0.0% 388,000 Solomon Systech International Ltd. 97,912
--------------
122,297
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 48,000 Esprit Holdings Ltd. 391,812
120,394 Giordano International Ltd. 56,965
--------------
448,777
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 59,353 Texwinca Holdings Ltd. 39,737
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 18,349 Hopewell Holdings 51,737
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.0% 45,647 Hutchison Telecommunications
International Ltd. (a) 73,463
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 8,573,820
- - ---------------------------------------------------------------------------------------------------------------------------------
Ireland - 0.8% Airlines - 0.0% 27,680 Ryanair Holdings Plc (a) 251,292
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.0% 9,490 C&C Group Plc 82,393
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 326 Kingspan Group Plc 5,707
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 50,871 Allied Irish Banks Plc 1,219,624
53,168 Bank of Ireland 948,372
14,136 Depfa Bank Plc 234,253
--------------
2,402,249
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 29,305 CRH Plc 958,769
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 36,182 Eircom Group Plc 100,394
Services - 0.0%
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 648 Fyffes Plc 1,143
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 20,458 Greencore Group Plc 96,787
237 Iaws Group Plc 4,182
4,615 Kerry Group Plc 99,786
--------------
200,755
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 264 Paddy Power Plc 4,574
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 54,122 Waterford Wedgewood Plc Restricted Shares $ 3,114
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 2,954 DCC Plc 71,766
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 12,172 Irish Life & Permanent Plc 289,487
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 80,725 Independent News & Media Plc 236,373
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 19,545 Elan Corp. Plc (a) 323,638
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 3,425 Grafton Group Plc 43,137
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 4,974,791
- - ---------------------------------------------------------------------------------------------------------------------------------
Italy - 3.5% Aerospace & Defense - 0.0% 14,956 Finmeccanica SpA 331,986
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.1% 35,328 Fiat SpA 469,161
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 10,369 Banca Fideuram SpA 60,273
24,836 Mediobanca SpA 486,164
15,925 Mediolanum SpA 111,730
--------------
658,167
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.3% 184,937 Banca Intesa SpA 1,082,565
33,946 Banca Intesa SpA (RNC) 184,299
48,279 Banca Monte dei Paschi di Siena SpA 290,142
25,464 Banca Popolare di Milano Scrl 324,458
20,982 Banche Popolari Unite Scrl 542,747
22,265 Banco Popolare di Verona e Novara Scrl 596,432
77,207 Capitalia SpA 633,495
63,407 Sanpaolo IMI SpA 1,121,279
393,632 UniCredito Italiano SpA 3,081,832
--------------
7,857,249
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 5,058 Italcementi SpA 127,926
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 585,550 Telecom Italia SpA 1,630,708
Services - 0.4% 294,827 Telecom Italia SpA (RNC) 761,505
--------------
2,392,213
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 227,173 Enel SpA 1,958,102
102,045 Terna SpA 272,052
--------------
2,230,154
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 63,411 Snam Rete Gas SpA 278,756
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 4,375 Autogrill SpA 67,253
93 Lottomatica SpA 3,534
--------------
70,787
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 111,693 Pire 97,101
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.4% 28,503 Alleanza Assicurazioni SpA 322,908
49,601 Assicurazioni Generali SpA 1,805,645
6,433 Fondiaria-Sai SpA 262,973
--------------
2,391,526
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.0% 27,235 Tiscali SpA (a) $ 80,966
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 4,823 Arnoldo Mondadori Editore SpA 46,598
12,331 Gruppo Editoriale L'Espresso SpA 65,859
49,526 Mediaset SpA 583,873
158,897 Seat Pagine Gialle SpA 73,956
--------------
770,286
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.6% 111,634 ENI SpA 3,284,486
4,487 ENI SpA (b) 263,611
--------------
3,548,097
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 4,772 Benetton Group SpA 71,250
9,077 Bulgari SpA 102,740
4,546 Luxottica Group SpA 123,347
--------------
297,337
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 17,500 Autostrade SpA 491,836
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 22,093,548
- - ---------------------------------------------------------------------------------------------------------------------------------
Japan - 22.2% Air Freight & Logistics - 0.1% 21,000 Yamato Transport Co., Ltd. 372,917
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 2,000 All Nippon Airways Co., Ltd. 7,698
27,000 Japan Airlines Corp. 67,786
--------------
75,484
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.4% 9,100 Aisin Seiki Co., Ltd. 270,656
30,000 Bridgestone Corp. 578,664
30,400 Denso Corp. 994,585
8,000 NGK Spark Plug Co., Ltd. 160,959
6,400 NOK Corp. 185,872
11,900 Stanley Electric Co., Ltd. 245,672
200 Sumitomo Rubber Industries, Ltd. 2,203
1,000 Toyoda Gosei Co., Ltd. 20,076
7,400 Toyota Industries Corp. 292,595
--------------
2,751,282
-----------------------------------------------------------------------------------------------------------------
Automobiles - 1.8% 80,500 Honda Motor Co., Ltd. 2,556,226
107,100 Nissan Motor Co., Ltd. 1,171,106
145,300 Toyota Motor Corp. 7,613,585
8,400 Yamaha Motor Co., Ltd. 219,709
--------------
11,560,626
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.2% 14,500 Asahi Breweries Ltd. 203,836
200 Coca-Cola West Holdings Co. Ltd. 4,243
6,200 ITO EN, Ltd. 227,249
37,000 Kirin Brewery Co., Ltd. 582,277
25,000 Sapporo Holdings Ltd. 126,624
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
12,000 Takara Holdings, Inc. $ 70,227
--------------
1,214,456
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.3% 40,100 Asahi Glass Co., Ltd. 508,989
2,000 Central Glass Co., Ltd. 11,914
13,100 Daikin Industries Ltd. 454,945
10,200 JS Group Corp. 214,591
34,000 Nippon Sheet Glass Co., Ltd. 189,162
27,000 Sanwa Shutter Corp. 159,192
21,000 Toto Ltd. 200,971
--------------
1,739,764
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.6% 70,000 Daiwa Securities Group, Inc. 835,236
1,000 Jafco Co., Ltd. 60,010
10,300 Matsui Securities Co., Ltd. 97,580
6,000 Mitsubishi UFJ Securities Co. 77,470
33,500 Nikko Cordial Corp. 429,025
96,700 Nomura Holdings, Inc. 1,814,473
87 SBI E*trade Securities Co. Ltd. 115,680
1,300 Shinko Securities Co., Ltd. 5,504
499 Softbank Investments Corp. 220,439
--------------
3,655,417
-----------------------------------------------------------------------------------------------------------------
Chemicals - 1.1% 49,000 Asahi Kasei Corp. 320,194
3,000 Daicel Chemical Industries Ltd. 24,537
28,000 Dainippon Ink and Chemicals, Inc. 105,078
4,000 Denki Kagaku Kogyo Kabushiki Kaisha 16,656
2,400 Hitachi Chemical Co., Ltd. 62,984
6,700 JSR Corp. 169,383
13,000 Kaneka Corp. 118,270
22,500 Kuraray Co., Ltd. 251,935
56,500 Mitsubishi Chemical Holdings Corp. 353,388
17,000 Mitsubishi Gas Chemical Co., Inc. 195,110
36,000 Mitsubishi Rayon Co., Ltd. 293,505
34,000 Mitsui Chemicals, Inc. 222,176
16,000 Nippon Kayaku Co., Ltd. 133,386
11,000 Nissan Chemical Industries Ltd. 137,217
7,610 Nitto Denko Corp. 542,549
19,800 Shin-Etsu Chemical Co., Ltd. 1,077,339
69,000 Showa Denko KK 307,230
13,000 Sumitomo Bakelite Co., Ltd. 122,136
64,000 Sumitomo Chemical Co., Ltd. 534,103
58,000 Teijin Ltd. 368,351
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
17,000 Tokuyama Corp. $ 252,810
75,700 Toray Industries, Inc. 657,570
35,000 Tosoh Corp. 139,614
70,000 Ube Industries Ltd. 202,686
--------------
6,608,207
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 2.8% 11,000 The 77 Bank Ltd. 76,692
29,000 The Bank of Fukuoka Ltd. 220,706
8,000 The Bank of Kyoto Ltd. 86,428
72,000 The Bank of Yokohama Ltd.. 557,407
52,000 The Chiba Bank Ltd. 486,725
13,000 The Gunma Bank Ltd. 96,663
43,100 Hokuhoku Financial Group, Inc. 180,220
21,000 The Joyo Bank Ltd. 127,490
437 Mitsubishi UFJ Financial Group, Inc. 6,116,433
22,000 Mitsui Trust Holdings, Inc. 264,620
490 Mizuho Financial Group, Inc. 4,153,523
16,000 The Nishi-Nippon City Bank Ltd. 76,700
232 Resona Holdings, Inc. 732,642
10 Sapporo Hokuyo Holdings, Inc. 104,973
63,000 Shinsei Bank Ltd. 399,554
24,000 The Shizuoka Bank Ltd. 259,493
300 Sumitomo Mitsui Financial Group, Inc. 3,175,436
53,000 The Sumitomo Trust & Banking Co., Ltd. 579,539
4,000 Suruga Bank Ltd. 53,956
--------------
17,749,200
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.3% 25,000 Dai Nippon Printing Co., Ltd. 387,088
210 The Goodwill Group, Inc. 155,229
4,500 Kokuyo Co., Ltd. 75,344
4,500 Meitec Corp. 146,831
5,100 Park24 Co. Ltd. 150,348
11,000 Secom Co., Ltd. 520,579
24,000 Toppan Printing Co., Ltd. 271,670
--------------
1,707,089
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 7,000 Uniden Corp. 77,400
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.4% 108,000 Fujitsu Ltd. 838,000
11,800 Mitsumi Electric Company, Ltd. 139,765
116,000 NEC Corp. 618,991
4,200 Seiko Epson Corp. 114,631
159,000 Toshiba Corp. 1,038,998
--------------
2,750,385
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.3% 8,457 COMSYS Holdings Corp. $ 104,459
10,000 Chiyoda Corp. 204,698
14,000 JGC Corp. 241,141
71,800 Kajima Corp. 329,747
8,000 Kinden Corp. 68,652
38,000 Nishimatsu Construction Co., Ltd. 141,941
24,000 Obayashi Corp. 165,228
13,000 Okumura Corp. 72,326
16,000 Shimizu Corp. 89,717
50,000 Taisei Corp. 182,828
3,000 Toda Corp. 14,513
--------------
1,615,250
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 32,000 Sumitomo Osaka Cement Co., Ltd. 98,535
43,000 Taiheiyo Cement Corp. 158,737
--------------
257,272
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.4% 3,010 Acom Co., Ltd. 163,514
1,400 Aeon Credit Service Co., Ltd. 34,046
5,100 Aiful Corp. 272,589
9,700 Credit Saison Co., Ltd. 459,905
200 Hitachi Capital Corp. 3,499
4,140 ORIX Corp. 1,012,229
3,400 Promise Co., Ltd. 197,192
10 Shohkoh Fund & Co., Ltd. 2,274
5,200 Takefuji Corp. 310,230
--------------
2,455,478
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 5,000 Toyo Seikan Kaisha Ltd. 90,758
-----------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.0% 1,900 Benesse Corp. 65,652
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 273 Nippon Telegraph & Telephone Corp. 1,339,745
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.7% 34,500 Chubu Electric Power Co., Inc. 932,555
5,900 Hokkaido Electric Power Co., Inc. 140,126
34,700 The Kansai Electric Power Co., Inc. 777,081
15,900 Kyushu Electric Power Co., Inc. 369,978
16,700 Tohoku Electric Power Co., Inc. 366,680
63,300 The Tokyo Electric Power Co., Inc. 1,749,797
--------------
4,336,217
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 15,800 Fuji Electric Holdings Co., Ltd. 82,791
19,000 Fujikura Ltd. 209,920
41,000 Furukawa Electric Co., Ltd. 265,407
12,873 Matsushita Electric Works Ltd. 143,127
89,000 Mitsubishi Electric Corp. 713,931
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
32,300 Sumitomo Electric Industries Ltd. $ 473,558
2,900 Ushio, Inc. 61,265
--------------
1,949,999
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.9% 11,000 Alps Electric Co., Ltd. 137,602
15,600 Citizen Watch Co., Ltd. 141,514
13,000 Dainippon Screen Manufacturing Co., Ltd. 119,179
1,300 Hirose Electric Co., Ltd. 158,072
153,000 Hitachi Ltd. 1,011,836
18,500 Hoya Corp. 658,662
4,500 Ibiden Co., Ltd. 216,507
1,700 Keyence Corp. 434,536
9,100 Kyocera Corp. 705,297
1,100 Mabuchi Motor Co., Ltd. 65,818
9,300 Murata Manufacturing Co., Ltd. 604,461
4,700 Nidec Corp. 337,139
6,000 Nippon Electric Glass Co. 120,457
31,000 Oki Electric Industry Co., Ltd. 73,219
9,300 Omron Corp. 237,147
8,100 TDK Corp. 616,455
12,000 Taiyo Yuden Co., Ltd. 152,526
3,500 Yokogawa Electric Corp. 49,937
--------------
5,840,364
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.4% 29,600 Aeon Co., Ltd. 649,923
200 Circle K Sunkus Co., Ltd. 4,330
3,600 FamilyMart Co., Ltd. 103,923
2,200 Lawson, Inc. 80,252
3,000 Matsumotokiyoshi Co., Ltd. 76,368
37,900 Seven & I Holdings Co. Ltd. 1,249,906
4,000 UNY Co., Ltd. 59,030
--------------
2,223,732
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.3% 40,000 Ajinomoto Co., Inc. 443,336
100 House Foods Corp. 1,513
16,600 Katokichi Co., Ltd. 166,995
14,000 Kikkoman Corp. 174,640
25,000 Meiji Dairies Corp. 174,736
26,000 Nichirei Corp. 139,194
2,000 Nippon Meat Packers, Inc. 23,199
11,000 Nisshin Seifun Group, Inc. 122,687
4,800 Nissin Food Products Co., Ltd. 169,637
12,500 QP Corp. 118,860
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
10,000 Toyo Suisan Kaisha, Ltd. $ 156,760
3,100 Yakult Honsha Co., Ltd. 84,337
6,000 Yamazaki Baking Co., Ltd. 53,799
--------------
1,829,693
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 80,000 Osaka Gas Co., Ltd. 257,534
129,000 Tokyo Gas Co., Ltd. 608,240
--------------
865,774
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 10,000 Olympus Corp. 267,681
5,600 Terumo Corp. 187,132
--------------
454,813
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 5,100 Mediceo Paltac Holdings Co. Ltd. 91,235
1,000 Suzuken Co., Ltd. 39,715
--------------
130,950
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,800 Oriental Land Co., Ltd. 101,404
40 ROUND ONE Corp. 142,763
1,900 Skylark Co., Ltd. 41,469
--------------
285,636
-----------------------------------------------------------------------------------------------------------------
Household Durables - 1.2% 8,400 Casio Computer Co., Ltd. 160,556
1,900 Daito Trust Construction Co., Ltd. 105,375
22,000 Daiwa House Industry Co., Ltd. 352,185
26,000 HASEKO Corp. (a) 88,475
3,400 Makita Corp. 107,667
104,000 Matsushita Electric Industrial Co., Ltd. 2,197,087
12,100 Pioneer Corp. 195,395
118,000 Sanyo Electric Co., Ltd. (a) 254,962
19,000 Sekisui Chemical Co., Ltd. 164,213
35,000 Sekisui House Ltd. 480,995
50,000 Sharp Corp. 790,797
52,700 Sony Corp. 2,328,085
--------------
7,225,792
-----------------------------------------------------------------------------------------------------------------
Household Products - 0.1% 28,000 Kao Corp. 733,587
2,200 Uni-Charm Corp. 121,629
--------------
855,216
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 3,000 CSK Holdings Corp. 136,990
400 Itochu Techno-Science Corp. 18,440
43 NET One Systems Co., Ltd. 80,121
53 NTT Data Corp. 229,497
1,300 Nomura Research Institute Ltd. 161,029
100 Obic Co., Ltd. 20,242
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
5,100 TIS, Inc. $ 142,763
--------------
789,082
-----------------------------------------------------------------------------------------------------------------
Independent Power Producers & Energy 8,600 Electric Power Development Co. 328,006
Traders - 0.1%
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.6% 69 Millea Holdings, Inc. 1,285,658
70,000 Mitsui Sumitomo Insurance Co., Ltd. 879,937
47,800 Sompo Japan Insurance, Inc. 669,029
11,000 T&D Holdings, Inc. 890,084
--------------
3,724,708
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.0% 374 Rakuten, Inc. 223,127
-----------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.1% 181 eAccess Ltd. 118,909
94 Index Corp. 92,919
490 Yahoo! Japan Corp. 259,756
--------------
471,584
-----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.3% 27,100 Fuji Photo Film Co., Ltd. 910,327
11,100 Namco Bandai Holdings, Inc. 168,857
13,000 Nikon Corp. 227,214
1,300 Sankyo Co., Ltd. (Gunma) 82,675
8,932 Sega Sammy Holdings, Inc. 331,292
3,200 Shimano, Inc. 97,975
6,400 Yamaha Corp. 120,369
--------------
1,938,709
-----------------------------------------------------------------------------------------------------------------
Machinery - 1.0% 18,000 Amada Co., Ltd. 188,952
9,100 Amano Corp. 135,328
10,000 Daifuku Co., Ltd. 165,158
39,000 Ebara Corp. 166,487
7,900 Fanuc Ltd. 710,423
5,000 Hino Motors Ltd. 29,130
200 Hitachi Construction Machinery Co., Ltd. 4,820
84,000 Ishikawajima-Harima Heavy Industries
Co., Ltd. 266,002
7,300 JTEKT Corp. 141,128
32,000 The Japan Steel Works, Ltd. 219,464
90,000 Kawasaki Heavy Industries Ltd. 303,110
49,000 Komatsu Ltd. 975,156
44,000 Kubota Corp. 417,618
2,800 Kurita Water Industries Ltd. 57,560
23,000 Minebea Co., Ltd. 125,347
187,200 Mitsubishi Heavy Industries Ltd. 808,965
46,000 Mitsui Engineering & Shipbuilding Co.,
Ltd. 140,839
9,000 NGK Insulators Ltd. 105,341
14,000 NSK Ltd. 116,223
15,000 NTN Corp. 118,751
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
15,000 OKUMA Corp. $ 169,532
2,500 SMC Corp. 354,066
30,000 Sumitomo Heavy Industries Ltd. 277,654
3,700 THK Co., Ltd. 110,370
--------------
6,107,424
-----------------------------------------------------------------------------------------------------------------
Marine - 0.2% 38,000 Kawasaki Kisen Kaisha Ltd. 220,059
69,000 Mitsui OSK Lines Ltd. 469,597
45,000 Nippon Yusen Kabushiki Kaisha 292,875
--------------
982,531
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 600 Asatsu-DK, Inc. 19,420
86 Dentsu, Inc. 237,729
58 Fuji Television Network, Inc. 128,872
4,600 Toho Co., Ltd. 91,948
3,700 Tokyo Broadcasting System, Inc. 89,170
--------------
567,139
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8% 26,000 DAIDO STEEL CO., LTD. 204,243
7,000 Dowa Mining Co., Ltd. 61,969
30,300 JFE Holdings, Inc. 1,285,527
125,000 Kobe Steel Ltd. 391,462
78,000 Mitsubishi Materials Corp. 332,975
21,000 Mitsui Mining & Smelting Co., Ltd. 123,999
1,800 Nippon Light Metal Co., Ltd. 4,928
332,000 Nippon Steel Corp. 1,257,543
39,000 Nisshin Steel Co., Ltd. 125,548
201,000 Sumitomo Metal Industries Ltd. 829,917
36,000 Sumitomo Metal Mining Co., Ltd. 469,860
1,000 Sumitomo Titanium Corp. 158,509
100 Tokyo Steel Manufacturing Co., Ltd. 2,191
--------------
5,248,671
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.2% 8,000 Daimaru, Inc. 106,093
6,000 Hankyu Department Stores 46,608
9,700 Isetan Co., Ltd. 165,464
20,200 Marui Co., Ltd. 314,888
38,000 Mitsukoshi Ltd. 173,853
1,700 Ryohin Keikaku Co., Ltd. 139,492
19,000 Takashimaya Co., Ltd. 238,674
--------------
1,185,072
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.6% 56,400 Canon, Inc. 2,767,826
24,000 Konica Minolta Holdings, Inc. 303,372
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
34,000 Ricoh Co., Ltd. $ 667,716
--------------
3,738,914
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 32 Inpex Holdings, Inc. (a) 282,728
49,500 Nippon Mining Holdings, Inc. 416,993
78,000 Nippon Oil Corp. 570,424
5,600 Showa Shell Sekiyu KK 65,790
9,000 TonenGeneral Sekiyu KK 92,586
--------------
1,428,521
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 37 Nippon Paper Group, Inc. 151,476
49,000 OJI Paper Co., Ltd. 279,045
--------------
430,521
-----------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 5,600 Aderans Co., Ltd. 151,371
14,000 Shiseido Co., Ltd. 274,942
--------------
426,313
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.1% 29,700 Astellas Pharma, Inc. 1,091,195
17,300 Chugai Pharmaceutical Co., Ltd. 353,370
37,500 Daiichi Sankyo Co. Ltd. 1,033,329
11,500 Eisai Co., Ltd. 518,086
10,000 Kaken Pharmaceutical Co., Ltd. 75,143
11,000 Kyowa Hakko Kogyo Co., Ltd. 74,190
5,000 Santen Pharmaceutical Co., Ltd. 118,751
22,000 Shionogi & Co., Ltd. 392,599
6,000 Taisho Pharmaceutical Co., Ltd. 117,832
46,600 Takeda Pharmaceutical Co., Ltd. 2,902,436
13,000 Tanabe Seiyaku Co., Ltd. 160,119
--------------
6,837,050
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 47 Japan Prime Realty Investment Corp. 141,434
(REITs) - 0.1% 13 Japan Real Estate Investment Corp. 115,995
12 Japan Retail Fund Investment Corp. 94,476
31 Nippon Building Fund, Inc. 301,010
21 Nomura Real Estate Office Fund, Inc. 166,435
--------------
819,350
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 121 KK DaVinci Advisors (a) 119,608
Development - 0.6% 4,500 Leopalace21 Corp. 155,491
63,000 Mitsubishi Estate Co., Ltd. 1,339,194
46,000 Mitsui Fudosan Co., Ltd. 999,956
22,000 Sumitomo Realty & Development Co., Ltd. 542,711
21,000 Tokyo Tatemono Co., Ltd. 225,220
24,000 Tokyu Land Corp. 187,062
--------------
3,569,242
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.7% 87 Central Japan Railway Co. $ 867,603
183 East Japan Railway Co. 1,360,714
14,000 Keihin Electric Express Railway Co., Ltd. 99,200
19,000 Keio Electric Railway Co., Ltd. 123,160
34,000 Keisei Electric Railway Co., Ltd. 192,136
67,000 Kintetsu Corp. 223,890
35,000 Nippon Express Co., Ltd. 189,214
24,000 Odakyu Electric Railway Co., Ltd. 154,940
13,000 Seino Holdings Corp. 137,375
38,000 Tobu Railway Co., Ltd. 181,498
40,000 Tokyu Corp. 233,740
90 West Japan Railway Co. 373,967
--------------
4,137,437
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 4,300 Advantest Corp. 438,595
Equipment - 0.4% 4,100 Elpida Memory, Inc. (a) 154,223
1,300 NEC Electronics Corp. (a) 41,736
5,800 Rohm Co., Ltd. 519,040
11,000 Sanken Electric Co., Ltd. 140,104
2,700 Sumco Corp. 153,996
9,900 Tokyo Electron Ltd. 692,822
3,500 Tokyo Seimitsu Co. Ltd. 181,866
--------------
2,322,382
-----------------------------------------------------------------------------------------------------------------
Software - 0.2% 4,000 Fuji Soft, Inc. 131,916
3,600 Konami Corp. 79,517
5,700 Nintendo Co., Ltd. 957,355
900 Oracle Corp. Japan 42,120
5,000 Trend Micro, Inc. 168,832
--------------
1,379,740
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 2,600 Aoyama Trading Co., Ltd. 81,424
4,100 Autobacs Seven Co., Ltd. 178,612
3,200 Fast Retailing Co., Ltd. 261,733
50 Nitori Co., Ltd. 2,436
5,800 Shimachu Co., Ltd. 151,704
600 Shimamura Co., Ltd. 65,818
680 USS Co., Ltd. 44,970
3,800 Yamada Denki Co., Ltd. 387,928
--------------
1,174,625
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 13,000 Asics Corp. 132,599
22,000 Gunze Ltd. 131,251
1,000 Nisshinbo Industries, Inc. 10,952
7,000 Onward Kashiyama Co., Ltd. 107,834
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
11,000 Tokyo Style Co., Ltd. $ 130,963
4,000 Toyobo Co., Ltd. 11,337
11,000 Wacoal Holdings Corp. 154,345
--------------
679,281
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 249 Japan Tobacco, Inc. 908,306
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.7% 72,000 Itochu Corp. 632,988
92,000 Marubeni Corp. 490,924
68,700 Mitsubishi Corp. 1,373,219
84,000 Mitsui & Co., Ltd. 1,187,456
21,000 Sojitz Corp. (a) 83,034
48,000 Sumitomo Corp. 633,618
7,000 Toyota Tsusho Corp. 168,088
--------------
4,569,327
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 2,000 Kamigumi Co., Ltd. 15,204
7,000 Mitsubishi Logistics Corp. 109,732
--------------
124,936
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 0.5% 107 KDDI Corp. 658,015
889 NTT DoCoMo, Inc. 1,306,495
41,500 Softbank Corp. 931,177
--------------
2,895,687
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 139,092,253
- - ---------------------------------------------------------------------------------------------------------------------------------
Luxembourg - 0.0% Personal Products - 0.0% 183 Oriflame Cosmetics SA 6,084
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Luxembourg 6,084
- - ---------------------------------------------------------------------------------------------------------------------------------
Netherlands - Air Freight & Logistics - 0.1% 24,597 TNT NV 880,003
3.1% -----------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 11,236 Heineken NV 476,266
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 14,621 Akzo Nobel NV 788,192
9,418 Koninklijke DSM NV 392,101
--------------
1,180,293
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 91,876 ABN AMRO Holding NV 2,512,854
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 124 Buhrmann NV 1,798
1,033 Randstad Holdings NV 60,548
14,134 Vedior NV 296,751
--------------
359,097
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.7% 5,748 Euronext NV 538,735
96,491 ING Groep NV CVA 3,791,436
--------------
4,330,171
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 100,293 Koninklijke KPN NV 1,127,233
Services - 0.2%
-----------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 10,642 SBM Offshore NV 283,580
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 78,715 Koninklijke Ahold NV (a) 683,411
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.4% 6,222 Royal Numico NV $ 279,169
88,398 Unilever NV 2,004,036
--------------
2,283,205
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.3% 68,487 Koninklijke Philips Electronics NV 2,139,370
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 3,472 Getronics NV 37,336
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.2% 72,566 Aegon NV 1,240,563
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 36,364 Reed Elsevier NV 546,806
12,035 Wolters Kluwer NV 284,228
--------------
831,034
-----------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 283 OCE NV 4,154
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 1,615 Corio NV 100,423
(REITs) - 0.1% 3,893 Rodamco Europe NV 381,550
353 Wereldhave NV 34,326
--------------
516,299
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 30,227 ASML Holding NV (a) 612,216
Equipment - 0.1%
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 1,166 Hagemeyer NV (a) 5,382
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 19,502,467
- - ---------------------------------------------------------------------------------------------------------------------------------
New Construction Materials - 0.0% 19,230 Fletcher Building Ltd. 107,359
Zealand - 0.1% -----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 66,963 Telecom Corp. of New Zealand Ltd. 165,064
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 20,226 Contact Energy Ltd. 87,867
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 41,926 Fisher & Paykel Healthcare Corp. 110,255
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,741 Sky City Ltd. 5,736
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 27,665 Fisher & Paykel Appliances Holdings Ltd. 77,816
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 10,253 Tower Ltd. (a) 21,520
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 241 Sky Network Television Ltd. 846
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 14,918 Warehouse Group Ltd. 45,147
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 999 Kiwi Income Property Trust 835
(REITs) - 0.0%
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 58,991 Auckland International Airport Ltd. 78,106
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in New Zealand 700,551
- - ---------------------------------------------------------------------------------------------------------------------------------
Norway - 0.8% Airlines - 0.0% 2,392 SAS AB (a) 24,410
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 8,050 Yara International ASA 107,375
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 28,499 DNB NOR ASA 353,799
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 23,129 Tomra Systems ASA 187,705
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 14,741 Tandberg ASA 122,001
357 Tandberg Television ASA (a) 5,924
--------------
127,925
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 15,595 Telenor ASA 188,591
Services - 0.1% 8,600 Telenor ASA (b) 313,814
--------------
502,405
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.1% 7,490 Acergy SA (a) $ 114,048
16,804 Ocean RIG ASA (a) 118,011
4,462 Petrojarl ASA (a) 29,400
4,462 Petroleum Geo-Services ASA (a) 251,689
50 ProSafe ASA 3,053
8,780 TGS Nopec Geophysical Co. ASA (a) 155,208
--------------
671,409
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 8,305 Orkla ASA 385,047
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 21,838 Storebrand ASA 225,483
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 50 Stolt-Nielsen SA 1,173
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,218 Schibsted ASA 85,846
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.4% 71,149 DET Norske Oljeselskap 142,925
3,194 Frontline Ltd. 119,340
41,651 Norsk Hydro ASA 1,104,428
37,007 Statoil ASA 1,049,679
--------------
2,416,372
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 3,197 Norske Skogindustrier ASA 46,882
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Norway 5,135,831
- - ---------------------------------------------------------------------------------------------------------------------------------
Portugal - 0.3% Commercial Banks - 0.1% 23,822 Banco BPI SA 180,934
82,464 Banco Comercial Portugues SA Registered
Shares 234,084
9,325 Banco Espirito Santo SA Registered Shares 125,674
--------------
540,692
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 13,841 Cimpor Cimentos de Portugal SA 92,206
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 52,568 Portugal Telecom SGPS SA Registered Shares 634,524
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 77,296 Energias de Portugal SA 303,424
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 3,659 Jeronimo Martins 62,459
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 38,165 Sonae SGPS SA 57,096
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,893 PT Multimedia Servicos de Telecomunicacoes
e Multimedia SGPS SA 45,049
-----------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 2,587 Sonae Industria SGPS SA (a) 22,262
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 7,704 Brisa-Auto Estradas de Portugal SA Private
Shares 80,382
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 1,838,094
- - ---------------------------------------------------------------------------------------------------------------------------------
Singapore - 0.8% Aerospace & Defense - 0.0% 52,213 Singapore Technologies Engineering Ltd. 95,422
-----------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.0% 127,954 Singapore Post Ltd. 87,388
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 17,582 Singapore Airlines Ltd. 141,203
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 68,605 DBS Group Holdings Ltd. 785,247
108,914 Oversea-Chinese Banking Corp. 454,569
67,572 United Overseas Bank Ltd. 666,597
--------------
1,906,413
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 5,357 Creative Technology Ltd. 29,811
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 3,529 Jardine Cycle & Carriage Ltd. $ 22,316
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 75,000 Singapore Exchange Ltd. 166,946
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 332,771 Singapore Telecommunications Ltd. 532,400
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 5,000 Venture Corp. Ltd. 33,516
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 76,000 Parkway Holdings Ltd. 118,709
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 27,535 City Developments Ltd. 162,805
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 20,675 Fraser and Neave Ltd. 52,297
1,766 Haw Par Corp. Ltd. 6,366
37,914 Keppel Corp. Ltd. 352,443
23,590 SembCorp Industries Ltd. 48,333
--------------
459,439
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 96,427 SembCorp Marine Ltd. 182,933
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 92,002 Cosco Corp. (Singapore) Ltd. 73,306
1,200 Neptune Orient Lines Ltd. 1,374
--------------
74,680
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 81,316 Singapore Press Holdings Ltd. 211,858
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 194 Singapore Petroleum Co. Ltd. 620
-----------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 1,152 Ascendas Real Estate Investment Trust 1,399
(REITs) - 0.0%
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 90,833 CapitaLand Ltd. 258,481
Development - 0.1% 2,182 Keppel Land Ltd. 5,575
7,457 UOL Group Ltd. 13,487
83,100 Wing Tai Holdings Ltd. 74,621
--------------
352,164
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 95,816 ComfortDelgro Corp. Ltd. 92,705
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 82,002 Chartered Semiconductor Manufacturing
Equipment - 0.0% Ltd. (a) 70,005
1,120 Chartered Semiconductor Manufacturing
Ltd. (a)(b) 9,744
2,000 STATS ChipPAC Ltd. (a) 1,258
--------------
81,007
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 1,100 Noble Group Ltd. 758
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Singapore 4,754,492
- - ---------------------------------------------------------------------------------------------------------------------------------
Spain - 3.6% Airlines - 0.0% 29,434 Iberia Lineas Aereas de Espana 76,025
-----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 13,970 Zeltia SA 102,711
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.4% 181,006 Banco Bilbao Vizcaya Argentaria SA 3,721,632
50,064 Banco Popular Espanol SA 745,772
306,300 Banco Santander Central Hispano SA 4,472,676
--------------
8,940,080
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 15,679 ACS Actividades de Construccion y
Servicios, SA 653,768
1,045 Acciona SA 162,281
2,241 Fomento de Construcciones y Contratas SA 170,352
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
3,188 Grupo Ferrovial SA $ 243,359
4,680 Sacyr Vallehermoso SA 156,365
--------------
1,386,125
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 233,917 Telefonica SA 3,894,280
Services - 0.6% 1,124 Telefonica SA (b) 55,908
--------------
3,950,188
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 51,526 Endesa SA 1,791,389
44,099 Iberdrola SA 1,518,516
5,815 Union Fenosa SA 224,995
--------------
3,534,900
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1% 11,492 Gamesa Corp. Tecnologica SA 246,277
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 265 Azucarera Ebro Agricolas, SA 5,438
-----------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 7,017 Gas Natural SDG SA 214,170
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 7,075 NH Hoteles SA 126,832
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 10,794 Indra Sistemas SA 211,858
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 7,569 Corporacion Mapfre SA 139,656
-----------------------------------------------------------------------------------------------------------------
Media - 0.1% 6,197 Antena 3 de Television SA 141,520
240 Promotora de Informaciones SA 3,851
513 Sogecable SA (a) 14,752
10,099 Telefonica Publicidad e Informacion, SA 109,375
--------------
269,498
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 10,180 Acerinox SA 176,507
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 50,685 Repsol YPF SA 1,451,069
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 134 Inmobiliaria Colonial SA 10,640
Development - 0.1% 3,249 Metrovacesa SA 293,298
--------------
303,938
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 9,564 Inditex SA 403,315
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 15,811 Altadis SA 747,215
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 7,073 Abertis Infraestructuras SA 165,604
6,540 Cintra Concesiones de Infraestructuras de
Transporte SA 85,464
--------------
251,068
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.0% 3,213 Sociedad General de Aguas de Barcelona SA
Class A 89,274
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 22,626,144
- - ---------------------------------------------------------------------------------------------------------------------------------
Sweden - 2.1% Airlines - 0.0% 1,617 SAS AB (a) 17,047
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 20,377 Assa Abloy AB B 342,283
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.0% 6,838 D Carnegie AB 125,303
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 111,951 Nordea Bank AB 1,336,552
28,753 Skandinaviska Enskilda Banken AB Class A 684,552
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
26,612 Svenska Handelsbanken Class A $ 685,300
--------------
2,706,404
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 23,048 Securitas AB 441,542
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.4% 714,376 Telefonaktiebolaget LM Ericsson 2,360,279
1,307 Telefonaktiebolaget LM Ericsson (b) 43,183
--------------
2,403,462
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 17,205 Skanska AB Class B 265,117
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 1,210 OMHEX AB 21,669
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 17,466 Tele2 AB 176,395
Services - 0.1% 50,260 TeliaSonera AB 285,368
--------------
461,763
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 20 Axfood AB 575
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 7,749 Elekta AB 131,240
2,520 Getinge AB Class B 42,854
--------------
174,094
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 234 Capio AB (a) 4,190
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 17,768 Electrolux AB Series B 256,526
17,771 Husqvarna AB (a) 214,013
--------------
470,539
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 4,686 WM-data AB Class B 14,442
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.5% 5,467 Alfa Laval AB 163,552
19,849 Atlas Copco AB Class A 551,097
7,616 Atlas Copco AB Class B 197,710
25,500 SKF AB Class B 401,787
58,095 Sandvik AB 675,445
3,346 Scania AB Class B 151,891
6,544 Trelleborg AB Class B 111,740
3,680 Volvo AB Class A 177,271
11,529 Volvo AB Class B 566,571
--------------
2,997,064
-----------------------------------------------------------------------------------------------------------------
Media - 0.0% 16,001 Eniro AB 168,263
2,610 Modern Times Group AB 137,141
2,610 Modern Times Group AB (a) 8,928
--------------
314,332
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 10,010 Boliden AB 184,124
2,520 Hoganas AB 62,620
5,201 Ssab Svenskt Stal AB 103,609
--------------
350,353
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 502 Lundin Petroleum AB (a) 6,080
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 6,721 Billerud AB $ 89,104
945 Holmen AB Class B 38,175
12,430 Svenska Cellulosa AB 513,355
--------------
640,634
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 373 Castellum AB 3,819
Development - 0.0% 218 Fabege AB 4,055
4,619 Kungsleden AB 54,183
6,283 Wihlborgs Fastigheter AB 108,155
--------------
170,212
-----------------------------------------------------------------------------------------------------------------
Software - 0.0% 37,000 Telelogic AB (a) 82,183
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 26,180 Hennes & Mauritz AB B Shares 1,013,989
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.0% 18,950 Swedish Match AB 305,159
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Sweden 13,328,436
- - ---------------------------------------------------------------------------------------------------------------------------------
Switzerland - Auto Components - 0.0% 16 Rieter Holding AG 6,139
6.4% -----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 437 Serono SA 301,262
-----------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 139 Geberit AG Registered Shares 160,446
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 1.5% 63,432 Credit Suisse Group 3,541,836
55,029 UBS AG Registered Shares 6,019,499
--------------
9,561,335
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 5,361 Ciba Specialty Chemicals AG Registered
Shares 298,247
8,419 Clariant AG 119,241
164 Givaudan 128,857
1,964 Lonza Group AG Registered Shares 134,434
6,516 Syngenta AG 864,367
--------------
1,545,146
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 8,170 Adecco SA Registered Shares 482,197
171 SGS SA 161,927
--------------
644,124
-----------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 3,533 Logitech International SA (a) 136,129
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 11,481 Holcim Ltd. 878,179
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 1,193 Swisscom AG 391,986
Services - 0.1%
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2% 101,024 ABB Ltd. 1,311,250
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 1,880 Kudelski SA 45,350
-----------------------------------------------------------------------------------------------------------------
Food Products - 1.1% 21,394 Nestle SA Registered Shares 6,706,364
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 1,521 Nobel Biocare Holding AG 360,384
2,121 Phonak Holding AG Registered Shares 132,368
101 Straumann Holding AG Registered Shares 25,703
1,834 Synthes, Inc. 220,829
--------------
739,284
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 8 Kuoni Reisen Holding AG Registered Shares $ 4,480
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 18,933 Swiss Reinsurance Registered Shares 1,320,673
7,226 Zurich Financial Services AG 1,580,872
--------------
2,901,545
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 664 SIG Holding AG Registered Shares 145,809
142 Schindler Holding AG 7,355
212 Sulzer AG 158,524
--------------
311,688
-----------------------------------------------------------------------------------------------------------------
Marine - 0.0% 2,295 Kuehne & Nagel International AG 166,739
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.1% 123,337 Novartis AG Registered Shares 6,665,232
37,298 Roche Holding AG 6,153,409
--------------
12,818,641
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 1,750 PSP Swiss Property AG 90,286
Development - 0.0%
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,096 Micronas Semiconductor Holding AG
Equipment - 0.1% Registered Shares 29,525
641 Unaxis Holding AG 177,910
--------------
207,435
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 25,736 Compagnie Financiere Richemont AG 1,176,503
1,364 The Swatch Group Ltd. Bearer Shares 229,931
1,347 The Swatch Group Ltd. Registered Shares 46,953
--------------
1,453,387
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 40,381,195
- - ---------------------------------------------------------------------------------------------------------------------------------
United Aerospace & Defense - 0.3% 176,092 BAE Systems Plc 1,204,247
Kingdom - 22.8% 33,228 Cobham Plc 102,633
21,337 Meggitt Plc 125,989
91,898 Rolls-Royce Group Plc 703,678
--------------
2,136,547
-----------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 45,599 British Airways Plc (a) 289,068
-----------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 25,737 GKN Plc 129,954
-----------------------------------------------------------------------------------------------------------------
Automobiles - 0.0% 1,025 TI Automotive Ltd. A (a) 0
-----------------------------------------------------------------------------------------------------------------
Beverages - 0.6% 153,488 Diageo Plc 2,581,932
43,030 SABMiller Plc 775,570
44,800 Scottish & Newcastle Plc 422,380
--------------
3,779,882
-----------------------------------------------------------------------------------------------------------------
Capital Markets - 0.3% 25,440 3i Group Plc 424,180
49,741 Amvescap Plc 455,624
2,707 Close Brothers Group Plc 45,612
5,488 Collins Stewart Hldgs PLC 77,041
11,924 ICAP Plc 109,830
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
2,082 Investec Plc $ 99,350
17,882 Man Group Plc 842,720
3,844 Schroders Plc 71,808
--------------
2,126,165
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 33,130 BOC Group Plc 968,771
51,891 Imperial Chemical Industries Plc 348,391
7,957 Johnson Matthey Plc 195,294
--------------
1,512,456
-----------------------------------------------------------------------------------------------------------------
Commercial Banks - 4.2% 346,680 Barclays Plc 3,940,201
204,250 HBOS Plc 3,551,057
594,963 HSBC Holdings Plc 10,470,477
301,627 Lloyds TSB Group Plc 2,965,113
164,849 Royal Bank of Scotland Group Plc 5,421,080
--------------
26,347,928
-----------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.2% 580 Aggreko Plc 3,081
40,938 Brambles Industries Plc 325,584
24,329 Capita Group Plc 207,665
424 Davis Service Group Plc 3,700
368 De La Rue Plc 3,720
28,394 Group 4 Securicor Plc 88,096
62,856 Hays Plc 156,945
1,536 Intertek Group Plc 19,886
117,019 Rentokil Initial Plc 337,636
3,289 Serco Group Plc 19,466
--------------
1,165,779
-----------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.1% 9,765 CSR Plc (a) 227,568
1 Telent Plc 10
--------------
227,578
-----------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 11,218 Amec Plc 66,032
22,845 Balfour Beatty Plc 145,140
--------------
211,172
-----------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 41,601 Hanson Plc 505,134
-----------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.0% 7,372 Cattles Plc 44,893
12,919 Provident Financial Plc 146,951
--------------
191,844
-----------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.1% 30,771 Rexam Plc 300,499
-----------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 10,537 Inchcape Plc 92,085
-----------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 17,150 London Stock Exchange Group Plc 360,973
-----------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 455,650 BT Group Plc 2,016,281
Services - 0.4%
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
145,013 Cable & Wireless Plc $ 308,441
--------------
2,324,722
-----------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.3% 46,956 Scottish & Southern Energy Plc 999,618
70,387 Scottish Power Plc 758,977
788 Scottish Power Plc (b) 33,994
--------------
1,792,589
-----------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 0.0% 17,536 Electrocomponents Plc 75,165
4,873 Premier Farnell Plc 15,975
--------------
91,140
-----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.6% 31,083 Boots Group Plc 442,384
90,508 J Sainsbury Plc 559,952
398,904 Tesco Plc 2,464,238
--------------
3,466,574
-----------------------------------------------------------------------------------------------------------------
Food Products - 0.4% 117,300 Cadbury Schweppes Plc 1,131,410
23,044 Tate & Lyle Plc 258,071
59,402 Unilever Plc 1,335,982
--------------
2,725,463
-----------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 3,701 SSL International Plc 20,347
64,393 Smith & Nephew Plc 496,045
--------------
516,392
-----------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 7,115 Alliance Unichem Plc 134,491
-----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.5% 8,427 Carnival Plc 343,364
130,207 Compass Group Plc 631,564
13,556 Enterprise Inns Plc 237,688
526 First Choice Holidays Plc 2,225
22,052 Intercontinental Hotels Group Plc 385,638
40,108 Ladbrokes Plc 302,292
34,218 Mitchells & Butlers Plc 326,250
6,689 Punch Taverns Plc 108,252
20,616 Rank Group Plc 76,070
11,261 Sportingbet Plc 81,958
15,250 Whitbread Plc 328,874
26,415 William Hill Plc 306,083
--------------
3,130,258
-----------------------------------------------------------------------------------------------------------------
Household Durables - 0.2% 13,853 Barratt Developments Plc 242,896
850 Bellway Plc 18,237
2,757 Berkeley Group Holdings Plc 61,854
122 Bovis Homes Group Plc 1,812
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
17,405 Persimmon Plc $ 397,244
42,300 Taylor Woodrow Plc 261,309
33,251 Wimpey George Plc 279,670
--------------
1,263,022
-----------------------------------------------------------------------------------------------------------------
Household Products - 0.2% 35,555 Reckitt Benckiser Plc 1,328,372
-----------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 43,029 LogicaCMG Plc 138,875
-----------------------------------------------------------------------------------------------------------------
Independent Power Producers & Energy 77,818 International Power Plc 409,478
Traders - 0.1%
-----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 17,683 Cookson Group Plc 171,787
37,131 Smiths Group Plc 611,902
40,930 Tomkins Plc 217,834
--------------
1,001,523
-----------------------------------------------------------------------------------------------------------------
Insurance - 0.9% 115,816 Aviva Plc 1,639,765
112,244 Friends Provident Plc 371,088
372,927 Legal & General Group Plc 884,604
295,614 Old Mutual Plc 892,577
132,791 Prudential Plc 1,500,644
252 Resolution Plc 3,123
104,732 Royal & Sun Alliance Insurance Group 260,537
--------------
5,552,338
-----------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.1% 50,067 GUS Plc 894,533
-----------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 10,160 FKI Plc 20,107
11,145 IMI Plc 102,912
206,656 Invensys Plc (a) 73,578
--------------
196,597
-----------------------------------------------------------------------------------------------------------------
Media - 0.8% 74,833 Aegis Group Plc 180,276
69,702 British Sky Broadcasting Plc 739,344
10,334 Daily Mail & General Trust 117,356
62,341 EMI Group Plc 350,234
9,395 Emap Plc 147,962
217,260 ITV Plc 433,982
43,313 Pearson Plc 590,009
66,943 Reed Elsevier Plc 676,029
86,174 Reuters Group Plc 613,627
10,641 Trinity Mirror Plc 96,044
14,647 United Business Media Plc 175,411
72,180 WPP Group Plc 873,764
32,669 Yell Group Plc 309,065
--------------
5,303,103
-----------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.5% 72,979 Anglo American Plc 2,993,830
133,948 BHP Billiton Plc 2,598,839
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
36,160 Corus Group Plc $ 305,305
56,351 Rio Tinto Plc Registered Shares 2,979,775
21,955 Xstrata Plc 832,444
--------------
9,710,193
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.5% 215,405 Centrica Plc 1,136,447
153,874 National Grid Plc 1,664,903
52,179 United Utilities Plc 619,099
--------------
3,420,449
-----------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.2% 92,673 Marks & Spencer Group Plc 1,006,141
15,229 Next Plc 459,684
--------------
1,465,825
-----------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 4.3% 193,718 BG Group Plc 2,588,663
1,068,495 BP Plc 12,460,209
3,749 BP Plc (b) 260,968
204,390 Royal Dutch Shell Plc 6,880,164
143,015 Royal Dutch Shell Plc Class B 5,001,967
--------------
27,191,971
-----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2% 84,007 AstraZeneca Plc 5,071,464
304,144 GlaxoSmithKline Plc 8,499,854
800 GlaxoSmithKline Plc (b) 44,640
--------------
13,615,958
-----------------------------------------------------------------------------------------------------------------
Real Estate Management & 30,459 British Land Co. Plc 711,519
Development - 0.4% 369 Brixton Plc 3,271
231 Great Portland Estates Plc 2,136
18,654 Hammerson Plc 408,499
26,877 Land Securities Group Plc 891,807
9,622 Liberty International Plc 189,532
17,134 Slough Estates Plc 193,786
--------------
2,400,550
-----------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 7,097 Arriva Plc 78,298
16,088 Firstgroup Plc 139,554
8,934 National Express Group Plc 146,733
30,764 Stagecoach Group Plc 65,577
--------------
430,162
-----------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 77,662 ARM Holdings Plc 162,673
Equipment - 0.0%
-----------------------------------------------------------------------------------------------------------------
Software - 0.1% 21,202 Misys Plc 84,311
61,121 Sage Group Plc 260,855
--------------
345,166
-----------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 70,155 DSG International Plc 247,833
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Common Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
45,858 HMV Group Plc $ 145,885
49,782 Kesa Electricals Plc 266,096
141,072 Kingfisher Plc 622,296
24,803 MFI Furniture Plc 49,545
76,918 Signet Group Plc 136,574
2,126 Travis Perkins Plc 59,494
--------------
1,527,723
-----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 39,914 Burberry Group Plc 317,440
-----------------------------------------------------------------------------------------------------------------
Tobacco - 0.6% 79,342 British American Tobacco Plc 1,998,702
39,420 Gallaher Group Plc 616,086
39,269 Imperial Tobacco Group Plc 1,212,199
--------------
3,826,987
-----------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.1% 19,858 Bunzl Plc 226,799
30,646 Wolseley Plc 676,211
--------------
903,010
-----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 11,119 Associated British Ports Holdings Plc 185,704
11,599 BBA Group Plc 56,690
--------------
242,394
-----------------------------------------------------------------------------------------------------------------
Water Utilities - 0.1% 14,810 Kelda Group Plc 209,685
19,122 Severn Trent Plc 413,797
--------------
623,482
-----------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 3,120,505 Vodafone Group Plc 6,651,714
Services - 1.1% 4,178 Vodafone Group Plc (b) 88,991
--------------
6,740,705
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 142,571,222
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $440,955,183) - 92.4% 579,173,876
- - ---------------------------------------------------------------------------------------------------------------------------------
Exchange-Traded Funds
- - ---------------------------------------------------------------------------------------------------------------------------------
United Diversified Financial Services - 3.0% 284,277 iShares MSCI EAFE Index Fund 18,537,703
States - 3.0% -----------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $17,644,632) - 3.0% 18,537,703
- - ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- - ---------------------------------------------------------------------------------------------------------------------------------
Germany - 0.2% Automobiles - 0.1% 497 Porsche AG 480,287
5,058 Volkswagen AG, 4.35% 255,464
--------------
735,751
-----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 2,695 Henkel KGaA, 1.75% 307,933
-----------------------------------------------------------------------------------------------------------------
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
Shares
Country Industry Held Preferred Stocks Value
- - ---------------------------------------------------------------------------------------------------------------------------------
Media - 0.0% 5,011 ProSieben SAT.1 Media AG, 2.24% $ 125,136
-----------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.0% 1,869 RWE AG, 3.50% 140,736
-----------------------------------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost - $821,955) - 0.2% 1,309,556
- - ---------------------------------------------------------------------------------------------------------------------------------
Rights
- - ---------------------------------------------------------------------------------------------------------------------------------
Germany - 0.0% Chemicals - 0.0% 5,481 Linde AG (e) 21,165
-----------------------------------------------------------------------------------------------------------------
Total Rights in Germany 21,165
- - ---------------------------------------------------------------------------------------------------------------------------------
United Machinery - 0.0% 85,905 Invensys Plc (e) 6,435
Kingdom - 0.0% -----------------------------------------------------------------------------------------------------------------
Total Rights in the United Kingdom 6,435
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Rights (Cost - $0) - 0.0% 27,600
- - ---------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- - ---------------------------------------------------------------------------------------------------------------------------------
USD 12,041,829 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 4.78% (c)(d) 12,041,829
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $12,041,829) - 1.9% 12,041,829
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $471,463,599*) - 97.5% 611,090,564
Other Assets Less Liabilities - 2.5% 15,502,170
--------------
Net Assets - 100.0% $ 626,592,734
==============
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 476,995,253
=============
Gross unrealized appreciation $ 143,003,774
Gross unrealized depreciation (8,908,463)
-------------
Net unrealized appreciation $ 134,095,311
=============
(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 $ (8,287,046) $ 358,356
----------------------------------------------------------------------------------------------------------
(d) Represents the current yield as of 6/30/2006.
(e) The rights may be exercised until 7/07/2006.
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.
Master International Index Series
Schedule of Investments as of June 30, 2006 (in U.S. Dollars)
o Financial futures contracts purchased as of June 30, 2006 were as follows:
----------------------------------------------------------------------------------------------------------------------------
Number of Expiration Unrealized
Contracts Issue Exchange Date Face Value Appreciation
----------------------------------------------------------------------------------------------------------------------------
15 Hang Seng Index Future Hong Kong July 2006 $ 1,531,094 $ 44,514
63 OMX Stock Index Future Stockholm July 2006 $ 801,261 36,369
2 DAX Index 25 Euro Future Eurex September 2006 $ 355,419 10,693
114 DJ Euro Stoxx 50 Eurex September 2006 $ 5,102,330 235,658
36 FTSE 100 Index Future LIFFE September 2006 $ 3,773,687 104,834
1 S&P/MIB Index Future Eurex September 2006 $ 230,699 3,749
28 SPI 200 Index Future Sydney September 2006 $ 2,543,440 98,482
73 TOPIX Index Future Tokyo September 2006 $ 9,816,395 333,935
----------------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation - Net $ 868,234
=========
o Forward foreign exchange contracts purchased as of June 30, 2006 were as
follows:
----------------------------------------------------------------------------------------------------------------------------
Unrealized
Foreign Currency Settlement Appreciation
Purchased Date (Depreciation)
----------------------------------------------------------------------------------------------------------------------------
AUD 3,222,700 August 2006 $ (56,513)
CHF 4,526,600 August 2006 (17,435)
EUR 13,231,800 August 2006 18,608
GBP 5,051,600 August 2006 (41,744)
HKD 3,680,000 August 2006 (1,142)
JPY 1,630,758,700 August 2006 (372,110)
SEK 8,668,900 August 2006 11,550
SGD 80,800 August 2006 150
----------------------------------------------------------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign Exchange
Contracts - Net (USD Commitment - $48,976,148) $ (458,636)
==========
o Forward foreign exchange contracts sold as of June 30, 2006 were as
follows:
----------------------------------------------------------------------------------------------------------------------------
Unrealized
Foreign Currency Settlement Appreciation
Sold Date (Depreciation)
----------------------------------------------------------------------------------------------------------------------------
AUD 2,240,900 August 2006 $ 32,899
CHF 3,092,500 August 2006 28,178
EUR 8,444,400 August 2006 (10,655)
GBP 4,177,200 August 2006 81,067
HKD 3,680,000 August 2006 808
JPY 979,262,000 August 2006 266,062
SEK 5,478,000 August 2006 (14,060)
SGD 80,800 August 2006 (145)
----------------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange
Contracts - Net (USD Commitment - $33,057,761) $ 384,154
=========
Master International Index Series
Schedule of Investments as of June 30, 2006
o Currency Abbreviations:
AUD Australian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
HKD Hong Kong Dollar
JPY Japanese Yen
SEK Swedish Krona
SGD Singapore Dollar
USD U.S. Dollar
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Advertising Agencies - 0.6% 14,100 24/7 Real Media, Inc. (a) $ 123,798
11,935 Advo, Inc. 293,720
25,400 aQuantive, Inc. (a) 643,382
15,400 Catalina Marketing Corp. 438,284
10,900 inVentiv Health, Inc. (a) 313,702
6,500 Marchex, Inc. Class B (a)(e) 106,795
15,900 Valassis Communications, Inc. (a) 375,081
34,300 ValueClick, Inc. (a) 526,505
------------
2,821,267
- - --------------------------------------------------------------------------------------------------------------------------------
Aerospace - 0.5% 5,800 ARGON ST, Inc. (a) 154,454
16,968 Curtiss-Wright Corp. 523,972
8,726 Heico Corp. 247,382
5,500 K&F Industries Holdings, Inc. (a) 97,515
5,900 Ladish Co., Inc. (a) 221,073
3,400 MTC Technologies, Inc. (a) 80,342
12,213 Moog, Inc. Class A (a) 417,929
18,335 Orbital Sciences Corp. (a) 295,927
10,934 Teledyne Technologies, Inc. (a) 358,198
2,200 TransDigm Group, Inc. (a) 52,690
4,000 United Industrial Corp. 181,000
------------
2,630,482
- - --------------------------------------------------------------------------------------------------------------------------------
Agriculture, Fishing & Ranching - 0.2% 1,300 Alico, Inc. 71,643
5,200 The Andersons, Inc. 216,372
13,128 Delta & Pine Land Co. 385,963
20,600 Gold Kist, Inc. (a) 275,422
------------
949,400
- - --------------------------------------------------------------------------------------------------------------------------------
Air Transport - 1.0% 12,168 AAR Corp. (a) 270,495
17,300 ABX Air, Inc. (a) 104,492
29,720 AirTran Holdings, Inc. (a) 441,639
13,199 Alaska Air Group, Inc. (a) 520,305
8,200 Atlas Air Worldwide Holdings, Inc. (a) 402,128
11,100 Aviall, Inc. (a) 527,472
7,785 Bristow Group, Inc. (a) 280,260
10,295 EGL, Inc. (a) 516,809
13,000 ExpressJet Holdings, Inc. (a) 89,830
16,555 Frontier Airlines Holdings, Inc. (a)(e) 119,362
65,800 JetBlue Airways Corp. (a) 798,812
100 MAIR Holdings, Inc. (a) 621
11,956 Mesa Air Group, Inc. (a) 117,767
3,700 PHI, Inc. (a) 122,840
9,300 Republic Airways Holdings, Inc. (a) 158,286
21,600 Skywest, Inc. 535,680
------------
5,006,798
- - --------------------------------------------------------------------------------------------------------------------------------
Aluminum - 0.2% 10,200 Aleris International, Inc. (a) 467,670
8,602 Century Aluminum Co. (a) 307,005
------------
774,675
- - --------------------------------------------------------------------------------------------------------------------------------
Auto Parts: After Market - 0.2% 7,243 Aftermarket Technology Corp. (a) 179,989
5,550 Commercial Vehicle Group, Inc. (a) 114,774
6,800 Keystone Automotive Industries, Inc. (a) 287,096
10,699 Superior Industries International, Inc. (e) 195,685
------------
777,544
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Auto Parts: Original Equipment - 0.4% 16,600 American Axle & Manufacturing Holdings, Inc. $ 284,026
22,300 ArvinMeritor, Inc. 383,337
10,400 IMPCO Technologies, Inc. (a) 110,968
23,100 Lear Corp. 513,051
3,800 Noble International Ltd. 54,416
14,400 Quantum Fuel Systems Technologies
Worldwide, Inc. (a)(e) 48,960
2,173 Sauer-Danfoss, Inc. 55,238
15,100 Tenneco, Inc. (a) 392,600
42,600 Visteon Corp. (a) 307,146
------------
2,149,742
- - --------------------------------------------------------------------------------------------------------------------------------
Auto, Trucks & Parts - 0.2% 4,500 Accuride Corp. (a) 56,115
2,000 Miller Industries, Inc. (a) 41,400
13,594 Modine Manufacturing Co. 317,556
20,700 Navistar International Corp. (a) 509,427
11,545 Wabash National Corp. 177,331
------------
1,101,829
- - --------------------------------------------------------------------------------------------------------------------------------
Banks: New York City - 0.1% 12,100 Signature Bank (a) 391,798
- - --------------------------------------------------------------------------------------------------------------------------------
Banks: Outside New York City - 6.5% 3,440 1st Source Corp. 116,375
6,021 Alabama National Bancorp. 410,331
8,218 Amcore Financial, Inc. 240,870
6,150 AmericanWest Bancorp 139,297
3,900 Ameris Bancorp 90,246
2,604 Arrow Financial Corp. 71,428
2,290 Bancfirst Corp. 102,477
2,715 The Bancorp, Inc. (a) 67,902
1,300 BancTrust Financial Group, Inc. 30,511
3,986 Bank of Granite Corp. 83,028
3,500 Bank of the Ozarks, Inc. 116,550
7,400 BankFinancial Corp. 128,020
3,113 Banner Corp. 119,975
14,233 Boston Private Financial Holdings, Inc. 397,101
18,150 CVB Financial Corp. 284,229
5,729 Cadence Financial Corp. 127,585
1,500 Camden National Corp. 59,850
3,021 Capital City Bank Group, Inc. 91,234
2,900 Capital Corp. of the West 92,800
3,400 Capitol Bancorp Ltd. 132,430
8,100 Cardinal Financial Corp. 94,122
6,100 Cascade Bancorp 172,813
19,644 Cathay General Bancorp 714,649
18,200 Centennial Bank Holdings, Inc. (a) 188,188
6,500 Center Financial Corp. 153,660
900 Centerstate Banks of Florida, Inc. 18,450
12,048 Central Pacific Financial Corp. 466,258
7,748 Chemical Financial Corp. 237,089
14,582 Chittenden Corp. 376,945
15,600 Citizens Banking Corp. 380,796
6,693 City Holding Co. 241,885
2,199 CityBank 102,847
1,700 Clifton Savings Bancorp, Inc. 18,411
4,526 CoBiz, Inc. 101,926
1,700 Columbia Bancorp 42,619
6,341 Columbia Banking System, Inc. 237,027
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
2,100 Community Bancorp (a) $ 65,268
2,900 Community Bancorp Inc. 122,699
13,100 Community Bank System, Inc. 264,227
7,299 Community Banks, Inc. 189,774
4,723 Community Trust Bancorp, Inc. 164,974
15,704 Corus Bankshares, Inc. 411,131
30,000 Doral Financial Corp. 192,300
1,100 Enterprise Financial Services Corp. 27,995
1,800 FNB Corporation 66,600
1,685 Farmers Capital Bank Corp. 53,971
23,400 First BanCorp/PR 217,620
2,836 First Bancorp/NC 59,556
3,814 First Busey Corp. 78,073
12,923 First Charter Corp. 317,001
23,540 First Commonwealth Financial Corp. 298,958
7,600 First Community Bancorp, Inc. 449,008
2,994 First Community Bancshares, Inc. 98,772
10,787 First Financial Bancorp 160,834
5,853 First Financial Bankshares, Inc. 213,869
4,444 First Financial Corp. 133,364
6,146 First Merchants Corp. 149,409
18,900 First Midwest Bancorp, Inc. 700,812
1,050 First Oak Brook Bancshares, Inc. 38,850
900 First Regional Bancorp (a) 79,200
1,200 First South Bancorp, Inc. 41,076
8,300 First State Bancorp. 197,374
31,100 FirstMerit Corp. 651,234
2,700 Flag Financial Corp. 52,515
10,900 Franklin Bank Corp. (a) 220,071
10,811 Frontier Financial Corp. 367,466
2,200 GB&T Bancshares, Inc. 47,872
9,643 Glacier Bancorp, Inc. 282,251
19,400 Greater Bay Bancorp 557,750
2,900 Greene County Bancshares, Inc. 89,784
10,454 Hancock Holding Co. 585,424
16,904 Hanmi Financial Corp. 328,614
9,178 Harleysville National Corp. 194,665
3,100 Heartland Financial USA, Inc. 82,615
3,900 Heritage Commerce Corp. 96,681
18 Huntington Bancshares, Inc. 424
4,845 Independent Bank Corp./MA 157,317
9,605 Independent Bank Corp./MI 252,611
5,874 Integra Bank Corp. 127,759
4,600 Interchange Financial Services Corp. 103,500
15,100 International Bancshares Corp. 414,948
3,000 Intervest Bancshares Corp. (a) 121,500
16,200 Investors Bancorp, Inc. (a) 219,510
8,048 Irwin Financial Corp. 156,051
3,997 Lakeland Bancorp, Inc. 62,633
3,800 Lakeland Financial Corp. 92,302
7,650 MB Financial, Inc. 270,504
3,277 MBT Financial Corp. 52,432
4,532 Macatawa Bank Corp. 105,992
5,066 MainSource Financial Group, Inc. 88,300
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
4,130 Mercantile Bank Corp. $ 164,581
1 Mercantile Bankshares Corp. 36
200 MetroCorp Bancshares, Inc. 5,856
7,450 Mid-State Bancshares 208,600
8,280 Midwest Banc Holdings, Inc. 184,230
10,213 NBT Bancorp, Inc. 237,248
10,200 Nara Bancorp, Inc. 191,250
13,777 National Penn Bancshares, Inc. 273,611
1,155 Northern Empire Bancshares (a) 27,720
22,395 Old National Bancorp 447,228
6,376 Old Second Bancorp, Inc. 197,656
2,741 Omega Financial Corp. 85,821
7,018 Oriental Financial Group 89,550
15,662 Pacific Capital Bancorp 487,401
3,915 Park National Corp. 386,841
3,910 Peoples Bancorp, Inc. 116,674
4,100 Pinnacle Financial Partners, Inc. (a) 124,763
7,300 Piper Jaffray Cos. (a) 446,833
6,350 Placer Sierra Bancshares 147,257
2,500 Preferred Bank 134,025
2,480 Premierwest Bancorp 35,191
7,496 PrivateBancorp, Inc. 310,409
10,500 Prosperity Bancshares, Inc. 345,345
13,024 Provident Bankshares Corp. 473,943
9,311 R-G Financial Corp. Class B 79,981
2,332 Renasant Corp. 94,096
30,959 Republic Bancorp, Inc. 383,582
2,633 Republic Bancorp, Inc. Class A 54,240
1,270 Royal Bancshares of Pennsylvania Class A 30,836
10,663 S&T Bancorp, Inc. 354,331
2,346 SCBT Financial Corp. 83,635
13,600 SVB Financial Group (a) 618,256
2,730 SY Bancorp, Inc. 75,020
4,614 Sandy Spring Bancorp, Inc. 166,381
1,403 Santander BanCorp 34,542
4,258 Seacoast Banking Corp. of Florida 113,391
2,800 Security Bank Corp. 62,356
1,300 Shore Bancshares, Inc. 35,269
300 Sierra Bancorp 7,866
4,100 Simmons First National Corp. Class A 118,941
1,000 Smithtown Bancorp, Inc. 24,160
6,023 Southside Bancshares, Inc. 134,433
7,100 Southwest Bancorp, Inc. 181,050
2,400 State National Bancshares, Inc. 91,464
18,876 Sterling Bancshares, Inc. 353,925
8,502 Sterling Financial Corp. 186,194
3,400 Suffolk Bancorp 111,350
1,500 Summit Bancshares, Inc. 31,815
5,029 Sun Bancorp, Inc. (a) 81,671
1,700 Superior Bancorp (a) 18,700
18,616 Susquehanna Bancshares, Inc. 444,922
900 Taylor Capital Group, Inc. 36,729
10,461 Texas Capital Bancshares, Inc. (a) 243,741
17,113 Texas Regional Bancshares, Inc. Class A 648,925
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
2,840 Tompkins Trustco, Inc. $ 122,120
3,600 Trico Bancshares 98,568
31,061 TrustCo Bank Corp. NY 342,292
15,527 Trustmark Corp. 480,871
36,200 UCBH Holdings, Inc. 598,748
9,652 UMB Financial Corp. 321,798
3,496 USB Holding Co., Inc. 78,660
21,680 Umpqua Holdings Corp. 556,092
2,900 Union Bankshares Corp. 125,106
14,500 United Bankshares, Inc. 531,135
10,200 United Community Banks, Inc. 310,488
500 United Security Bancshares 10,695
2,650 Univest Corp. of Pennsylvania 73,193
5,200 Vineyard National Bancorp 139,880
7,568 Virginia Commerce Bancorp (a) 180,875
2,200 Virginia Financial Group, Inc. 92,884
4,000 Washington Trust Bancorp, Inc. 110,880
8,363 WesBanco, Inc. 259,169
5,290 West Bancorp., Inc. 98,764
4,900 West Coast Bancorp 144,403
12,083 Westamerica Bancorp. 591,705
3,200 Western Alliance Bancorp (a) 111,296
8,200 Wilshire Bancorp, Inc. 147,764
9,500 Wintrust Financial Corp. 483,075
3,400 Yardville National Bancorp 121,482
------------
33,181,178
- - --------------------------------------------------------------------------------------------------------------------------------
Beverage: Brewers (Wineries) - 0.1% 5,000 Boston Beer Co., Inc. Class A (a) 146,450
1,187 Coca-Cola Bottling Co. Consolidated 60,264
1,610 Farmer Bros. Co. 34,905
800 Green Mountain Coffee Roasters, Inc. (a) 32,136
11,200 Jones Soda Co. (a) 100,800
2,690 National Beverage Corp. 38,602
5,900 Peet's Coffee & Tea, Inc. (a) 178,121
------------
591,278
- - --------------------------------------------------------------------------------------------------------------------------------
Biotechnology Research & Production - 2.4% 11,700 ADVENTRX Pharmaceuticals, Inc. (a) 37,089
11,700 AVI BioPharma, Inc. (a) 43,875
8,100 Acadia Pharmaceuticals, Inc. (a) 68,364
3,800 Advanced Magnetics, Inc. (a) 114,836
8,487 Albany Molecular Research, Inc. (a) 90,641
12,080 Alexion Pharmaceuticals, Inc. (a) 436,330
9,700 Alnylam Pharmaceuticals, Inc. (a) 146,276
1,000 Altus Pharmaceuticals, Inc. (a) 18,450
11,300 American Oriental Bioengineering, Inc. (a) 62,489
23,900 Applera Corp. - Celera Genomics Group (a) 309,505
14,200 Arena Pharmaceuticals, Inc. (a) 164,436
20,719 Ariad Pharmaceuticals, Inc. (a) 93,443
17,700 Array Biopharma, Inc. (a) 152,220
10,320 Arthrocare Corp. (a) 433,543
18,000 Bioenvision, Inc. (a) 95,940
21,924 Cell Genesys, Inc. (a)(e) 110,058
3,900 Coley Pharmaceutical Group, Inc. (a) 45,045
5,900 Combinatorx, Inc. (a) 51,861
3,600 Cotherix, Inc. (a) 30,996
20,467 Cubist Pharmaceuticals, Inc. (a) 515,359
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
11,600 Cypress Bioscience, Inc. (a) $ 71,224
5,200 Cytokinetics, Inc. (a) 32,708
7,124 Digene Corp. (a) 275,984
7,778 Diversa Corp. (a) 75,135
18,500 deCODE genetics, Inc. (a) 114,515
24,696 Encysive Pharmaceuticals, Inc. (a) 171,143
19,500 Enzon Pharmaceuticals, Inc. (a) 147,030
26,418 Exelixis, Inc. (a) 265,501
8,700 Genitope Corp. (a) 54,984
4,100 Genomic Health, Inc. (a) 48,257
32,400 Genta, Inc. (a) 53,136
22,029 Geron Corp. (a)(e) 152,000
7,400 Hana Biosciences, Inc. (a) 67,118
49,000 Human Genome Sciences, Inc. (a) 524,300
24,600 ICOS Corp. (a) 540,954
5,700 Idenix Pharmaceuticals Inc. (a) 53,580
32,124 Incyte Corp. (a) 147,770
7,600 Integra LifeSciences Holdings Corp. (a) 294,956
11,414 InterMune, Inc. (a)(e) 187,760
5,200 Kendle International, Inc. (a) 190,996
5,500 Kensey Nash Corp. (a) 162,250
13,000 Keryx Biopharmaceuticals, Inc. (a) 184,600
19,605 Lexicon Genetics, Inc. (a) 86,066
7,450 MannKind Corp. (a)(e) 158,760
12,200 Martek Biosciences Corp. (a)(e) 353,190
6,301 Maxygen, Inc. (a) 47,131
4,200 Metabasis Therapeutics, Inc. (a) 32,046
5,500 Momenta Pharmaceuticals Inc. (a) 69,905
61,100 Monogram Biosciences, Inc. (a) 120,978
14,200 Myogen, Inc. (a) 411,800
12,300 Myriad Genetics, Inc. (a) 310,575
21,723 NPS Pharmaceuticals, Inc. (a) 106,008
20,054 Nabi Biopharmaceuticals (a)(e) 115,110
9,500 Nastech Pharmaceutical Co., Inc. (a) 150,100
16,000 Neurocrine Biosciences, Inc. (a) 169,600
12,100 Northfield Laboratories, Inc. (a)(e) 119,669
17,000 Nuvelo, Inc. (a) 283,050
21,600 OSI Pharmaceuticals, Inc. (a) 711,936
6,000 PRA International Inc. (a) 133,620
13,500 Panacos Pharmaceuticals, Inc. (a) 74,520
79,000 Peregrine Pharmaceuticals, Inc. (a) 125,610
9,200 Progenics Pharmaceuticals, Inc. (a) 221,352
8,270 Rigel Pharmaceuticals, Inc. (a) 80,467
13,900 Sangamo Biosciences, Inc. (a) 82,010
20,600 Savient Pharmaceuticals, Inc. (a) 108,150
13,172 Serologicals Corp. (a) 414,128
9,800 Sirna Therapeutics, Inc. (a) 55,860
5,400 Solexa, Inc. (a) 45,900
8,145 Tanox, Inc. (a) 112,645
18,732 Telik, Inc. (a) 309,078
5,938 Trimeris, Inc. (a) 68,228
21,800 Viropharma, Inc. (a) 187,916
12,300 Zymogenetics, Inc. (a) 233,331
------------
12,335,396
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Building Materials - 0.6% 2,700 Ameron International Corp. $ 180,954
2,900 BlueLinx Holdings, Inc. 37,787
11,500 Building Material Holding Corp. (e) 320,505
6,312 LSI Industries, Inc. 107,241
8,068 NCI Building Systems, Inc. (a) 428,976
14,432 Simpson Manufacturing Co., Inc. 520,274
9,045 Texas Industries, Inc. 480,290
4,409 Trex Co., Inc. (a)(e) 114,149
10,665 Watsco, Inc. 637,980
5,900 Zoltek Cos., Inc. (a)(e) 176,351
------------
3,004,507
- - --------------------------------------------------------------------------------------------------------------------------------
Building: Cement - 0.0% 15,100 US Concrete, Inc. (a) 166,855
- - --------------------------------------------------------------------------------------------------------------------------------
Building: Heating & Plumbing - 0.1% 1,700 Aaon, Inc. 43,622
7,900 Interline Brands, Inc. (a) 184,702
25,850 Jacuzzi Brands, Inc. (a) 227,480
------------
455,804
- - --------------------------------------------------------------------------------------------------------------------------------
Building: Miscellaneous - 0.2% 4,000 Builders FirstSource, Inc. (a) 81,440
11,600 Comfort Systems USA, Inc. 165,764
5,200 Drew Industries, Inc. (a) 168,480
5,700 Goodman Global, Inc. (a) 86,526
10,347 Griffon Corp. (a) 270,057
------------
772,267
- - --------------------------------------------------------------------------------------------------------------------------------
Building: Roofing & Wallboard - 0.1% 17,450 Beacon Roofing Supply, Inc. (a) 384,074
8,851 ElkCorp 245,792
------------
629,866
- - --------------------------------------------------------------------------------------------------------------------------------
Cable Television Services - 0.1% 163,900 Charter Communications, Inc. Class A (a)(e) 185,207
5,198 Crown Media Holdings, Inc. Class A (a) 21,416
31,394 TiVo, Inc. (a)(e) 224,467
------------
431,090
- - --------------------------------------------------------------------------------------------------------------------------------
Casinos & Gambling - 0.7% 8,600 Ameristar Casinos, Inc. 167,270
12,091 Aztar Corp. (a) 628,248
16,500 Bally Technologies, Inc. (a) 271,755
3,800 Century Casinos, Inc. (a) 40,698
1,732 Churchill Downs, Inc. 64,863
7,105 Dover Downs Gaming & Entertainment, Inc. 139,542
7,075 Isle of Capri Casinos, Inc. (a) 181,474
5,800 Lakes Entertainment, Inc. (a) 70,122
9,900 MTR Gaming Group, Inc. (a) 92,862
13,374 Magna Entertainment Corp. Class A (a) 70,347
2,700 Monarch Casino & Resort, Inc. (a) 75,924
12,100 Multimedia Games, Inc. (a) 122,573
16,864 Pinnacle Entertainment, Inc. (a) 516,882
15,400 Progressive Gaming International Corp. (a) 120,120
2,100 Riviera Holdings Corp. (a) 43,470
13,400 Shuffle Master, Inc. (a)(e) 439,252
12,100 Trump Entertainment Resorts, Inc. (a) 243,815
8,212 WMS Industries, Inc. (a) 224,927
------------
3,514,144
- - --------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.2% 4,233 American Vanguard Corp. 65,527
7,756 Arch Chemicals, Inc. 279,604
2,200 Balchem Corp. 49,500
16,500 CF Industries Holdings, Inc. 235,290
10,100 Cabot Microelectronics Corp. (a) 306,131
14,001 Calgon Carbon Corp. 85,266
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
8,485 Cambrex Corp. $ 176,743
6,600 China BAK Battery, Inc. (a) 56,166
14,764 Energy Conversion Devices, Inc. (a)(e) 537,853
14,100 EnerSys (a) 294,690
13,737 Georgia Gulf Corp. 343,700
37,900 Hercules, Inc. (a) 578,354
3,800 Innospec, Inc. 96,596
8,367 MacDermid, Inc. 240,970
5,941 Medis Technologies Ltd. (a)(e) 120,483
2,534 NL Industries, Inc. 27,241
5,700 NewMarket Corp. 279,642
7,265 Nuco2, Inc. (a) 174,651
9,800 OM Group, Inc. (a) 302,330
9,400 Omnova Solutions, Inc. (a) 53,392
3,900 Pioneer Cos., Inc. (a) 106,392
30,867 PolyOne Corp. (a) 271,012
10,400 Rockwood Holdings, Inc. (a) 239,304
12,006 Schulman A, Inc. 274,817
9,600 Senomyx, Inc. (a) 138,528
3,755 Stepan Co. 118,583
9,400 Tronox, Inc. Class A 122,012
7,500 Tronox, Inc. Class B 98,775
15,900 UAP Holding Corp. 346,779
22,600 WR Grace & Co. (a) 264,420
------------
6,284,751
- - --------------------------------------------------------------------------------------------------------------------------------
Coal - 0.2% 16,700 Alpha Natural Resources, Inc. (a) 327,654
36,600 International Coal Group, Inc. (a) 263,154
6,600 James River Coal Co. (a) 174,834
1,100 Westmoreland Coal Co. (a) 26,092
------------
791,734
- - --------------------------------------------------------------------------------------------------------------------------------
Commercial Information Services - 0.2% 11,858 Arbitron, Inc. 454,517
143,100 CMGI, Inc. (a) 173,151
11,161 infoUSA, Inc. 115,070
6,200 LECG Corp. (a) 114,514
11,174 ProQuest Co. (a) 137,328
7,153 Sourcecorp (a) 177,323
------------
1,171,903
- - --------------------------------------------------------------------------------------------------------------------------------
Communications & Media - 0.1% 20,200 Entravision Communications Corp. Class A (a) 173,114
81,000 Gemstar-TV Guide International, Inc. (a) 285,120
------------
458,234
- - --------------------------------------------------------------------------------------------------------------------------------
Communications Technology - 2.5% 145,600 3Com Corp. (a) 745,472
26,100 Adtran, Inc. 585,423
8,022 Anaren, Inc. (a) 164,371
10,972 Anixter International, Inc. 520,731
17,000 Atheros Communications Inc. (a) 322,320
43,900 Avanex Corp. (a) 77,264
18,500 Avocent Corp. (a) 485,625
3,059 Bel Fuse, Inc. 100,366
7,388 Black Box Corp. 283,182
24,550 Broadwing Corp. (a) 254,092
100,600 Brocade Communications Systems, Inc. (a) 617,684
300 CPI International, Inc. (a) 4,350
18,700 CSG Systems International Inc. (a) 462,638
4,300 Carrier Access Corp. (a) 35,561
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
7,500 Cbeyond Communications, Inc. (a) $ 163,575
4,500 Cogent Communications Group, Inc. (a) 42,165
19,188 CommScope, Inc. (a) 602,887
7,600 Comtech Group, Inc. (a) 84,588
9,125 Comtech Telecommunications Corp. (a) 267,089
8 CycleLogic, Inc. (a) 0
7,700 Digi International, Inc. (a) 96,481
15,000 Ditech Networks, Inc. (a) 130,800
3,400 EMS Technologies, Inc. (a) 61,098
10,313 Echelon Corp. (a) 77,244
49,700 Extreme Networks Inc. (a) 206,752
72,300 Finisar Corp. (a) 236,421
48,400 Foundry Networks, Inc. (a) 515,944
24,696 Harmonic, Inc. (a) 110,638
5,900 ID Systems, Inc. (a) 104,607
12,400 InPhonic, Inc. (a)(e) 78,120
8,277 Inter-Tel, Inc. 174,314
18,200 InterVoice, Inc. (a) 129,584
12,129 Ixia (a) 109,161
18,800 j2 Global Communications, Inc. (a)(e) 586,936
2,700 Loral Space & Communications Ltd. (a) 76,572
13,000 Netgear, Inc. (a) 281,450
13,200 Novatel Wireless, Inc. (a) 137,016
7,502 Oplink Communications, Inc. (a) 137,362
4,183 Optical Communication Products, Inc. (a) 8,408
18,300 Redback Networks, Inc. (a) 335,622
14,838 Secure Computing Corp. (a) 127,607
11,100 Sirenza Microdevices, Inc. (a) 134,754
83,300 Sonus Networks, Inc. (a) 412,335
7,410 Standard Microsystems Corp. (a) 161,760
28,200 Stratex Networks, Inc. (a) 95,598
61,500 Sycamore Networks, Inc. (a) 249,690
6,300 Syniverse Holdings, Inc. (a) 92,610
70,400 TIBCO Software, Inc. (a) 496,320
12,920 Talx Corp. 282,560
23,500 Tekelec (a) 290,225
8,930 Terremark Worldwide, Inc. (a) 32,148
2,540 Ulticom, Inc. (a) 26,594
38,200 UTstarcom, Inc. (a)(e) 297,578
7,001 Viasat, Inc. (a) 179,786
16,000 Vonage Holdings Corp. (a) 137,440
14,031 WebEx Communications, Inc. (a) 498,662
25,275 Zhone Technologies, Inc. (a)(e) 51,308
------------
12,980,888
- - --------------------------------------------------------------------------------------------------------------------------------
Computer Services Software & 17,400 @Road Inc. (a) 96,048
Systems - 4.3% 2,300 Access Integrated Technologies, Inc. (a) 22,563
14,400 Actuate Corp. (a) 58,176
19,202 Agile Software Corp. (a) 121,741
10,000 Altiris, Inc. (a) 180,400
8,100 American Reprographics Co. (a) 293,625
7,500 Ansoft Corp. (a) 153,600
12,632 Ansys, Inc. (a) 604,062
25,180 Ariba, Inc. (a) 207,231
31,400 Art Technology Group, Inc. (a) 93,572
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
18,208 Aspen Technology, Inc. (a) $ 238,889
8,200 Audible, Inc. (a)(e) 74,538
60,700 BearingPoint, Inc. (a) 508,059
13,626 Blackbaud, Inc. 309,310
11,200 Blackboard, Inc. (a) 324,352
6,800 Blue Coat Systems, Inc. (a) 114,648
25,867 Borland Software Corp. (a) 136,578
10,700 Bottomline Technologies, Inc. (a) 87,098
10,300 CACI International, Inc. Class A (a) 600,799
7,700 COMSYS IT Partners, Inc. (a) 116,424
20,600 Chordiant Software, Inc. (a) 62,418
18,202 Ciber, Inc. (a) 119,951
3,400 Click Commerce, Inc. (a)(e) 67,082
13,500 Concur Technologies, Inc. (a) 208,845
2,000 Constellation 3D, Inc. (a) 0
6,500 Convera Corp. (a) 43,680
9,300 Covansys Corp. (a) 116,901
2,100 DealerTrack Holdings, Inc. (a) 46,431
12,364 Dendrite International, Inc. (a) 114,243
13,200 Digital River, Inc. (a) 533,148
35,007 Digitas, Inc. (a) 406,781
7,845 EPIQ Systems, Inc. (a) 130,541
22,539 Electronics for Imaging Inc. (a) 470,614
9,200 Emageon, Inc. (a) 134,228
19,300 Epicor Software Corp. (a) 203,229
10,700 Equinix, Inc. (a) 587,002
5,900 eCollege.com, Inc. (a) 124,726
18,979 Gartner, Inc. Class A (a) 269,502
19,700 Hyperion Solutions Corp. (a) 543,720
8,900 Infocrossing, Inc. (a)(e) 102,795
28,700 Informatica Corp. (a) 377,692
2,400 Integral Systems, Inc. 64,392
13,100 Internet Capital Group, Inc. (a) 117,900
13,000 Internet Security Systems Inc. (a) 245,050
17,825 Interwoven, Inc. (a) 152,938
3,100 i2 Technologies, Inc. (a) 39,277
4,100 iGate Corp. (a) 26,199
9,708 JDA Software Group, Inc. (a) 136,203
6,600 Jupitermedia Corp. (a) 85,800
9,300 Kanbay International, Inc. (a) 135,222
14,758 Keane, Inc. (a) 184,475
39,000 Lawson Software, Inc. (a) 261,300
16,500 Lionbridge Technologies Inc. (a) 91,245
8,674 MRO Software, Inc. (a) 174,087
16,300 Macrovision Corp. (a) 350,776
9,100 Magma Design Automation, Inc. (a) 66,885
9,139 Manhattan Associates, Inc. (a) 185,430
4,800 Mantech International Corp. Class A (a) 148,128
6,800 Mapinfo Corp. (a) 88,740
26,500 Mentor Graphics Corp. (a) 343,970
8,156 Mercury Computer Systems, Inc. (a) 125,521
9,400 Merge Technologies, Inc. (a) 115,432
14,898 Micros Systems, Inc. (a) 650,745
3,800 MicroStrategy, Inc. Class A (a) 370,576
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
6,100 Ness Technologies, Inc. (a) $ 65,575
15,474 NetIQ Corp. (a) 188,628
5,685 Netscout Systems, Inc. (a) 50,710
41,795 Nuance Communications, Inc. (a) 420,458
33,833 Openwave Systems, Inc. (a) 390,433
2,600 Opnet Technologies, Inc. (a) 33,696
25,300 Opsware, Inc. (a) 208,472
4,800 PDF Solutions, Inc. (a) 59,568
13,607 Packeteer, Inc. (a) 154,303
42,660 Parametric Technology Corp. (a) 542,209
1,300 Pegasystems, Inc. 8,346
16,408 Progress Software Corp. (a) 384,111
3,300 QAD, Inc. 25,575
25,900 Quest Software, Inc. (a) 363,636
41,000 RealNetworks, Inc. (a) 438,700
4,600 RightNow Technologies, Inc. (a) 76,728
4,100 SAVVIS, Inc. (a) 121,401
5,800 SI International, Inc. (a) 177,828
7,889 SPSS, Inc. (a) 253,552
12,200 SRA International, Inc. Class A (a) 324,886
1,400 SSA Global Technologies, Inc. (a) 27,132
9,961 SYKES Enterprises, Inc. (a) 160,970
2,200 SYNNEX Corp. (a) 41,712
9,199 SafeNet, Inc. (a) 163,006
27,192 Sapient Corp. (a) 144,118
10,700 Sigma Designs, Inc. (a) 100,901
9,000 Smith Micro Software, Inc. (a) 144,180
26,541 SonicWALL, Inc. (a) 238,604
8,900 Stellent, Inc. 84,995
30,100 Sybase, Inc. (a) 583,940
1,483 Syntel, Inc. 30,342
2,000 Taleo Corp. Class A (a) 23,580
12,485 Transaction Systems Architects, Inc. Class A (a) 520,500
18,008 Trizetto Group (a) 266,338
10,900 Tyler Technologies, Inc. (a) 122,080
8,000 Ultimate Software Group, Inc. (a) 153,280
15,900 VA Software Corp. (a) 61,692
8,300 Vasco Data Security International Inc. (a) 69,471
4,400 Verint Systems, Inc. (a) 128,436
10,380 Vignette Corp. (a) 151,340
16,002 Websense, Inc. (a) 328,681
29,500 Wind River Systems, Inc. (a) 262,550
11,200 Witness Systems, Inc. (a) 225,904
22,620 webMethods, Inc. (a) 223,259
16,308 Zoran Corp. (a) 396,937
------------
22,108,296
- - --------------------------------------------------------------------------------------------------------------------------------
Computer Technology - 1.5% 46,600 Adaptec, Inc. (a) 202,244
9,700 Advanced Analogic Technologies, Inc. (a) 101,656
20,634 Advanced Digital Information Corp. (a) 242,862
27,500 Emulex Corp. (a) 447,425
9,109 FalconStor Software, Inc. (a)(e) 63,490
4,300 Fargo Electronics, Inc. (a) 109,177
16,582 Filenet Corp. (a) 446,553
83,600 Gateway, Inc. (a) 158,840
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
10,617 Hutchinson Technology, Inc. (a) $ 229,646
12,100 Imation Corp. 496,705
11,596 Intergraph Corp. (a) 365,158
16,809 Intermec, Inc. (a) 385,598
11,600 Komag, Inc. (a) 535,688
60,900 McData Corp. (a) 248,472
13,600 Mobility Electronics, Inc. (a) 98,736
5,900 Neoware Systems, Inc. (a) 72,511
33,888 Palm, Inc. (a)(e) 545,597
16,000 Pegasus Wireless Corp. (a) 143,040
27,000 Perot Systems Corp. Class A (a) 390,960
58,400 Quantum Corp. (a) 153,008
27,962 RSA Security, Inc. (a) 760,287
10,600 Rackable Systems, Inc. (a) 418,594
12,300 Radiant Systems, Inc. (a) 130,011
5,742 Radisys Corp. (a) 126,094
31,800 Safeguard Scientifics, Inc. (a) 68,688
3,700 Stratasys, Inc. (a) 109,002
10,200 Synaptics, Inc. (a) 218,280
19,600 Trident Microsystems, Inc. (a) 372,008
------------
7,640,330
- - --------------------------------------------------------------------------------------------------------------------------------
Construction - 0.4% 5,451 Brookfield Homes Corp. (e) 179,610
10,636 EMCOR Group, Inc. (a) 517,654
13,371 Granite Construction, Inc. 605,305
6,000 Perini Corp. (a) 135,000
2,100 Sterling Construction Co., Inc. (a) 57,960
11,100 Washington Group International, Inc. (a) 592,074
------------
2,087,603
- - --------------------------------------------------------------------------------------------------------------------------------
Consumer Electronics - 0.8% 56,500 CNET Networks, Inc. (a) 450,870
93,400 Covad Communications Group, Inc. (a) 187,734
5,400 DTS, Inc. (a) 105,192
5,800 Directed Electronics, Inc. (a) 76,096
47,200 Earthlink, Inc. (a) 408,752
10,400 Infospace, Inc. (a) 235,768
87,900 Internap Network Services Corp. (a) 92,295
17,500 Ipass, Inc. (a) 98,000
8,300 LoJack Corp. (a) 156,538
12,074 Midway Games, Inc. (a)(e) 97,679
10,300 NIC, Inc. (a) 74,469
13,100 NetFlix, Inc. (a)(e) 356,451
4,100 Parkervision, Inc. (a) 37,310
8,600 Sohu.com, Inc. (a) 221,794
24,637 THQ, Inc. (a) 532,159
28,300 Take-Two Interactive Software, Inc. (a) 306,206
21,450 United Online, Inc. 257,400
4,186 Universal Electronics, Inc. (a) 74,134
8,500 WebSideStory, Inc. (a) 103,700
------------
3,872,547
- - --------------------------------------------------------------------------------------------------------------------------------
Consumer Products - 0.6% 17,300 American Greetings Class A 363,473
8,600 Blyth, Inc. 158,756
4,300 CNS, Inc. 105,350
2,291 CSS Industries, Inc. 65,866
2,100 Citi Trends, Inc. (a) 89,649
5,400 Mannatech, Inc. 68,094
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
9,873 Matthews International Corp. Class A $ 340,322
13,563 Nautilus, Inc. (e) 213,075
9,300 Oakley, Inc. 156,705
16,876 Playtex Products, Inc. (a) 176,017
6,200 RC2 Corp. (a) 239,692
11,200 Spectrum Brands, Inc. (a) 144,704
17,991 The Topps Co., Inc. 147,886
22,674 Tupperware Corp. 446,451
4,300 USANA Health Sciences, Inc. (a)(e) 162,970
13,683 Yankee Candle Co., Inc. 342,212
------------
3,221,222
- - --------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging: Metal & Glass - 0.4% 1,400 AEP Industries, Inc. (a) 46,788
11,700 Aptargroup, Inc. 580,437
6,575 Greif, Inc. 492,862
13,842 Mobile Mini, Inc. (a) 405,017
7,000 Silgan Holdings, Inc. 259,070
19,100 Graphic Packaging Corp. (a) 72,389
8,852 Myers Industries, Inc. 152,166
------------
2,008,729
- - --------------------------------------------------------------------------------------------------------------------------------
Copper - 0.1% 12,282 Mueller Industries, Inc. 405,674
- - --------------------------------------------------------------------------------------------------------------------------------
Cosmetics - 0.1% 8,693 Elizabeth Arden, Inc. (a) 155,431
1,600 Inter Parfums, Inc. 27,552
19,226 Nu Skin Enterprises, Inc. Class A 285,506
7,100 Parlux Fragrances, Inc. (a)(e) 68,799
47,510 Revlon, Inc. Class A (a) 59,863
------------
597,151
- - --------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.5% 40,400 The BISYS Group, Inc. (a) 553,480
900 Clayton Holdings, Inc. (a) 11,745
13,500 Euronet Worldwide, Inc. (a) 517,995
23,400 F.N.B. Corp. 369,018
7,000 Greenhill & Co., Inc. 425,320
7,300 Huron Consulting Group, Inc. (a) 256,157
5,600 Rewards Network, Inc. (a) 45,752
12,900 USI Holdings Corp. (a) 172,989
------------
2,352,456
- - --------------------------------------------------------------------------------------------------------------------------------
Diversified Materials & Processing - 0.6% 14,960 Acuity Brands, Inc. 582,094
12,514 Barnes Group, Inc. 249,654
15,294 Brady Corp. 563,431
17,310 Clarcor, Inc. 515,665
30,262 Hexcel Corp. (a) 475,416
3,300 Koppers Holdings, Inc. 65,967
22,814 Olin Corp. 409,055
9,245 Tredegar Corp. 146,256
------------
3,007,538
- - --------------------------------------------------------------------------------------------------------------------------------
Drug & Grocery Store Chains - 0.5% 432 Arden Group, Inc. Class A 48,889
19,707 Casey's General Stores, Inc. 492,872
7,631 Great Atlantic & Pacific Tea Co. 173,376
5,164 Ingles Markets, Inc. Class A 87,788
10,583 Longs Drug Stores Corp. 482,796
6,277 Nash Finch Co. (e) 133,637
22,442 Pathmark Stores, Inc. (a) 211,179
11,969 Ruddick Corp. 293,360
4,329 Smart & Final, Inc. (a) 72,900
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
7,000 Spartan Stores, Inc. $ 102,410
4,100 Weis Markets, Inc. 168,920
11,929 Wild Oats Markets, Inc. (a) 233,808
------------
2,501,935
- - --------------------------------------------------------------------------------------------------------------------------------
Drugs & Pharmaceuticals - 2.4% 15,450 AVANIR Pharmaceuticals Class A (a)(e) 105,678
11,700 Adams Respiratory Therapeutics, Inc. (a) 522,054
15,100 Adolor Corp. (a) 377,651
9,900 Akorn, Inc. (a) 39,402
30,800 Alkermes, Inc. (a) 582,736
13,425 Alpharma, Inc. Class A 322,737
6,300 Anadys Pharmaceuticals, Inc. (a) 18,396
24,500 Andrx Corp. (a) 568,155
16,000 Atherogenics Inc. (a)(e) 208,800
4,700 Auxilium Pharmaceuticals, Inc. (a) 36,566
6,400 Bentley Pharmaceuticals, Inc. (a) 70,144
10,200 BioCryst Pharmaceuticals, Inc. (a) 146,166
32,548 BioMarin Pharmaceuticals, Inc. (a) 467,715
5,000 Bradley Pharmaceuticals, Inc. (a) 51,000
17,800 CV Therapeutics, Inc. (a) 248,666
1,200 Caraco Pharmaceutical Laboratories Ltd. (a) 10,980
7,500 Chattem, Inc. (a) 227,775
14,202 Connetics Corp. (a) 167,016
31,500 Dendreon Corp. (a) 152,460
18,300 Depomed, Inc. (a) 107,421
17,800 Durect Corp. (a)(e) 68,886
11,600 Emisphere Technologies, Inc. (a) 98,948
11,895 Enzo Biochem, Inc. (a) 179,377
1,000 GTx, Inc. (a) 9,100
3,100 Hi-Tech Pharmacal Co., Inc. (a) 51,367
22,300 Indevus Pharmaceuticals, Inc. (a) 121,981
24,289 Isis Pharmaceuticals, Inc. (a) 146,948
12,900 KV Pharmaceutical Co. Class A (a) 240,714
29,000 MGI Pharma, Inc. (a) 623,500
40,700 Medarex, Inc. (a) 391,127
16,927 Medicines Co. (a) 330,923
20,800 Medicis Pharmaceutical Corp. Class A 499,200
33,400 Nektar Therapeutics (a)(e) 612,556
4,500 New River Pharmaceuticals, Inc. (a)(e) 128,250
27,700 Novavax, Inc. (a) 139,608
10,331 Noven Pharmaceuticals, Inc. (a) 184,925
16,600 Onyx Pharmaceuticals, Inc. (a) 279,378
15,700 Pain Therapeutics, Inc. (a) 131,095
10,600 Par Pharmaceutical Cos., Inc. (a) 195,676
9,400 Penwest Pharmaceuticals Co. (a) 205,202
30,215 Perrigo Co. 486,462
10,300 Pharmion Corp. (a) 175,409
12,900 Pozen, Inc. (a) 90,816
8,100 Quidel Corp. (a) 76,950
14,019 Regeneron Pharmaceuticals, Inc. (a) 179,724
6,600 Renovis, Inc. (a) 101,046
8,150 SFBC International, Inc. (a) 123,554
18,700 Salix Pharmaceuticals Ltd. (a) 230,010
12,600 Santarus, Inc. (a) 83,790
11,400 Sciele Pharma, Inc. (a) 264,366
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
3,500 Somaxon Pharmaceuticals, Inc. (a) $ 54,635
17,082 SuperGen, Inc. (a) 62,008
8,946 United Therapeutics Corp. (a) 516,810
31,500 Valeant Pharmaceuticals International 532,980
4,300 Xenoport, Inc. (a) 77,873
------------
12,126,712
- - --------------------------------------------------------------------------------------------------------------------------------
Education Services - 0.4% 11,004 Bright Horizons Family Solutions, Inc. (a) 414,741
33,400 Corinthian Colleges, Inc. (a) 479,624
19,700 DeVry, Inc. (a) 432,809
3,200 Educate, Inc. (a) 24,512
2,149 Renaissance Learning, Inc. 29,119
5,520 Strayer Education, Inc. 536,102
7,700 Universal Technical Institute, Inc. (a) 169,554
------------
2,086,461
- - --------------------------------------------------------------------------------------------------------------------------------
Electrical & Electronics - 0.3% 21,429 Benchmark Electronics, Inc. (a) 516,867
4,900 OSI Systems, Inc. (a) 87,073
17,198 Plexus Corp. (a) 588,344
12,432 Power Integrations, Inc. (a) 217,311
13,700 TTM Technologies, Inc. (a) 198,239
7,907 Universal Display Corp. (a) 105,242
------------
1,713,076
- - --------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment & Components - 0.9% 6,881 AO Smith Corp. 319,003
15,000 American Superconductor Corp. (a)(e) 132,450
10,671 Baldor Electric Co. 333,896
11,908 CTS Corp. 177,310
10,118 Cohu, Inc. 177,571
3,400 Color Kinetics, Inc. (a) 64,294
6,960 Franklin Electric Co., Inc. 359,414
16,890 General Cable Corp. (a) 591,150
8,016 Genlyte Group, Inc. (a) 580,599
9,260 Littelfuse, Inc. (a) 318,359
10,800 MKS Instruments, Inc. (a) 217,296
2,431 Powell Industries, Inc. (a) 58,174
23,300 Power-One, Inc. (a) 153,780
8,600 Sonic Solutions, Inc. (a) 141,900
22,800 Taser International, Inc. (a)(e) 179,892
12,561 Technitrol, Inc. 290,787
6,679 Triumph Group, Inc. (a) 320,592
------------
4,416,467
- - --------------------------------------------------------------------------------------------------------------------------------
Electrical: Household Appliance - 0.0% 1,550 National Presto Industries, Inc. 81,034
- - --------------------------------------------------------------------------------------------------------------------------------
Electronics - 0.7% 7,472 II-VI, Inc. (a) 136,738
25,112 Aeroflex, Inc. (a) 293,057
12,763 Agilysys, Inc. 229,734
14,100 Avid Technology, Inc. (a) 469,953
15,098 Daktronics, Inc. 435,879
23,100 Flir Systems, Inc. (a) 528,990
22,800 Kopin Corp. (a) 82,308
52,966 MRV Communications, Inc. (a)(e) 164,724
12,480 Methode Electronics, Inc. 131,165
2,100 Multi-Fineline Electronix, Inc. (a) 69,699
6,749 Park Electrochemical Corp. 173,787
28,800 Semtech Corp. (a) 416,160
5,267 Supertex, Inc. (a) 210,364
------------
3,342,558
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Electronics: Instruments, Gauges & Meters - 0.2% 9,582 Itron, Inc. (a) $ 567,829
3,200 Measurement Specialties, Inc. (a) 71,264
6,600 Metrologic Instruments, Inc. (a) 99,066
2,000 OYO Geospace Corp. (a) 114,220
5,300 Zygo Corp. (a) 86,867
------------
939,246
- - --------------------------------------------------------------------------------------------------------------------------------
Electronics: Medical Systems - 0.9% 23,200 Affymetrix, Inc. (a) 593,920
5,872 Analogic Corp. 273,694
5,400 Aspect Medical Systems, Inc. (a) 94,176
6,587 Bruker BioSciences Corp. (a) 35,306
7,900 Candela Corp. (a) 125,294
6,070 Datascope Corp. 187,199
20,450 eResearch Technology, Inc. (a) 186,095
6,200 Greatbatch, Inc. (a) 146,320
9,172 Haemonetics Corp. (a) 426,590
11,700 HealthTronics, Inc. (a) 89,505
16,700 Hologic, Inc. (a) 824,312
15,600 Illumina, Inc. (a) 462,696
7,200 IntraLase Corp. (a) 120,528
9,351 Luminex Corp. (a) 162,614
8,900 Natus Medical, Inc. (a) 88,021
5,400 Neurometrix, Inc. (a) 164,484
7,700 NxStage Medical, Inc. (a) 67,221
6,800 Quality Systems, Inc. 250,376
5,400 Sirona Dental Systems, Inc. 213,948
8,732 TriPath Imaging, Inc. (a) 57,806
1,100 Visicu, Inc. (a) 19,415
4,861 Zoll Medical Corp. (a) 159,246
------------
4,748,766
- - --------------------------------------------------------------------------------------------------------------------------------
Electronics: 13,100 AMIS Holdings, Inc. (a) 131,000
Semi-Conductors/Components - 1.8% 12,216 Actel Corp. (a) 175,300
34,100 Amkor Technology, Inc. (a) 322,586
13,300 Anadigics, Inc. (a) 89,376
115,900 Applied Micro Circuits Corp. (a) 316,407
28,600 Bookham, Inc. (a) 96,096
29,200 Cirrus Logic, Inc. (a) 237,688
160,300 Conexant Systems, Inc. (a) 400,750
12,783 DSP Group, Inc. (a) 317,658
7,975 Diodes, Inc. (a) 330,484
10,327 Exar Corp. (a) 137,039
3,673 Excel Technology, Inc. (a) 109,896
15,700 Formfactor, Inc. (a) 700,691
14,700 Genesis Microchip, Inc. (a) 169,932
3,600 Hittite Microwave Corp. (a) 130,176
5,993 IXYS Corp. (a) 57,533
5,200 Ikanos Communications, Inc. (a) 78,988
20,800 International DisplayWorks, Inc. (a) 108,160
38,000 Lattice Semiconductor Corp. (a) 234,840
20,000 MIPS Technologies, Inc. (a) 121,400
22,000 Micrel, Inc. (a) 220,220
23,590 Microsemi Corp. (a) 575,124
17,600 Microtune, Inc. (a) 110,176
29,000 Mindspeed Technologies, Inc. (a) 69,890
4,800 Monolithic Power Systems, Inc. (a) 56,784
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
4,600 MoSys, Inc. (a) $ 35,972
4,700 Netlogic Microsystems, Inc. (a) 151,575
600 Nextest Systems Corp. (a) 9,726
50,500 ON Semiconductor Corp. (a) 296,940
17,700 Omnivision Technologies, Inc. (a) 373,824
7,400 PLX Technology, Inc. (a) 90,428
11,293 Pericom Semiconductor Corp. (a) 93,732
11,400 Portalplayer, Inc. (a) 111,834
72,300 RF Micro Devices, Inc. (a) 431,631
27,176 Silicon Image, Inc. (a) 292,957
30,158 Silicon Storage Technology, Inc. (a) 122,441
17,100 Sirf Technology Holdings, Inc. (a) 550,962
62,033 Skyworks Solutions, Inc. (a) 341,802
4,600 Sunpower Corp. Class A (a) 128,892
14,600 Tessera Technologies, Inc. (a) 401,500
54,800 Transmeta Corp. (a) 89,872
38,300 Transwitch Corp. (a)(e) 80,813
57,036 Triquint Semiconductor, Inc. (a) 254,381
2,100 Virage Logic Corp. (a) 19,719
4,500 Volterra Semiconductor Corp. (a) 68,670
------------
9,245,865
- - --------------------------------------------------------------------------------------------------------------------------------
Electronics: Technology - 0.6% 2,700 3D Systems Corp. (a) 54,243
12,100 Acacia Research - Acacia Technologies (a) 170,126
3,700 American Science & Engineering, Inc. (a) 214,304
13,023 Checkpoint Systems, Inc. (a) 289,241
12,380 Coherent, Inc. (a) 417,577
4,952 Cubic Corp. 97,109
6,226 EDO Corp. 151,541
4,800 Eagle Test Systems, Inc. (a) 67,296
8,400 Essex Corp. (a) 154,728
4,600 Gerber Scientific, Inc. (a) 59,846
9,950 Herley Industries, Inc. (a) 111,539
35,830 Identix, Inc. (a) 250,452
6,150 Innovative Solutions & Support, Inc. (a) 86,469
15,676 Intermagnetics General Corp. (a) 422,938
6,000 Ionatron, Inc. (a)(e) 38,100
26,600 Kemet Corp. (a) 245,252
7,000 Maxwell Technologies, Inc. (a) 137,410
7,900 Scansource, Inc. (a) 231,628
------------
3,199,799
- - --------------------------------------------------------------------------------------------------------------------------------
Energy Equipment - 0.1% 27,000 Capstone Turbine Corp. (a) 61,560
4,100 Metretek Technologies, Inc. (a) 70,438
24,326 Plug Power, Inc. (a)(e) 113,602
------------
245,600
- - --------------------------------------------------------------------------------------------------------------------------------
Energy Miscellaneous - 0.6% 3,300 Alon USA Energy, Inc. 103,851
3,600 Crosstex Energy, Inc. 342,288
4,200 Dawson Geophysical Co. (a) 129,234
25,900 Evergreen Solar, Inc. (a)(e) 336,182
21,926 FuelCell Energy, Inc. (a)(e) 210,051
23,700 KFX, Inc. (a)(e) 362,136
220 Markwest Hydrocarbon, Inc. 5,445
4,900 Matrix Service Co. (a) 56,056
1,700 Ormat Technologies, Inc. 64,855
8,900 Pacific Ethanol, Inc. (a)(e) 205,768
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
5,858 Penn Virginia Corp. $ 409,357
44,100 Rentech, Inc. (a) 205,065
13,100 Syntroleum Corp. (a)(e) 79,517
13,497 Veritas DGC, Inc. (a) 696,175
------------
3,205,980
- - --------------------------------------------------------------------------------------------------------------------------------
Engineering & Contracting Services - 0.2% 6,200 Clean Harbors, Inc. (a) 249,922
13,402 Dycom Industries, Inc. (a) 285,329
2,200 ENGlobal Corp (a) 17,138
7,700 Infrasource Services, Inc. (a) 140,217
2,800 Integrated Electrical Services, Inc. (a) 48,916
5,500 Layne Christensen Co. (a) 155,925
------------
897,447
- - --------------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.3% 6,400 Carmike Cinemas, Inc. 134,912
5,440 Dover Motorsports, Inc. 31,933
13,255 Gaylord Entertainment Co. (a) 578,448
22,000 Live Nation (a) 447,920
7,772 Lodgenet Entertainment Corp. (a) 144,948
4,555 Speedway Motorsports, Inc. 171,906
------------
1,510,067
- - --------------------------------------------------------------------------------------------------------------------------------
Fertilizers - 0.0% 31,700 Terra Industries, Inc. (a) 201,929
- - --------------------------------------------------------------------------------------------------------------------------------
Finance Companies - 0.3% 7,100 Accredited Home Lenders Holding Co. (a) 339,451
5,100 Asta Funding, Inc. 190,995
2,100 Credit Acceptance Corporation (a) 56,994
12,800 International Securities Exchange, Inc. 487,296
3,500 MVC Capital, Inc. 47,040
2,300 United PanAm Financial Corp. (a) 69,920
7,700 World Acceptance Corp. (a) 273,504
------------
1,465,200
- - --------------------------------------------------------------------------------------------------------------------------------
Finance: Small Loan - 0.1% 20,800 Advance America, Cash Advance Centers, Inc. 364,832
5,300 Dollar Financial Corp. (a) 95,400
200 QC Holdings, Inc. (a) 2,702
------------
462,934
- - --------------------------------------------------------------------------------------------------------------------------------
Financial Data Processing Services & Systems - 0.9% 7,400 Advent Software, Inc. (a) 266,918
500 Cass Information Systems, Inc. 24,345
8,489 CompuCredit Corp. (a) 326,317
10,200 Cybersource Corp. (a) 119,340
20,900 Deluxe Corp. 365,332
11,530 Digital Insight Corp. (a) 395,364
15,488 eFunds Corp. (a) 341,510
7,923 eSpeed, Inc. Class A (a) 65,999
3,300 Heartland Payment Systems, Inc. (a) 92,004
17,900 Hypercom Corp. (a) 167,365
30,500 Jack Henry & Associates, Inc. 599,630
10,582 John H. Harland Co. 460,317
11,149 Kronos, Inc. (a) 403,705
5,300 Online Resources Corp. (a) 54,802
8,800 Open Solutions, Inc. (a) 234,168
6,900 TNS, Inc. (a) 142,761
8,600 TradeStation Group, Inc. (a) 108,962
12,700 Wright Express Corp. (a) 364,998
------------
4,533,837
- - --------------------------------------------------------------------------------------------------------------------------------
Financial Information Services - 0.2% 4,600 Bankrate, Inc. (a) 173,696
13,400 INVESTools, Inc. (a) 106,396
10,600 Interactive Data Corp. (a) 212,954
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
3,700 Morningstar, Inc. (a) $ 153,476
40,100 Move, Inc. (a) 219,748
27,122 S1 Corp. (a) 130,186
8,900 TheStreet.com, Inc. 114,098
400 Value Line, Inc. 17,080
------------
1,127,634
- - --------------------------------------------------------------------------------------------------------------------------------
Financial Miscellaneous - 0.8% 3,900 ACE Cash Express, Inc. (a) 114,153
8,200 Advanta Corp. Class B 294,790
7,600 Asset Acceptance Capital Corp. (a) 150,480
9,819 Cash America International, Inc. 314,208
600 Enstar Group, Inc. (a) 55,314
5,300 Federal Agricultural Mortgage Corp. Class B 146,810
9,900 Financial Federal Corp. 275,319
12,000 First Cash Financial Services, Inc. (a) 237,000
9,600 Global Cash Access, Inc. (a) 150,048
10,100 Harris & Harris Group, Inc. 111,504
6,499 LandAmerica Financial Group, Inc. 419,835
8,100 Medallion Financial Corp. 104,976
6,500 Portfolio Recovery Associates, Inc. (a) 297,050
4,200 Sanders Morris Harris Group, Inc. 63,462
20,036 Sotheby's Holdings Inc. Class A (a) 525,945
9,216 Sterling Bancorp 179,712
7,322 Stewart Information Services Corp. 265,862
2,833 Stifel Financial Corp. (a) 100,033
3,076 Triad Guaranty, Inc. (a) 150,355
2,191 WSFS Financial Corp. 134,637
600 Wauwatosa Holdings, Inc. (a) 10,236
------------
4,101,729
- - --------------------------------------------------------------------------------------------------------------------------------
Foods - 0.9% 12,600 Chiquita Brands International, Inc. 173,628
7,400 Diamond Foods, Inc. 118,918
17,284 Flowers Foods, Inc. 495,014
11,057 Hain Celestial Group, Inc. (a) 284,828
4,300 J&J Snack Foods Corp. 142,201
10,100 Lance, Inc. 232,502
3,500 M&F Worldwide Corp. (a) 56,350
863 Maui Land & Pineapple Co., Inc. (a) 32,621
5,800 Medifast Inc (a) 103,646
19,600 NBTY, Inc. (a) 468,636
13,800 Performance Food Group Co. (a) 419,244
13,300 Pilgrim's Pride Corp. 343,140
3,000 Premium Standard Farms, Inc. 48,690
10,495 Ralcorp Holdings, Inc. (a) 446,352
7,050 Sanderson Farms, Inc. 197,330
112 Seaboard Corp. 143,360
16,557 Sensient Technologies Corp. 346,207
10,877 Tootsie Roll Industries, Inc. 316,847
9,500 TreeHouse Foods, Inc. (a) 226,955
------------
4,596,469
- - --------------------------------------------------------------------------------------------------------------------------------
Forest Products - 0.1% 3,409 Deltic Timber Corp. 192,165
6,634 Universal Forest Products, Inc. 416,151
------------
608,316
- - --------------------------------------------------------------------------------------------------------------------------------
Forms and Bulk Printing 9,900 Ennis, Inc. 194,832
Services - 0.1% 5,945 The Standard Register Co. 70,448
------------
265,280
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Funeral Parlors & Cemeteries - 0.1% 14,100 Alderwoods Group, Inc. (a) $ 274,386
35,024 Stewart Enterprises, Inc. Class A 201,388
------------
475,774
- - --------------------------------------------------------------------------------------------------------------------------------
Glass - 0.0% 13,100 Apogee Enterprises, Inc. 192,570
- - --------------------------------------------------------------------------------------------------------------------------------
Gold - 0.1% 103,900 Coeur d'Alene Mines Corp. (a) 499,759
8,200 Royal Gold, Inc. 228,124
------------
727,883
- - --------------------------------------------------------------------------------------------------------------------------------
Health Care Facilities - 0.6% 3,800 Capital Senior Living Corporation (a) 39,064
8,800 Five Star Quality Care, Inc. (a) 97,416
7,900 Genesis HealthCare Corp. (a) 374,223
11,200 Kindred Healthcare, Inc. (a) 291,200
6,950 LCA-Vision, Inc. 367,725
4,400 Medcath Corp. (a) 82,896
1,800 National Healthcare Corp. 80,190
17,700 Psychiatric Solutions, Inc. (a) 507,282
5,500 Radiation Therapy Services, Inc. (a) 148,005
5,800 Res-Care, Inc. (a) 116,000
11,200 Sun Healthcare Group, Inc. (a) 97,328
14,874 Sunrise Senior Living, Inc. (a) 411,266
17,250 United Surgical Partners International, Inc. (a) 518,708
------------
3,131,303
- - --------------------------------------------------------------------------------------------------------------------------------
Health Care Management Services - 0.6% 17,500 AMERIGROUP Corp. (a) 543,200
14,141 Allscripts Healthcare Solutions, Inc. (a) 248,175
12,300 Amsurg Corp. (a) 279,825
14,400 Centene Corp. (a) 338,832
4,400 Computer Programs & Systems, Inc. 175,824
1,857 Corvel Corp. (a) 46,425
17,831 Eclipsys Corp. (a) 323,811
4,700 Healthspring, Inc. (a) 88,125
7,300 Horizon Health Corp. (a) 152,424
4,100 Molina Healthcare, Inc. (a) 156,005
7,700 Omnicell, Inc. (a) 106,414
13,737 Per-Se Technologies, Inc. (a) 345,898
12,300 Phase Forward, Inc. (a) 141,696
5,800 Vital Images, Inc. (a) 143,260
------------
3,089,914
- - --------------------------------------------------------------------------------------------------------------------------------
Health Care Services - 0.6% 7,100 Adeza Biomedical Corp. (a) 99,542
3,600 Alliance Imaging, Inc. (a) 23,040
6,600 Amedisys, Inc. (a) 250,140
11,800 American Retirement Corp. (a) 386,686
14,100 Apria Healthcare Group, Inc. (a) 266,490
5,300 Bio-Reference Labs, Inc. (a) 115,328
11,912 Gentiva Health Services, Inc. (a) 190,949
12,125 Healthcare Services Group 254,019
13,000 Healthways, Inc. (a) 684,320
13,200 Hythiam, Inc. (a) 92,004
2,000 LHC Group, Inc. (a) 39,840
8,700 Matria Healthcare, Inc. (a) 186,354
500 Nighthawk Radiology Holdings, Inc. (a) 8,970
11,500 Odyssey HealthCare, Inc. (a)(e) 202,055
5,200 Symbion, Inc. (a) 107,952
6,200 VistaCare, Inc. Class A (a) 75,020
------------
2,982,709
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Homebuilding - 0.3% 17,000 Hovnanian Enterprises, Inc. Class A (a) $ 511,360
5,460 Levitt Corp. Class A 87,360
5,300 M/I Homes, Inc. 185,924
7,500 Meritage Homes Corp. (a) 354,375
700 Orleans Homebuilders, Inc. 11,375
6,062 Technical Olympic USA, Inc. 87,050
13,500 WCI Communities, Inc. (a)(e) 271,890
------------
1,509,334
- - --------------------------------------------------------------------------------------------------------------------------------
Hotel/Motel - 0.1% 6,600 Lodgian, Inc. (a) 94,050
6,379 Marcus Corp. 133,194
8,500 Morgans Hotel Group Co. (a) 132,260
------------
359,504
- - --------------------------------------------------------------------------------------------------------------------------------
Household Furnishings - 0.5% 5,500 American Woodmark Corp. 192,720
12,400 Ethan Allen Interiors, Inc. 453,220
18,100 Furniture Brands International, Inc. (e) 377,204
8,836 Haverty Furniture Cos., Inc. 138,637
1,600 Hooker Furniture Corp. 26,880
21,400 La-Z-Boy, Inc. (e) 299,600
5,800 Lifetime Brands, Inc. 125,686
4,700 Sealy Corp. 62,369
20,300 Select Comfort Corp. (a)(e) 466,291
6,200 Stanley Furniture Co., Inc. 148,614
15,800 Tempur-Pedic International, Inc. (a) 213,458
------------
2,504,679
- - --------------------------------------------------------------------------------------------------------------------------------
Identification Control & Filter Devices - 0.5% 9,912 Advanced Energy Industries, Inc. (a) 131,235
16,141 Asyst Technologies Inc. (a) 121,542
3,100 Badger Meter, Inc. 83,700
8,632 ESCO Technologies, Inc. (a) 461,380
8,200 Flanders Corp. (a) 82,246
1,775 The Gorman-Rupp Co. 47,215
10,326 Mine Safety Appliances Co. 415,105
11,982 Paxar Corp. (a) 246,470
7,700 RAE Systems, Inc. (a) 30,800
3,912 Robbins & Myers, Inc. 102,260
11,227 Veeco Instruments, Inc. (a) 267,652
5,996 Vicor Corp. 99,354
6,700 Viisage Technology, Inc. (a)(e) 101,572
8,436 Watts Water Technologies, Inc. Class A 283,028
11,317 X-Rite, Inc. 124,374
------------
2,597,933
- - --------------------------------------------------------------------------------------------------------------------------------
Industrial Producers - 0.0% 7,000 Smith & Wesson Holding Corp. (a) 57,540
4,000 TAL International Group, Inc. (a) 96,400
------------
153,940
- - --------------------------------------------------------------------------------------------------------------------------------
Insurance: Life - 0.4% 24,200 American Equity Investment Life Holding Co. 257,972
6,100 Ceres Group, Inc. (a) 37,942
14,005 Delphi Financial Group Class A 509,222
2,980 Great American Financial Resources, Inc. 62,371
1,042 Kansas City Life Insurance Co. 44,556
662 National Western Life Insurance Co. Class A 158,648
36,200 The Phoenix Cos., Inc. 509,696
6,893 Presidential Life Corp. 169,430
11,300 Universal American Financial Corp. (a) 148,595
------------
1,898,432
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line - 0.4% 10,240 Alfa Corp. $ 169,574
2,986 CNA Surety Corp. (a) 51,598
7,809 Crawford & Co. Class B 56,069
2,000 EMC Insurance Group, Inc. 57,520
3,225 FBL Financial Group, Inc. Class A 104,490
8,400 HealthExtras, Inc. (a) 253,848
12,806 Hilb Rogal & Hobbs Co. 477,280
17,368 Horace Mann Educators Corp. 294,388
1,240 Independence Holding Co. 27,788
14,000 Meadowbrook Insurance Group, Inc. (a) 116,480
2,297 Pico Holdings, Inc. (a) 74,078
14,355 Zenith National Insurance Corp. 569,463
------------
2,252,576
- - --------------------------------------------------------------------------------------------------------------------------------
Insurance: Property-Casualty - 1.3% 10,100 21st Century Insurance Group 145,440
5,150 Affirmative Insurance Holdings, Inc. 80,597
3,471 American Physicians Capital, Inc. (a) 182,540
11,566 Argonaut Group, Inc. (a) 347,443
4,032 Baldwin & Lyons, Inc. Class B 102,816
4,500 Bristol West Holdings, Inc. 72,000
4,700 Capital Title Group, Inc. 34,639
18,000 Commerce Group, Inc. 531,720
4,400 Darwin Professional Underwriters, Inc. (a) 77,704
5,300 Direct General Corp. 89,676
3,244 Donegal Group, Inc. Class A 62,966
4,900 FPIC Insurance Group, Inc. (a) 189,875
3,500 First Acceptance Corp. (a) 41,230
21,100 Fremont General Corp. 391,616
5,062 Harleysville Group, Inc. 160,567
6,900 Infinity Property & Casualty Corp. 282,900
1,500 James River Group, Inc. (a) 37,350
2,858 The Midland Co. 108,547
500 NYMAGIC, Inc. 14,525
4,100 National Interstate Corp. 111,192
4,300 Navigators Group, Inc. (a) 188,426
2,500 Odyssey Re Holdings Corp. 65,875
21,515 Ohio Casualty Corp. 639,641
10,706 PMA Capital Corp. Class A (a) 110,272
11,023 ProAssurance Corp. (a) 531,088
6,754 RLI Corp. 325,408
1,900 SCPIE Holdings, Inc. (a) 44,175
6,100 Safety Insurance Group, Inc. 290,055
8,200 SeaBright Insurance Holdings, Inc. (a) 132,102
10,254 Selective Insurance Group 572,891
3,512 State Auto Financial Corp. 114,280
7,100 Tower Group, Inc. 214,775
8,900 United Fire & Casualty Co. 268,157
------------
6,562,488
- - --------------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.6% 27,856 Apollo Investment Corp. 514,785
12,738 Ares Capital Corp. 215,664
9,500 Calamos Asset Management, Inc. Class A 275,405
500 Capital Southwest Corp. 52,225
2,500 Cohen & Steers, Inc. 59,000
2,796 GAMCO Investors, Inc. Class A 102,781
22,000 MCG Capital Corp. 349,800
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
9,723 NGP Capital Resources Co. $ 142,247
12,000 National Financial Partners Corp. 531,720
3,200 Technology Investment Capital Corp. 46,880
28,300 Waddell & Reed Financial, Inc. Class A 581,848
------------
2,872,355
- - --------------------------------------------------------------------------------------------------------------------------------
Jewelry Watches & Gemstones - 0.1% 17,400 Fossil, Inc. (a) 313,374
8,100 Movado Group, Inc. 185,895
------------
499,269
- - --------------------------------------------------------------------------------------------------------------------------------
Leisure Time - 0.3% 9,400 Bally Total Fitness Holding Corp. (a) 63,732
25,200 Callaway Golf Co. 327,348
8,900 Great Wolf Resorts, Inc. (a) 106,889
12,800 K2, Inc. (a) 140,032
9,600 Life Time Fitness, Inc. (a) 444,192
30,200 Six Flags, Inc. (a)(e) 169,724
2,300 Steinway Musical Instruments Inc. (a) 56,396
10,056 Vail Resorts, Inc. (a) 373,078
4,800 West Marine, Inc. (a) 64,704
------------
1,746,095
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery & Engineering - 0.1% 14,890 Applied Industrial Technologies, Inc. 361,976
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Agricultural - 0.1% 3,450 Gehl Co. (a) 88,078
5,613 Lindsay Manufacturing Co. 152,225
------------
240,303
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Construction & Handling - 0.1% 7,600 ASV, Inc. (a)(e) 175,104
5,717 Astec Industries, Inc. (a) 195,064
1,587 NACCO Industries, Inc. Class A 218,070
------------
588,238
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Engines - 0.1% 17,000 Briggs & Stratton Corp. 528,870
4,500 Raser Techonologies, Inc. (a) 43,380
------------
572,250
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Industrial/Specialty - 0.4% 10,600 Actuant Corp. Class A 529,470
5,000 Columbus McKinnon Corp. (a) 108,700
1,500 DXP Enterprises, Inc. (a) 46,605
6,900 EnPro Industries, Inc. (a) 231,840
3,970 Kadant, Inc. (a) 91,310
2,200 Middleby Corp. (a) 190,432
9,310 Nordson Corp. 457,866
8,328 Tecumseh Products Co. Class A (a) 159,898
2,737 Tennant Co. 137,616
9,279 Woodward Governor Co. 283,102
------------
2,236,839
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Oil Well Equipment & Services - 1.2% 2,800 Allis-Chalmers Energy, Inc. (a) 38,052
2,800 Basic Energy Services, Inc. (a) 85,596
8,102 CARBO Ceramics, Inc. 398,051
7,300 Complete Production Services, Inc. (a) 172,572
3,388 Dril-Quip, Inc. (a) 279,307
6,417 Gulf Island Fabrication, Inc. 128,597
33,743 Hanover Compressor Co. (a)(e) 633,694
7,140 Hornbeck Offshore Services, Inc. (a) 253,613
6,949 Hydril Co. (a) 545,635
23,446 Input/Output, Inc. (a)(e) 221,565
5,900 Lufkin Industries, Inc. 350,637
6,400 NATCO Group, Inc. Class A (a) 257,280
29,820 Newpark Resources, Inc. (a) 183,393
16,000 Oil States International, Inc. (a) 548,480
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
36,081 Parker Drilling Co. (a) $ 259,062
7,100 RPC, Inc. 172,388
8,900 Sulphco, Inc. (a) 63,724
2,100 Superior Well Services, Inc. (a) 52,290
400 T-3 Energy Services Inc. (a) 7,792
5,800 Trico Marine Services, Inc. (a) 197,200
1,900 Union Drilling, Inc. (a) 28,234
9,826 Universal Compression Holdings, Inc. (a) 618,743
10,457 W-H Energy Services, Inc. (a) 531,529
2,300 Warrior Energy Service Corp. (a) 55,959
------------
6,083,393
- - --------------------------------------------------------------------------------------------------------------------------------
Machinery: Specialty - 0.2% 6,700 Applied Films Corp. (a) 190,883
10,300 Bucyrus International, Inc. 520,150
4,200 Cascade Corp. 166,110
10,300 Flow International Corp. (a) 144,921
4,441 Semitool, Inc. (a) 40,058
4,400 TurboChef Technologies, Inc. (a)(e) 48,928
------------
1,111,050
- - --------------------------------------------------------------------------------------------------------------------------------
Manufactured Housing - 0.1% 1,300 Cavco Industries, Inc. (a) 57,772
29,727 Champion Enterprises, Inc. (a) 328,186
4,005 Palm Harbor Homes, Inc. (a)(e) 70,448
2,301 Skyline Corp. 98,437
------------
554,843
- - --------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.1% 16,059 Federal Signal Corp. 243,133
4,131 Standex International Corp. 125,376
------------
368,509
- - --------------------------------------------------------------------------------------------------------------------------------
Medical & Dental Instruments & Supplies - 2.5% 8,400 Abaxis, Inc. (a) 187,908
5,600 Abiomed, Inc. (a) 72,632
18,500 Align Technology, Inc. (a) 136,715
27,200 American Medical Systems Holdings, Inc. (a) 452,880
3,400 Angiodynamics, Inc. (a) 91,970
6,608 Arrow International, Inc. 217,205
5,800 Bio-Rad Laboratories, Inc. Class A (a) 376,652
6,749 Biosite, Inc. (a) 308,159
18,200 Cepheid, Inc. (a) 176,722
6,600 Cerus Corp. (a) 47,058
6,100 Conceptus, Inc. (a) 83,204
10,428 Conmed Corp. (a) 215,860
10,800 Conor Medsystems, Inc. (a) 297,972
8,869 Cyberonics, Inc. (a) 189,087
7,100 DJO, Inc. (a) 261,493
8,200 DexCom, Inc. (a) 111,356
8,000 Diagnostic Products Corp. 465,360
15,400 Encore Medical Corp. (a) 74,074
3,000 ev3, Inc. (a) 44,430
5,500 FoxHollow Technologies Inc. (a)(e) 150,260
7,600 I-Flow Corp. (a) 82,232
6,050 ICU Medical, Inc. (a) 255,552
8,200 IRIS International, Inc. (a) 107,912
22,043 Immucor, Inc. (a) 423,887
10,322 Invacare Corp. 256,811
8,640 Inverness Medical Innovations, Inc. (a) 243,907
14,600 Kyphon, Inc. (a) 560,056
2,678 Landauer, Inc. 128,276
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
7,500 Laserscope (a) $ 231,075
13,000 Lifecell Corp. (a) 401,960
1,600 Medical Action Industries, Inc. (a) 35,344
14,844 Mentor Corp. (e) 645,714
7,000 Meridian Bioscience, Inc. 174,650
12,510 Merit Medical Systems, Inc. (a) 172,138
7,237 Molecular Devices Corp. (a) 221,163
500 Northstar Neuroscience, Inc. (a) 5,190
13,800 NuVasive, Inc. (a) 251,574
17,059 OraSure Technologies, Inc. (a) 162,402
13,398 Owens & Minor, Inc. 383,183
26,373 PSS World Medical, Inc. (a) 465,483
6,800 Palomar Medical Technologies, Inc. (a) 310,284
9,229 PolyMedica Corp. 331,875
6,815 SonoSite, Inc. (a) 266,058
12,300 Spectranetic Corp (a) 131,856
11,000 Stereotaxis, Inc. (a) 118,690
22,500 Steris Corp. 514,350
6,783 SurModics, Inc. (a)(e) 244,934
10,000 Symmetry Medical, Inc. (a) 154,000
26,600 ThermoGenesis Corp. (a) 110,124
17,547 Thoratec Corp. (a) 243,377
9,560 Ventana Medical Systems Inc. (a) 451,041
9,700 Viasys Healthcare, Inc. (a) 248,320
1,524 Vital Signs, Inc. 75,484
9,876 West Pharmaceutical Services, Inc. 358,301
13,900 Wright Medical Group, Inc. (a) 290,927
600 Young Innovations, Inc. 21,138
------------
13,040,265
- - --------------------------------------------------------------------------------------------------------------------------------
Medical Services - 0.3% 4,800 Air Methods Corp. (a) 125,664
14,300 Magellan Health Services, Inc. (a) 647,933
12,471 Option Care, Inc. 149,403
11,197 Parexel International Corp. (a) 323,033
7,895 RehabCare Group, Inc. (a) 137,215
------------
1,383,248
- - --------------------------------------------------------------------------------------------------------------------------------
Metal Fabricating - 1.1% 1,500 Ampco-Pittsburgh Corp. 42,975
3,900 CIRCOR International, Inc. 118,911
300 Compx International, Inc. 5,370
5,000 Dynamic Materials Corp. 169,350
9,250 Encore Wire Corp. (a) 332,445
6,100 Insteel Industries, Inc. 147,620
11,226 Kaydon Corp. 418,842
5,000 LB Foster Co. Class A (a) 121,350
11,758 Lone Star Technologies Inc. (a) 635,167
13,463 Maverick Tube Corp. (a) 850,727
12,000 Mueller Water Products, Inc. (a) 208,920
5,765 NN, Inc. 71,198
7,155 NS Group, Inc. (a) 394,097
12,610 Quanex Corp. 543,113
8,800 RBC Bearings, Inc. (a) 199,760
8,713 RTI International Metals, Inc. (a) 486,534
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
9,093 Ryerson, Inc. $ 245,511
8,400 Superior Essex, Inc. (a) 251,412
5,458 Valmont Industries, Inc. 253,742
------------
5,497,044
- - --------------------------------------------------------------------------------------------------------------------------------
Metals & Minerals Miscellaneous - 0.5% 2,500 AM Castle & Co. 80,625
6,873 AMCOL International Corp. 181,104
7,211 Brush Engineered Materials, Inc. (a) 150,349
8,218 Cleveland-Cliffs, Inc. 651,605
9,400 Compass Minerals International, Inc. 234,530
32,844 GrafTech International Ltd. (a) 190,495
47,600 Hecla Mining Co. (a) 249,900
7,453 Minerals Technologies, Inc. 387,556
12,564 Stillwater Mining Co. (a) 159,312
------------
2,285,476
- - --------------------------------------------------------------------------------------------------------------------------------
Milling: Fruit and Grain Processing - 0.0% 4,600 MGP Ingredients, Inc. 106,812
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Business & Consumer Discretionary - 0.0% 2,600 Core-Mark Holdings Co., Inc. (a) 93,080
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Consumer Staples - 0.0% 7,900 Reddy Ice Holdings, Inc. 160,765
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Materials & Commodities - 0.2% 10,050 Ceradyne, Inc. (a) 497,374
11,779 Symyx Technologies Inc. (a) 284,463
7,489 WD-40 Co. 251,406
------------
1,033,243
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Materials & Processing - 0.2% 10,938 Insituform Technologies, Inc. Class A (a) 250,371
10,500 Metal Management, Inc. 321,510
5,255 Rogers Corp. (a) 296,067
27,459 USEC, Inc. 325,389
1,900 Xerium Technologies, Inc. 17,898
------------
1,211,235
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Producer Durables - 0.2% 28,900 BE Aerospace, Inc. (a) 660,654
11,100 Blount International, Inc. (a) 133,422
------------
794,076
- - --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Technology - 0.1% 6,500 IHS, Inc. Class A (a) 192,595
2,700 iRobot Corp. (a)(e) 67,176
------------
259,771
- - --------------------------------------------------------------------------------------------------------------------------------
Multi-Sector Companies - 0.3% 4,800 Compass Diversified Trust 68,496
18,471 GenCorp, Inc. (a)(e) 296,090
5,000 Gentek Inc (a) 134,250
7,994 Kaman Corp. Class A 145,491
8,099 Lancaster Colony Corp. 319,668
7,000 Raven Industries, Inc. 220,500
1,765 Sequa Corp. Class A (a) 143,848
------------
1,328,343
- - --------------------------------------------------------------------------------------------------------------------------------
Office Furniture & Business Equipment - 0.3% 14,500 ACCO Brands Corp. (a) 317,550
22,200 Herman Miller, Inc. 572,094
8,274 Kimball International, Inc. Class B 163,081
9,400 Knoll, Inc. 172,584
9,840 Presstek, Inc. (a) 91,610
------------
1,316,919
- - --------------------------------------------------------------------------------------------------------------------------------
Offshore Drilling - 0.1% 9,854 Atwood Oceanics, Inc. (a) 488,758
3,000 Bois d'Arc Energy, Inc. (a) 49,410
5,700 Hercules Offshore, Inc. (a) 199,500
------------
737,668
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 2.0% 7,400 ATP Oil & Gas Corp. (a) $ 310,282
2,800 Arena Resources, Inc. (a) 96,012
7,250 Atlas America, Inc. (a) 324,872
18,100 Aurora Oil & Gas Corp. (a) 72,400
14,002 Berry Petroleum Co. Class A 464,166
8,600 Bill Barrett Corp. (a) 254,646
20,500 Brigham Exploration Co. (a) 162,155
6,500 Bronco Drilling Co., Inc. (a) 135,785
5,600 Callon Petroleum Co. (a) 108,304
8,700 Carrizo Oil & Gas, Inc. (a) 272,397
2,400 Clayton Williams Energy, Inc. (a) 82,896
14,357 Comstock Resources, Inc. (a) 428,700
800 Delek US Holdings, Inc. (a) 12,160
13,900 EXCO Resources, Inc. (a) 158,460
8,000 Edge Petroleum Corp. (a) 159,840
18,800 Encore Acquisition Co. (a) 504,404
15,400 Energy Partners Ltd. (a) 291,830
13,400 The Exploration Co. of Delaware, Inc. (a) 142,844
21,900 Gasco Energy, Inc. (a) 97,455
5,700 GeoGlobal Resources, Inc. (a) 27,873
6,000 Goodrich Petroleum Corp. (a) 170,340
64,843 Grey Wolf, Inc. (a) 499,291
1,000 Gulfport Energy Corp. (a) 11,040
12,700 Harvest Natural Resources, Inc. (a) 171,958
11,083 Houston Exploration Co. (a) 678,169
23,900 Mariner Energy, Inc. (a) 439,043
10,800 McMoRan Exploration Co. (a)(e) 190,080
29,011 Meridian Resource Corp. (a) 101,539
14,000 Parallel Petroleum Corp. (a) 345,940
18,742 PetroHawk Energy Corp. (a) 236,149
6,800 Petroleum Development Corp. (a) 256,360
13,600 Petroquest Energy, Inc. (a) 167,008
12,300 Pioneer Drilling Co. (a) 189,912
9,700 Quest Resource Corp. (a) 131,435
9,720 Remington Oil & Gas Corp. (a) 427,388
5,249 Resource America, Inc. Class A 99,993
15,600 Rosetta Resources, Inc. (a) 259,272
8,578 Stone Energy Corp. (a) 399,306
9,717 Swift Energy Co. (a) 417,151
4,300 Toreador Resources Corp. (a)(e) 120,959
20,000 Transmeridian Exploration, Inc. (a) 114,000
16,400 Warren Resources, Inc. (a) 235,504
6,500 Western Refining, Inc. 140,270
11,710 Whiting Petroleum Corp. (a) 490,298
------------
10,399,886
- - --------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Domestic - 0.3% 20,900 Delta Petroleum Corp. (a) 356,345
3,800 GMX Resources Inc. (a) 117,496
5,700 Giant Industries, Inc. (a) 379,335
16,800 KCS Energy, Inc. (a) 498,960
------------
1,352,136
- - --------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated International - 0.1% 24,600 Vaalco Energy, Inc. (a) 240,096
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Paints & Coatings - 0.2% 18,076 Ferro Corp. $ 288,493
11,340 H.B. Fuller Co. 494,084
1,693 Kronos Worldwide, Inc. 49,520
------------
832,097
- - --------------------------------------------------------------------------------------------------------------------------------
Paper - 0.4% 10,626 Albany International Corp. Class A 450,436
18,600 Bowater, Inc. 423,150
7,698 Buckeye Technologies, Inc. (a) 58,813
10,174 Caraustar Industries, Inc. (a) 91,566
8,892 Chesapeake Corp. 145,918
9,000 Mercer International, Inc.-Sbi (a)(e) 78,120
4,900 Neenah Paper, Inc. 149,205
14,801 P.H. Glatfelter Co. 234,892
8,080 Rock-Tenn Co. Class A 128,876
14,942 Wausau Paper Corp. 186,028
------------
1,947,004
- - --------------------------------------------------------------------------------------------------------------------------------
Plastics - 0.1% 6,100 The Lamson & Sessions Co. (a) 172,996
4,700 PW Eagle, Inc. 142,128
13,454 Spartech Corp. 304,060
------------
619,184
- - --------------------------------------------------------------------------------------------------------------------------------
Pollution Control and Environmental Services - 0.2% 5,600 American Ecology Corp. 148,400
5,800 Basin Water, Inc. (a) 58,116
19,000 Darling International, Inc. (a) 86,070
16,246 Headwaters, Inc. (a) 415,248
3,600 TEAM INC (a) 90,180
------------
798,014
- - --------------------------------------------------------------------------------------------------------------------------------
Power Transmission Equipment - 0.1% 10,251 Regal-Beloit Corp. 452,582
- - --------------------------------------------------------------------------------------------------------------------------------
Printing and Copying Services - 0.1% 12,882 Bowne & Co., Inc. 184,213
17,700 Cenveo, Inc. (a) 317,715
7,300 Schawk, Inc. 127,750
------------
629,678
- - --------------------------------------------------------------------------------------------------------------------------------
Production Technology Equipment - 1.2% 3,500 ADE Corp. (a) 113,715
12,457 ATMI, Inc. (a) 306,691
41,200 Axcelis Technologies, Inc. (a) 243,080
24,878 Brooks Automation, Inc. (a) 293,560
14,556 Cognex Corp. 378,893
42,568 Credence Systems Corp. (a) 148,988
12,900 Cymer, Inc. (a) 599,334
6,631 Dionex Corp. (a) 362,450
11,161 Electro Scientific Industries, Inc. (a) 200,786
17,300 Emcore Corp. (a) 166,080
43,499 Entegris, Inc. (a) 414,545
7,690 Esterline Technologies Corp. (a) 319,827
9,955 FEI Co. (a) 225,779
8,700 Intevac, Inc. (a) 188,616
24,056 Kulicke & Soffa Industries, Inc. (a) 178,255
25,503 LTX Corp. (a) 178,776
6,200 MTS Systems Corp. 244,962
21,899 Mattson Technology, Inc. (a) 213,953
8,262 Photon Dynamics, Inc. (a) 103,440
11,979 Photronics, Inc. (a) 177,289
5,600 Rofin-Sinar Technologies, Inc. (a) 321,832
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
11,073 Rudolph Technologies, Inc. (a) $ 160,559
10,490 Ultratech, Inc. (a) 165,113
19,113 Varian Semiconductor Equipment Associates, Inc. (a) 623,275
------------
6,329,798
- - --------------------------------------------------------------------------------------------------------------------------------
Publishing: Miscellaneous - 0.4% 8,494 Banta Corp. 393,527
5,000 Consolidated Graphics, Inc. (a) 260,300
2,150 Courier Corp. 86,043
8,482 Martha Stewart Living Omnimedia, Inc. Class A (a)(e) 141,734
10,907 Playboy Enterprises, Inc. Class B (a) 108,852
56,100 Primedia, Inc. (a) 102,663
2,800 Private Media Group, Inc. (a) 13,160
37,500 The Reader's Digest Association, Inc. Class A 523,500
14,260 Scholastic Corp. (a) 370,332
------------
2,000,111
- - --------------------------------------------------------------------------------------------------------------------------------
Publishing: Newspapers - 0.3% 29,800 Belo Corp. Class A 464,880
32,529 Hollinger International, Inc. Class A 261,208
11,100 Journal Communications, Inc. Class A 124,764
16,433 Journal Register Co. 147,240
14,700 Lee Enterprises, Inc. 396,165
9,000 Media General, Inc. Class A 377,010
------------
1,771,267
- - --------------------------------------------------------------------------------------------------------------------------------
Radio & TV Broadcasters - 0.5% 15,700 CKX, Inc. (a) 213,049
12,300 Citadel Broadcasting Corp. 109,470
19,500 Cox Radio, Inc. Class A (a) 281,190
23,900 Cumulus Media, Inc. Class A (a)(e) 255,013
13,600 Emmis Communications Corp. Class A (a) 212,704
11,200 Entercom Communications Corp. 292,992
1,500 Fisher Communications, Inc. (a) 63,195
21,500 Gray Television, Inc. 124,485
11,000 Lin TV Corp. Class A (a) 83,050
4,400 Outdoor Channel Holdings, Inc. (a) 45,408
25,500 Radio One, Inc. Class D (a) 188,700
3,183 Salem Communications Corp. Class A (a) 41,411
19,064 Sinclair Broadcast Group, Inc. Class A 163,188
14,884 Spanish Broadcasting System, Inc. Class A (a) 76,057
23,100 Westwood One, Inc. 173,250
10,496 World Wrestling Entertainment, Inc. 177,277
------------
2,500,439
- - --------------------------------------------------------------------------------------------------------------------------------
Railroad Equipment - 0.2% 1,700 American Railcar Industries, Inc. 56,287
5,000 Freightcar America, Inc. 277,550
4,500 Greenbrier Cos., Inc. 147,330
15,639 Westinghouse Air Brake Technologies Corp. 584,899
------------
1,066,066
- - --------------------------------------------------------------------------------------------------------------------------------
Railroads - 0.2% 11,481 Florida East Coast Industries, Inc. 600,801
11,475 Genesee & Wyoming, Inc. Class A (a) 407,018
13,002 RailAmerica, Inc. (a) 136,001
------------
1,143,820
- - --------------------------------------------------------------------------------------------------------------------------------
Real Estate - 0.2% 1,200 AMREP Corp. 65,184
9,800 Affordable Residential Communities 105,350
2,000 Avatar Holdings, Inc. (a)(e) 113,940
5,500 Bluegreen Corp. (a) 63,030
3,400 California Coastal Communities, Inc. (a) 108,800
1,900 Consolidated-Tomoka Land Co. 104,766
4,800 Housevalues, Inc. (a)(e) 33,264
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
5,200 Newkirk Realty Trust, Inc. $ 90,272
2,715 Tejon Ranch Co. (a) 111,749
11,300 Trammell Crow Co. (a) 397,421
------------
1,193,776
- - --------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 6.1% 23,600 Aames Investment Corp. 117,764
10,001 Acadia Realty Trust 236,524
4,200 Agree Realty Corp. 142,674
567 Alexander's, Inc. (a) 154,088
8,556 Alexandria Real Estate Equities, Inc. 758,746
8,050 American Campus Communities, Inc. 200,043
41,900 American Financial Realty Trust 405,592
15,287 American Home Mortgage Investment Corp. 563,479
24,100 Anthracite Capital, Inc. 293,056
15,100 Anworth Mortgage Asset Corp. 125,330
6,200 Arbor Realty Trust, Inc. 155,310
20,400 Ashford Hospitality Trust, Inc. 257,448
17,850 BioMed Realty Trust, Inc. 534,429
16,000 Capital Lease Funding, Inc. 182,560
2,700 Capital Trust, Inc. 96,174
7,300 Cedar Shopping Centers, Inc. 107,456
3,700 CentraCore Properties Trust 91,575
13,000 Corporate Office Properties Trust 547,040
12,800 Cousins Properties, Inc. 395,904
25,800 Crescent Real Estate EQT Co. 478,848
14,600 Deerfield Triarc Capital Corp. 189,508
19,300 DiamondRock Hospitality Co. 285,833
4,500 Digital Realty Trust, Inc. 111,105
8,927 Eastgroup Properties Inc. 416,712
12,500 Education Realty Trust, Inc. 208,125
9,880 Entertainment Properties Trust 425,334
18,140 Equity Inns, Inc. 300,398
6,494 Equity Lifestyle Properties, Inc. 284,632
11,000 Equity One, Inc. 229,900
15,050 Extra Space Storage, Inc. 244,412
20,370 FelCor Lodging Trust, Inc. 442,844
21,900 Fieldstone Investment Corp. 200,604
15,100 First Industrial Realty Trust, Inc. 572,894
6,800 First Potomac Realty Trust 202,572
15,500 Franklin Street Properties Corp. 305,040
49,200 Friedman Billings Ramsey Group, Inc. Class A 539,724
13,190 GMH Communities Trust 173,844
5,200 Getty Realty Corp. 147,888
13,739 Glenborough Realty Trust, Inc. 295,938
14,856 Glimcher Realty Trust 368,577
3,950 Gramercy Capital Corp. 102,305
15,700 Healthcare Realty Trust, Inc. 500,045
8,400 Heritage Property Investment Trust 293,328
15,300 Hersha Hospitality Trust 142,137
17,300 Highland Hospitality Corp. 243,584
20,600 Highwoods Properties, Inc. 745,308
13,120 Home Properties, Inc. 728,291
17,000 HomeBanc Corp. 134,980
25,400 IMPAC Mortgage Holdings, Inc. 283,972
27,300 Inland Real Estate Corp. 406,224
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
14,392 Innkeepers USA Trust $ 248,694
15,500 Investors Real Estate Trust 139,965
6,000 JER Investors Trust, Inc. 93,300
26,800 KKR Financial Corp. 557,708
7,240 Kite Realty Group Trust 112,872
6,800 LTC Properties, Inc. 151,980
13,320 LaSalle Hotel Properties 616,716
17,642 Lexington Corporate Properties Trust 381,067
17,021 Longview Fibre Co. 324,931
18,600 Luminent Mortgage Capital, Inc. 172,236
26,400 MFA Mortgage Investments, Inc. 181,632
14,800 Maguire Properties, Inc. 520,516
18,800 Medical Properties Trust, Inc. 207,552
9,229 Mid-America Apartment Communities, Inc. 514,517
19,100 The Mills Corp. 510,925
9,750 MortgageIT Holdings, Inc. 117,585
7,529 National Health Investors, Inc. 202,455
17,775 National Retail Properties, Inc. 354,611
28,559 Nationwide Health Properties, Inc. 642,863
14,700 Newcastle Investment Corp. 372,204
15,000 NorthStar Realty Finance Corp. 180,150
11,000 Novastar Financial, Inc. (e) 347,710
19,300 Omega Healthcare Investors, Inc. 255,146
5,308 PS Business Parks, Inc. 313,172
6,104 Parkway Properties, Inc. 277,732
11,632 Pennsylvania Real Estate Investment Trust 469,584
14,286 Post Properties, Inc. 647,727
14,647 Potlatch Corp. 552,924
11,600 RAIT Investment Trust 338,720
7,800 Ramco-Gershenson Properties Trust 210,054
27,700 Realty Income Corp. 606,630
7,095 Redwood Trust, Inc. 346,449
14,100 Republic Property Trust 139,308
3,922 Saul Centers, Inc. 159,939
15,000 Saxon Capital Inc. 171,600
21,314 Senior Housing Properties Trust 381,734
2,700 Sizeler Property Investors, Inc. 43,362
7,304 Sovran Self Storage, Inc. 370,970
33,300 Spirit Finance Corp. 374,958
28,300 Strategic Hotel Capital, Inc. 586,942
7,943 Sun Communities, Inc. 258,386
18,900 Sunstone Hotel Investors, Inc. 549,234
10,222 Tanger Factory Outlet Centers, Inc. 330,886
2,875 Tarragon Corp. 39,819
21,900 Trustreet Properties, Inc. 288,861
19,170 U-Store-It Trust 361,546
4,127 Universal Health Realty Income Trust 129,381
6,700 Urstadt Biddle Properties, Inc. Class A 109,143
16,265 Washington Real Estate Investment Trust 596,926
3,900 Windrose Medical Properties Trust 56,940
8,255 Winston Hotels, Inc. 101,124
2,300 Winthrop Realty Trust, Inc. 13,662
------------
31,405,146
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Recreational Vehicles & Boats - 0.3% 5,643 Arctic Cat, Inc. $ 110,095
21,299 Fleetwood Enterprises, Inc. (a) 160,594
2,075 Marine Products Corp. 20,190
8,924 Monaco Coach Corp. 113,335
13,800 Polaris Industries, Inc. 597,540
12,890 Winnebago Industries, Inc. (e) 400,106
------------
1,401,860
- - --------------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: Commercial - 0.1% 3,853 Electro Rent Corp. (a) 61,725
5,200 H&E Equipment Services, Inc. (a) 153,140
2,000 Interpool, Inc. 44,440
2,000 Marlin Business Services, Inc. (a) 45,120
6,210 McGrath RentCorp 172,700
12,400 Williams Scotsman International, Inc. (a) 270,816
------------
747,941
- - --------------------------------------------------------------------------------------------------------------------------------
Rental & Leasing Services: Consumer - 0.3% 13,493 Aaron Rents, Inc. 362,692
3,400 Amerco, Inc. (a) 342,244
8,195 Dollar Thrifty Automotive Group (a) 369,349
23,400 Rent-A-Center, Inc. (a) 581,724
------------
1,656,009
- - --------------------------------------------------------------------------------------------------------------------------------
Restaurants - 1.6% 12,400 AFC Enterprises Inc. (a) 158,100
29,400 Applebees International, Inc. 565,068
3,800 BJ's Restaurants, Inc. (a) 84,892
14,380 Bob Evans Farms, Inc. 431,544
3,525 Buffalo Wild Wings, Inc. (a) 135,043
12,500 CBRL Group, Inc. 424,000
11,050 CEC Entertainment, Inc. (a) 354,926
18,400 CKE Restaurants, Inc. 305,624
8,800 California Pizza Kitchen, Inc. (a) 241,824
3,400 Chipotle Mexican Grill, Inc. Class A (a) 207,230
7,200 Cosi, Inc. (a) 44,856
30,700 Denny's Corp. (a) 112,976
11,250 Domino's Pizza, Inc. 278,325
5,848 IHOP Corp. 281,172
12,218 Jack in the Box, Inc. (a) 478,946
18,300 Krispy Kreme Doughnuts, Inc. (a)(e) 148,962
5,496 Landry's Restaurants, Inc. 178,345
7,854 Lone Star Steakhouse & Saloon, Inc. 206,010
7,100 Luby's, Inc. (a) 74,053
2,400 McCormick & Schmick's Seafood Restaurants, Inc. (a) 57,120
600 Morton's Restaurant Group, Inc. (a) 9,192
11,084 O'Charleys, Inc. (a) 188,428
10,608 PF Chang's China Bistro, Inc. (a) 403,316
9,096 Papa John's International, Inc. (a) 301,987
13,577 Rare Hospitality International, Inc. (a) 390,475
6,800 Red Robin Gourmet Burgers, Inc. (a) 289,408
20,900 Ruby Tuesday, Inc. 510,169
8,400 Ruth's Chris Steak House, Inc. (a) 171,528
14,100 Ryan's Restaurant Group, Inc. (a) 167,931
28,800 Sonic Corp. (a) 598,752
8,228 The Steak n Shake Co. (a) 124,572
15,000 Texas Roadhouse, Inc. Class A (a) 202,800
18,450 Triarc Cos. 288,374
------------
8,415,948
- - --------------------------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
Retail - 3.6% 8,324 1-800-FLOWERS.COM, Inc. Class A (a) $ 48,029
13,500 99 Cents Only Stores (a) 141,210
7,400 AC Moore Arts & Crafts, Inc. (a) 120,694
18,150 Aeropostale, Inc. (a) 524,353
5,350 America's Car Mart, Inc. (a) 108,658
2,500 Asbury Automotive Group, Inc. (a) 52,350
9,800 Big 5 Sporting Goods Corp. 191,100
42,300 Big Lots, Inc. (a) 722,484
63,500 Blockbuster, Inc. Class A (e) 316,230
6,200 Blue Nile, Inc. (a)(e) 199,392
3,900 The Bon-Ton Stores, Inc. 85,332
7,300 Books-A-Million, Inc. 121,764
20,900 Borders Group, Inc. 385,814
9,418 Brown Shoe Co., Inc. 320,965
2,249 The Buckle, Inc. 94,166
3,800 Build-A-Bear Workshop, Inc. (a) 81,738
6,700 bebe Stores, Inc. 103,314
14,634 CSK Auto Corp. (a) 175,169
8,500 Cabela's, Inc. Class A (a) 163,710
4,050 Cache, Inc. (a) 70,227
14,000 Casual Male Retail Group, Inc. (a)(e) 140,700
10,995 The Cato Corp. Class A 284,221
8,700 Central Garden and Pet Co. (a) 374,535
6,900 Charlotte Russe Holding, Inc. (a) 165,186
40,840 Charming Shoppes, Inc. (a) 459,042
8,485 The Children's Place Retail Stores, Inc. (a) 509,524
12,128 Christopher & Banks Corp. 351,712
1,500 Conn's, Inc. (a) 39,825
9,876 Cost Plus, Inc. (a) 144,782
500 DEB Shops, Inc. 12,055
17,890 Dress Barn, Inc. (a) 453,512
7,109 dELiA*s, Inc. (a) 57,441
18,700 drugstore.com, Inc. (a) 54,230
5,000 Ezcorp, Inc. (a) 188,450
3,900 FTD Group, Inc. (a) 52,650
16,935 Fred's, Inc. 226,082
11,300 GSI Commerce, Inc. (a) 152,889
8,400 Gaiam, Inc. (a) 117,768
16 Gander Mountain Co. (a) 92
7,738 Genesco, Inc. (a) 262,086
9,500 Global Imaging Systems, Inc. (a) 392,160
9,432 Group 1 Automotive, Inc. 531,399
10,139 Guitar Center, Inc. (a) 450,881
12,658 Gymboree Corp. (a) 439,992
16,581 HOT Topic, Inc. (a) 190,847
14,275 Hibbett Sporting Goods, Inc. (a) 341,173
19,398 Insight Enterprises, Inc. (a) 369,532
8,505 Jo-Ann Stores, Inc. (a) 124,598
7,633 Jos. A. Bank Clothiers, Inc. (a) 182,887
1,547 Lawson Products, Inc. 60,983
5,300 Lithia Motors, Inc. Class A 160,696
7,100 MarineMax, Inc. (a) 186,233
15,900 Men's Wearhouse, Inc. 481,770
4,900 New York & Co. (a) 47,873
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
5,300 Overstock.com, Inc. (a)(e) $ 112,678
18,110 PEP Boys-Manny, Moe & Jack 212,430
27,000 Pacific Sunwear of California, Inc. (a) 484,110
8,700 The Pantry, Inc. (a) 500,598
21,900 Payless Shoesource, Inc. (a) 595,023
19,800 Petco Animal Supplies, Inc. (a) 404,514
8,900 PetMed Express, Inc. (a) 97,633
28,999 Pier 1 Imports, Inc. (e) 202,413
10,016 Priceline.com, Inc. (a) 299,078
14,300 Restoration Hardware, Inc. (a) 102,674
6,700 Retail Ventures, Inc. (a) 119,394
9,800 Rush Enterprises Inc. Class A (a) 178,066
3,947 Russ Berrie & Co., Inc. (a) 48,390
9,654 School Specialty, Inc. (a) 307,480
8,700 Sonic Automotive, Inc. 192,966
1,400 The Sportsman's Guide, Inc. (a) 42,700
8,900 Stage Stores, Inc. 293,700
7,703 Stamps.com, Inc. (a) 214,297
7,824 Stein Mart, Inc. 115,795
7,300 Talbots, Inc. 134,685
11,166 Too, Inc. (a) 428,663
12,990 Tuesday Morning Corp. (e) 170,819
14,780 United Natural Foods, Inc. (a) 488,036
11,056 ValueVision Media, Inc. Class A (a) 121,948
3,100 Volcom Inc. (a) 99,169
18,300 The Wet Seal, Inc. Class A (a) 89,304
18,700 Zale Corp. (a) 450,483
4,000 Zumiez, Inc. (a) 150,280
------------
18,691,831
- - --------------------------------------------------------------------------------------------------------------------------------
Savings & Loan - 2.0% 6,437 Anchor Bancorp Wisconsin, Inc. 194,204
8,750 BFC Financial Corp. (a) 58,187
25,638 Bank Mutual Corp. 313,296
18,142 BankAtlantic Bancorp, Inc. Class A 269,227
12,673 BankUnited Financial Corp. Class A 386,780
2,600 Berkshire Hills Bancorp, Inc. 92,248
23,787 Brookline Bancorp, Inc. 327,547
500 Charter Financial Corp. 19,730
1,500 Citizens First Bancorp, Inc. 40,065
4,402 Coastal Financial Corp. 56,830
16,226 Commercial Capital Bancorp, Inc. 255,559
9,549 Dime Community Bancshares, Inc. 129,580
6,800 Downey Financial Corp. 461,380
10,422 Fidelity Bankshares, Inc. 331,628
4,026 First Financial Holdings, Inc. 128,832
6,400 First Indiana Corp. 166,592
42,653 First Niagara Financial Group, Inc. 597,995
3,100 First Place Financial Corp. 71,331
8,750 First Republic Bank 400,750
6,800 FirstFed Financial Corp. (a) 392,156
11,250 Flagstar Bancorp, Inc. 179,550
8,875 Flushing Financial Corp. 159,395
2,978 Great Southern Bancorp, Inc. 90,918
8,417 Harbor Florida Bancshares, Inc. 312,607
3,000 Horizon Financial Corp. 82,290
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
3,250 IBERIABANK Corp. $ 187,005
1,800 ITLA Capital Corp. 94,644
9,100 KNBT Bancorp, Inc. 150,332
6,600 Kearny Financial Corp. 97,680
10,960 MAF Bancorp, Inc. 469,526
300 NASB Financial, Inc. 10,365
23,111 Netbank, Inc. 153,226
36,300 NewAlliance Bancshares, Inc. 519,453
4,867 Northwest Bancorp, Inc. 128,976
5,296 OceanFirst Financial Corp. 117,677
15,665 Ocwen Financial Corp. (a) 199,102
8,211 PFF Bancorp, Inc. 272,277
15,828 Partners Trust Financial Group, Inc. 180,597
3,100 Pennfed Financial Services, Inc. 57,815
26,558 Provident Financial Services, Inc. 476,716
12,689 Provident New York Bancorp 167,749
3,400 Rockville Financial, Inc. (a) 50,048
2,400 Sound Federal Bancorp, Inc. 49,896
13,953 Sterling Financial Corp. 425,706
5,100 Texas United Bancshares, Inc. 143,565
6,300 TierOne Corp. 212,751
8,661 United Community Financial Corp. 103,932
36,333 W Holding Co., Inc. 241,614
400 Westfield Financial, Inc. 11,172
8,300 Willow Grove Bancorp, Inc. 132,053
------------
10,172,554
- - --------------------------------------------------------------------------------------------------------------------------------
Scientific Equipment & Suppliers - 0.1% 13,535 Newport Corp. (a) 218,184
10,335 Varian, Inc. (a) 429,006
------------
647,190
- - --------------------------------------------------------------------------------------------------------------------------------
Securities Brokerage & Services - 0.5% 17,445 CharterMac 326,396
5,100 GFI Group, Inc. (a) 275,145
4,300 Gladstone Investment Corp. 64,500
38,000 Knight Capital Group, Inc. Class A (a) 578,740
17,700 LaBranche & Co., Inc. (a)(e) 214,347
13,800 MarketAxess Holdings, Inc. (a)(e) 151,938
10,361 NCO Group, Inc. (a) 273,945
6,900 optionsXpress Holdings, Inc. 160,839
4,700 Penson Worldwide, Inc. (a) 80,887
5,304 SWS Group, Inc. 127,932
4,200 Thomas Weisel Partners Group, Inc. (a) 79,842
------------
2,334,511
- - --------------------------------------------------------------------------------------------------------------------------------
Services: Commercial - 3.2% 14,570 ABM Industries, Inc. 249,147
9,605 AMN Healthcare Services, Inc. (a) 194,982
7,661 Administaff, Inc. 274,340
7,600 The Advisory Board Co. (a) 365,484
5,700 Ambassadors Group, Inc. 164,616
1,100 Ambassadors International, Inc. 25,575
700 Barrett Business Services (a) 12,845
26,753 CBIZ, Inc. (a) 198,240
6,101 CDI Corp. 176,929
5,100 CRA International, Inc. (a) 230,214
7,378 Casella Waste Systems, Inc. (a) 96,578
2,800 Central Parking Corp. 44,800
8,272 Chemed Corp. 451,072
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
5,300 Clark, Inc. $ 69,960
13,400 Cogent, Inc. (a) 201,938
6,600 Coinmach Service Corp. Class A 67,650
9,292 Coinstar, Inc. (a) 222,450
1,500 Cornell Cos., Inc. (a) 23,040
6,750 CoStar Group, Inc. (a) 403,852
13,700 Cross Country Healthcare, Inc. (a) 249,203
9,800 DiamondCluster International, Inc. Class A (a) 77,616
5,700 DynCorp. International, Inc. (a) 59,166
8,604 Exponent, Inc. (a) 145,408
12,541 FTI Consulting, Inc. (a) 335,723
2,300 First Advantage Corp. Class A (a) 53,498
11,300 First Consulting Group, Inc. (a) 99,892
4,481 Forrester Research, Inc. (a) 125,378
7,077 G&K Services, Inc. Class A 242,741
5,600 The Geo Group, Inc. (a) 196,280
10,700 Gevity HR, Inc. 284,085
16,500 Harris Interactive, Inc. (a) 94,050
7,658 Heidrick & Struggles International, Inc. (a) 259,147
17,400 Home Solutions of America, Inc. (a) 107,358
11,000 Hudson Highland Group, Inc. (a) 118,690
1,300 ICT Group, Inc. (a) 31,889
34,700 IKON Office Solutions, Inc. 437,220
11,100 Jackson Hewitt Tax Service, Inc. 347,985
6,768 Kelly Services, Inc. Class A 183,887
6,600 Kenexa Corp. (a) 210,210
12,500 Kforce, Inc. (a) 193,625
6,700 The Knot, Inc. (a) 140,231
12,968 Korn/Ferry International (a) 254,043
18,222 Labor Ready, Inc. (a) 412,728
12,100 Lightbridge, Inc. (a) 156,695
4,900 Liquidity Services, Inc. (a) 76,293
6,004 MAXIMUS, Inc. 138,993
34,405 MPS Group, Inc. (a) 518,139
5,242 Midas, Inc. (a) 96,453
5,600 Monro Muffler, Inc. 182,336
14,123 Navigant Consulting, Inc. (a) 319,886
3,200 Navigant International, Inc. (a) 51,296
16,300 Net 1 UEPS Technologies, Inc. (a) 445,805
4,117 Netratings, Inc. (a) 57,185
6,300 On Assignment, Inc. (a) 57,897
17,364 PHH Corp. (a) 478,205
9,000 People Support, Inc. (a) 121,140
8,500 Perficient, Inc. (a) 105,060
3,460 Pre-Paid Legal Services, Inc. (e) 119,370
6,000 The Providence Service Corp. (a) 163,380
17,500 Regis Corp. 623,175
18,732 Resources Connection, Inc. (a) 468,675
9,902 Rollins, Inc. 194,475
13,800 Sirva, Inc. (a) 89,286
13,700 Sitel Corp. (a) 53,704
15,600 Source Interlink Cos., Inc. (a) 185,640
20,729 Spherion Corp. (a) 189,048
600 Standard Parking Corp. (a) 16,248
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
6,240 Startek, Inc. $ 93,288
32,900 Synagro Technologies, Inc. 129,297
11,389 TeleTech Holdings, Inc. (a) 144,185
19,131 Tetra Tech, Inc. (a) 339,384
2,000 Travelzoo, Inc. (a)(e) 60,680
4,900 Unifirst Corp. 169,050
3,600 Vertrue, Inc. (a) 154,908
6,700 Viad Corp. 209,710
3,759 Volt Information Sciences, Inc. (a) 175,169
17,018 Waste Connections, Inc. (a) 619,455
700 Waste Industries USA, Inc. 15,876
6,533 Waste Services, Inc. (a) 58,732
13,515 Watson Wyatt Worldwide, Inc. 474,917
19,013 Wireless Facilities, Inc. (a) 52,286
10,500 World Fuel Services Corp. 479,745
------------
16,218,831
- - --------------------------------------------------------------------------------------------------------------------------------
Shipping - 0.2% 11,900 American Commercial Lines, Inc. (a) 716,975
7,400 Gulfmark Offshore, Inc. (a) 191,142
4,300 Horizon Lines, Inc. Class A 68,886
3,300 Maritrans, Inc. 82,170
2,100 Star Maritime Acquisition Corp. (a) 21,336
------------
1,080,509
- - --------------------------------------------------------------------------------------------------------------------------------
Shoes - 0.5% 2,300 CROCS, Inc. (a)(e) 57,845
6,900 DSW, Inc. Class A (a) 251,298
4,600 Deckers Outdoor Corp. (a) 177,376
17,566 The Finish Line, Inc. Class A 207,806
10,800 Iconix Brand Group, Inc. (a) 176,472
10,996 K-Swiss, Inc. Class A 293,593
3,192 Kenneth Cole Productions, Inc. Class A 71,277
4,400 Shoe Carnival, Inc. (a) 104,984
5,255 Skechers U.S.A., Inc. Class A (a) 126,698
8,468 Steven Madden Ltd. 250,822
12,235 Stride Rite Corp. 161,380
16,500 Timberland Co. Class A (a) 430,650
300 Weyco Group, Inc. 6,966
18,608 Wolverine World Wide, Inc. 434,125
------------
2,751,292
- - --------------------------------------------------------------------------------------------------------------------------------
Steel - 0.6% 36,727 AK Steel Holding Corp. (a) 507,934
8,545 Chaparral Steel Co. (a) 615,411
7,534 Gibraltar Industries, Inc. 218,486
3,900 Olympic Steel, Inc. 138,021
12,500 Oregon Steel Mills, Inc. (a) 633,250
8,750 Schnitzer Steel Industries, Inc. Class A 310,450
5,700 Steel Technologies, Inc. 110,808
3,600 Wheeling-Pittsburgh Corp. (a) 71,604
24,000 Worthington Industries, Inc. 502,800
------------
3,108,764
- - --------------------------------------------------------------------------------------------------------------------------------
Sugar - 0.0% 5,200 Imperial Sugar Co. New Shares 123,344
- - --------------------------------------------------------------------------------------------------------------------------------
Telecommunications Equipment - 0.8% 53,600 Andrew Corp. (a) 474,896
35,100 Arris Group, Inc. (a) 460,512
6,285 Audiovox Corp. Class A (a) 85,853
14,161 Belden CDT, Inc. 468,021
20,434 C-COR, Inc. (a) 157,750
5,300 CalAmp Corp. (a) 47,117
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
20,100 Interdigital Communications Corp. (a) $ 701,691
11,900 Mastec, Inc. (a) 157,199
17,199 Plantronics, Inc. 381,990
31,900 Polycom, Inc. (a) 699,248
42,677 Powerwave Technologies, Inc. (a) 389,214
9,000 Radyne Comstream Inc (a) 102,420
20,500 Symmetricom, Inc. (a) 144,935
------------
4,270,846
- - --------------------------------------------------------------------------------------------------------------------------------
Textile Products - 0.0% 6,800 DHB Industries, Inc. (a) 13,056
15,921 Interface, Inc. Class A (a) 182,295
------------
195,351
- - --------------------------------------------------------------------------------------------------------------------------------
Textiles Apparel Manufacturers - 0.8% 19,100 Carter's, Inc. (a) 504,813
2,500 Cherokee, Inc. 103,400
5,800 Columbia Sportswear Co. (a) 262,508
6,485 Guess?, Inc. (a) 270,749
6,300 Hartmarx Corp. (a) 37,800
10,682 Kellwood Co. 312,662
4,500 Maidenform Brands, Inc. (a) 55,485
5,342 Oxford Industries, Inc. 210,528
4,400 Perry Ellis International, Inc. (a) 111,364
20,854 Phillips-Van Heusen Corp. 795,789
40,800 Quiksilver, Inc. (a) 496,944
12,317 Russell Corp. 223,677
6,400 True Religion Apparel, Inc. (a) 113,280
8,400 Under Armour, Inc. Class A (a) 358,008
18,500 The Warnaco Group, Inc. (a) 345,580
------------
4,202,587
- - --------------------------------------------------------------------------------------------------------------------------------
Tires & Rubber - 0.1% 3,774 Bandag, Inc. 138,091
25,300 Cooper Tire & Rubber Co. (e) 281,842
3,900 Titan International, Inc. (e) 72,969
------------
492,902
- - --------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.2% 38,455 Alliance One International, Inc. 170,740
5,220 Schweitzer-Mauduit International, Inc. 113,013
10,456 Universal Corp. 389,172
15,213 Vector Group Ltd. (e) 247,211
------------
920,136
- - --------------------------------------------------------------------------------------------------------------------------------
Toys - 0.1% 11,330 Jakks Pacific, Inc. (a) 227,620
11,000 Leapfrog Enterprises, Inc. (a)(e) 111,100
19,400 Marvel Entertainment, Inc. (a) 388,000
------------
726,720
- - --------------------------------------------------------------------------------------------------------------------------------
Transportation Miscellaneous - 0.2% 10,000 Celadon Group, Inc. (a) 220,400
1,500 Dynamex, Inc. (a) 32,715
13,000 HUB Group, Inc. Class A (a) 318,890
11,700 Pacer International, Inc. 381,186
6,481 SCS Transportation, Inc. (a) 178,422
4,500 US Xpress Enterprises, Inc. Class A (a) 121,590
------------
1,253,203
- - --------------------------------------------------------------------------------------------------------------------------------
Truckers - 0.5% 9,941 Arkansas Best Corp. 499,138
12,332 Forward Air Corp. 502,282
20,173 Heartland Express, Inc. 360,895
17,662 Knight Transportation, Inc. 356,772
4,450 Marten Transport Ltd. (a) 96,743
9,425 Old Dominion Freight Line Inc. (a) 354,286
1,100 PAM Transportation Services (a) 31,779
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
100 Patriot Transportation Holding, Inc. (a) $ 8,678
1,000 Quality Distribution, Inc. (a) 13,280
4,200 USA Truck, Inc. (a) 74,844
1,700 Universal Truckload Services, Inc. (a) 58,021
17,300 Werner Enterprises, Inc. 350,671
------------
2,707,389
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Cable TV & Radio - 0.0% 19,100 Mediacom Communications Corp. Class A (a) 118,993
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Electrical - 1.3% 9,866 Allete, Inc. 467,155
19,375 Avista Corp. 442,331
13,200 Black Hills Corp. 453,156
5,289 CH Energy Group, Inc. 253,872
18,867 Cleco Corp. 438,658
27,700 Duquesne Light Holdings, Inc. 455,388
16,508 El Paso Electric Co. (a) 332,801
12,968 The Empire District Electric Co. 266,492
15,100 IDACORP, Inc. 517,779
4,000 ITC Holdings Corp. 106,320
6,145 MGE Energy, Inc. 191,417
11,800 NorthWestern Corp. 405,330
9,186 Otter Tail Corp. 251,053
23,000 PNM Resources, Inc. 574,080
4,100 Pike Electric Corp. (a) 78,966
11,600 Portland General Electric Co. 289,652
5,500 UIL Holdings Corp. 309,595
13,983 Unisource Energy Corp. 435,570
29,200 Westar Energy, Inc. 614,660
------------
6,884,275
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Distributors - 0.8% 6,422 Cascade Natural Gas Corp. 135,440
2,600 EnergySouth, Inc. 81,198
6,048 The Laclede Group, Inc. 207,809
10,974 New Jersey Resources Corp. 513,364
15,600 Nicor, Inc. (e) 647,400
9,499 Northwest Natural Gas Co. 351,748
14,900 Peoples Energy Corp. 535,059
25,500 Piedmont Natural Gas Co. 619,650
9,732 South Jersey Industries, Inc. 266,559
12,790 Southwest Gas Corp. 400,839
17,800 WGL Holdings, Inc. (e) 515,310
------------
4,274,376
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Gas Pipelines - 0.0% 14,231 Transmontaigne, Inc. (a) 159,530
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Miscellaneous - 0.1% 120,500 Aquila, Inc. (a) 507,305
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Telecommunications - 1.1% 18,900 Alaska Communications Systems Group, Inc. 239,085
400 Atlantic Tele-Network Inc. 8,332
8,955 CT Communications, Inc. 204,801
5,626 Centennial Communications Corp. 29,255
86,400 Cincinnati Bell, Inc. (a) 354,240
9,033 Commonwealth Telephone Enterprises, Inc. 299,534
7,800 Consolidated Communications Holdings, Inc. 129,714
56,000 Dobson Communications Corp. Class A (a) 434,000
1,600 Eschelon Telecom, Inc. (a) 24,752
10,400 FairPoint Communications, Inc. 149,760
19,800 First Avenue Networks, Inc. (a) 215,424
17,839 General Communication Inc. Class A (a) 219,776
6,492 Golden Telecom, Inc. (f) 164,572
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
Shares
Industry Held Common Stocks Value
- - --------------------------------------------------------------------------------------------------------------------------------
17,700 IDT Corp. Class B (a) $ 244,083
10,600 Iowa Telecommunications Services, Inc. 200,552
6,900 iPCS, Inc. (a) 333,270
7,700 NTELOS Holdings Corp. (a) 111,265
4,121 North Pittsburgh Systems, Inc. 113,575
30,100 Premiere Global Services, Inc. (a) 227,255
15,189 Price Communications Corp. (a) 257,454
8,300 RCN Corp. (a) 206,919
1,700 Shenandoah Telecom Co. 79,900
4,800 SureWest Communications 92,736
14,833 Talk America Holdings, Inc. (a) 91,816
25,000 Time Warner Telecom, Inc. Class A (a) 371,250
11,220 USA Mobility, Inc. 186,252
27,500 Ubiquitel, Inc. (a) 284,350
18,800 Valor Communications Group, Inc. (e) 215,260
------------
5,489,182
- - --------------------------------------------------------------------------------------------------------------------------------
Utilities: Water - 0.1% 7,385 American States Water Co. 263,275
5,396 California Water Service Group 192,853
3,748 SJW Corp. 95,387
11,183 Southwest Water Co. 133,861
------------
685,376
- - --------------------------------------------------------------------------------------------------------------------------------
Wholesale & International Trade - 0.1% 12,625 Central European Distribution Corp. (a) 317,645
- - --------------------------------------------------------------------------------------------------------------------------------
Wholesalers - 0.2% 19,630 Brightpoint, Inc. (a) 265,594
13,800 LKQ Corp. (a) 262,200
900 MWI Veterinary Supply, Inc. (a) 32,787
8,700 Prestige Brands Holdings, Inc. (a) 86,739
10,469 United Stationers, Inc. (a) 516,331
------------
1,163,651
- - --------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost - $374,034,401) - 87.7% 449,622,572
- - --------------------------------------------------------------------------------------------------------------------------------
Exchange-Traded Funds
- - --------------------------------------------------------------------------------------------------------------------------------
169,590 iShares Russell 2000 Index Fund (e) 12,159,603
- - --------------------------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $12,341,064) - 2.4% 12,159,603
- - --------------------------------------------------------------------------------------------------------------------------------
Mutual Funds
- - --------------------------------------------------------------------------------------------------------------------------------
Investment Management Companies - 0.0% 4,400 Gladstone Capital Corp. (e) 94,116
- - --------------------------------------------------------------------------------------------------------------------------------
Total Mutual Funds (Cost - $92,876) - 0.0% 94,116
- - --------------------------------------------------------------------------------------------------------------------------------
Benefical
Interest Other Interests (b)
- - --------------------------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 0.0% $ 500 PetroCorp Incorporated (Escrow Shares) 0
- - --------------------------------------------------------------------------------------------------------------------------------
Total Other Interests (Cost - $0) - 0.0% 0
- - --------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
- - --------------------------------------------------------------------------------------------------------------------------------
$ 46,332,365 Merrill Lynch Liquidity Series, LLC 46,332,365
Cash Sweep Series I, 4.78% (c)(g)
36,252,065 Merrill Lynch Liquidity Series, LLC 36,252,065
Money Market Series, 5.22% (c)(d)(g)
- - --------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $82,584,430) - 16.1% 82,584,430
- - --------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $469,052,771*) - 106.2% 544,460,721
Liabilities in Excess of Other Assets - (6.2%) (31,816,511)
------------
Net Assets - 100.0% $512,644,210
============
Master Small Cap Index Series
Schedule of Investments as of June 30, 2006
* The cost and unrealized appreciation (depreciation) of investments, as of
June 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 472,784,415
=============
Gross unrealized appreciation $ 93,085,630
Gross unrealized depreciation (21,409,324)
-------------
Net unrealized appreciation $ 71,676,306
=============
(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:
--------------------------------------------------------------------------
Affiliate Net Interest
Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $45,690,690 $ 1,655,673
Merrill Lynch Liquidity Series,
LLC Money Market Series $22,787,010 $ 185,901
--------------------------------------------------------------------------
(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) Represents the current yield as of 6/30/2006.
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.
o Financial futures contracts purchased as of June 30, 2006 were as follows:
----------------------------------------------------------------------------------------------
Number of Face Unrealized
Contracts Issue Expiration Date Value Appreciation
----------------------------------------------------------------------------------------------
133 Russell 2000 Index September 2006 $46,934,608 $1,710,142
----------------------------------------------------------------------------------------------
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) Not Applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached
hereto as EX-99.CERT.
(a)(3) Not Applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: September 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: September 8, 2006
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: September 8, 2006