UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4984
AMERICAN BEACON FUNDS
(Exact name of registrant as specified in charter)
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Address of principal executive offices)-(Zip code)
WILLIAM F. QUINN, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: December 31, 2006
Date of reporting period: December 31, 2006
ITEM 1. REPORT TO STOCKHOLDERS.
G U I D A N C E | V I S I O N | E X P E R I E N C E
[AMERICAN BEACON FUNDS LOGO]
ANNUAL REPORT
[PHOTO]
DECEMBER 31, 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.
Contents
- --------------------------------------------------------------------------------
<Table>
President's Message............................ 1
Performance Overviews.......................... 3
American Beacon Funds
Statements of Assets and Liabilities......... 11
Statements of Operations..................... 12
Statements of Changes in Net Assets.......... 13
Notes to Financial Statements................ 14
Financial Highlights......................... 19
State Street Equity 500 Index Portfolio
Portfolio of Investments..................... 26
Statement of Assets and Liabilities.......... 32
Statement of Operations...................... 33
Statements of Changes in Net Assets.......... 34
Financial Highlights......................... 35
Notes to Financial Statements................ 36
Master Small Cap Index Series
Summary Schedule of Investments.............. 44
Statement of Assets and Liabilities.......... 51
Statement of Operations...................... 52
Statements of Changes in Net Assets.......... 53
Financial Highlights......................... 54
Notes to Financial Statements................ 55
Master International Index Series
Summary Schedule of Investments.............. 61
Statement of Assets and Liabilities.......... 66
Statement of Operations...................... 67
Statements of Changes in Net Assets.......... 68
Financial Highlights......................... 69
Notes to Financial Statements................ 70
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 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.
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies. Investing in foreign equities
entails additional risk not associated with domestic equities, such as currency
fluctuations, economic and political instability and differences in accounting
standards.
American Beacon Funds December 31, 2006
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
Iam pleased to present to you the annual report for the American Beacon S&P 500,
International Equity, and Small Cap Index Funds for the year ended December 31,
2006.
The U.S. and international equity markets finished the year on a positive
note due to the continuing strong performance of the economy, lower oil prices,
and the Federal Reserve taking a neutral policy on interest rates. The S&P 500
reported a one-year return of 15.79%. The MSCI EAFE Index reported a one-year
total return of 26.34%.
The Institutional Class of the S&P 500 Index Fund ended the year with a
one-year return of 15.69% and the Small Cap Index Fund delivered a one-year
return of 17.85%. The International Equity Index Fund ended the year with a
positive return of 26.52%. Looking forward, each Fund will continue to pursue
its objective to continue to replicate the returns, before expenses, of its
corresponding Index.
Please review the enclosed market overviews, 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. To obtain further details
about the American Beacon Funds family or to access your account information,
please visit our website at www.americanbeaconfunds.com. Thank you for your
continued confidence in the American Beacon Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
Performance shown is historical and may not be indicative of future returns.
Investment returns and principal value will vary, and shares may be worth more
or less at redemption than at original purchase. Performance shown is as of date
indicated, and current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 1-800-967-9009.
1
DOMESTIC MARKET OVERVIEW
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The broad-market S&P 500(R) Index rose 15.79% for the year. Large-cap value
stocks significantly outperformed shares of large-cap growth companies, with the
Russell 1000(R) Value Index advancing 22.25% versus the 9.07% return of the
Russell 1000(R) Growth Index. In addition, the returns of small-capitalization
stocks exceeded those of large-capitalization company shares, as the Russell
2000(R) Index climbed 18.37%.
The Federal Reserve Board (the "Fed") raised the target federal funds rate
in four increments of 0.25% during 2006, bringing the target rate from 4.25% to
5.25%. However, the Fed held the rate steady at its meetings on August 8,
September 20, October 25 and December 12, 2006.
Strong growth in corporate earnings and significant upward revisions to
earnings expectations have been a major driver of the equity bull market since
2003. Although the rate of upgrading has slowed from the exceptionally strong
rates in previous years, recent news from the major corporate sectors generally
has been upbeat. Earnings came in ahead of expectations in the last earnings
rounds in Europe, Japan and the U.S., and have supported the rally in equities
over recent months. Historic global profits growth remains around 20%.
The U.S. economy downshifted in 2006 with a very significant slowdown in
housing leading the way. Corporate profit growth rose a double-digit percentage
for an unprecedented fourth year in a row. Commodity price volatility increased
significantly with an early-year run-up, followed by a mid-year pullback. Most
of the year featured an inverted yield curve as the Fed took its market rate up
to 5.25%, while the 10-year Treasury note yield spent much of the year between
4.5% and 5%. Once again, non-U.S. markets, with the notable exception of Japan,
outperformed the U.S. as the U.S. Dollar resumed its weakness.
While overall the year was a good one for equities, the first significant
correction since 2002 enabled a change in leadership from smaller-cap, lower-
quality, more cyclical stocks to larger-cap, higher-quality, more predictable
stocks. After a brief mid-year scare, inflation pressures remained fairly low
around the world, which was good news, especially in light of the unprecedented
run-up in industrial commodity prices. In that regard, oil prices set a new all-
time high in the summer, but corrected noticeably during the fall, giving
further support to the equity market rally in the second half of 2006. The year
also featured unprecedented share buy-backs and mergers-and-acquisition activity
as well as a switch in Congress from Republican to Democratic leadership. The
year 2006 ended with the world awash in liquidity, global growth remained strong
despite the U.S. slowdown, record-high U.S. profitability, inflation and
interest rates fairly low and confidence levels relatively strong.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON S&P 500 INDEX FUND+
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2006, the total return of the
Institutional Class of the American Beacon S&P 500 Index Fund was 15.69%,
slightly below the S&P 500 Index ("Index") return of 15.79% and slightly in
excess of the Lipper S&P 500 Objective Funds Index return of 15.55%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/96 THROUGH 12/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 12/31/06 $10,000
--------------------------- 12/31/96-
1 YEAR 5 YEARS 10 YEARS 12/31/06
------ ------- -------- ---------
Institutional Class(1)... 15.69% 6.00% 8.26% $16,616
PlanAhead Class(1,2)..... 15.09% 5.51% 7.88% $16,032
Lipper S&P 500 Objective
Funds Index(3)......... 15.55% 5.90% 8.13% $16,420
S&P 500 Index(3)......... 15.79% 6.19% 8.42% $16,832
</Table>
1. Performance shown is historical and may not be indicative of future
returns. Investment returns and principle value will vary, and shares may
be worth more or less at redemption than at original purchase. Performance
shown is as of date indicated, and current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2. Fund performance for the ten-year period represents the total returns
achieved by the Institutional Class from 12/31/06 up to 3/2/98, the
inception date of the PlanAhead Class, and the returns of the PlanAhead
Class since its inception. Because the Institutional Class had lower
expenses, its performance was better than the PlanAhead Class would have
realized during the same period. A portion of the fees charged to the
PlanAhead Class of the Fund was waived through 2002. Performance prior to
waiving fees was lower than the actual returns shown for periods prior to
2002.
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.
The strong positive trends for equities in 2006 meant gains across all
sectors for the S&P 500 Index, but there were clear leaders and laggards. The
Telecommunications Services group was the full-year winner with a 36.8% gain.
Solid dividends, stable cash flow, and the prospective consolidation of
BellSouth into AT&T helped the sector recover from several years of sluggish
performance. Energy was the second best performer in 2006, adding 24.3% on the
year. Even though oil prices stabilized in the second half, their average level
through the year was easily high enough to bring gushing profits to energy
firms.
The weakest sectors in 2006, ironically enough, were two traditional growth
areas: Health Care and Information Technology, returning full-year gains of 7.5%
and 10.2%, respectively. Although there were numerous companies in these sectors
that demonstrated impressive growth in profits and prospects, others confronted
challenging competition, and some ran afoul of compensation scandals. Health
care firms and semiconductor companies were more vulnerable to stock option
incentive schemes which proved at best embarrassing and at worst dishonest.
The best individual performing security in the Fund for the year 2006 was
Alleghany Technologies which recorded a stellar 153.0% gain. That remarkable
performance only proved to shadow the other two securities that posted triple
digit returns for the year. Terex, added to the benchmark in December, returned
an impressive 117.4% for the year while NVIDIA advanced 102.5%.
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.
+ 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.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON S&P 500 INDEX FUND -- CONTINUED
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Exxon Mobil Corporation 3.5%
General Electric Company 3.0%
Citigroup Incorporated 2.2%
Microsoft Corporation 2.0%
Bank of America Corporation 1.9%
Procter & Gamble Company 1.6%
Johnson & Johnson 1.5%
Pfizer, Incorporated 1.5%
American International Group,
Incorporated 1.5%
Altria Group Incorporated 1.4%
</Table>
* Percent of the net assets of State Street Equity 500 Index Portfolio
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
NET ASSETS*
-----------
Financials 21.9%
Information Technology 14.4%
Health Care 11.6%
Industrials 10.6%
Consumer Discretionary 10.5%
Energy 9.4%
Consumer Staples 9.0%
Telecommunication Services 3.4%
Utilities 3.4%
Materials 3.0%
Other 2.8%
</Table>
* Percent of the net assets 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)
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2006, the total return of the
Institutional Class of the American Beacon Small Cap Index Fund was 17.85%. The
Fund's performance lagged the Russell 2000(R) Index return of 18.37%, but
substantially exceeded the Lipper Small-Cap Core Funds Index return of 13.70%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00 THROUGH 12/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
PERIODS ENDED 12/31/06
------------------------------------
VALUE OF
SINCE $10,000
INCEPTION 7/31/00-
1 YEAR 5 YEARS (7/31/00) 12/31/06
------ ------- --------- --------
Institutional Class(1)... 17.85% 11.18% 8.51% $16,891
Lipper Small-Cap Core
Funds Index(2)......... 13.70% 10.49% 9.53% $17,935
Russell 2000 Index(2).... 18.37% 11.39% 8.71% $17,091
</Table>
1. Performance show 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 data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
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 year. The top-performing sectors were Materials & Processing and
Consumer Staples, with returns of 30.0% and 29.5%, respectively. The worst-
performing sectors were Health Care and Automobiles & Transportation, with
returns of 9.6% and 12.3%, respectively.
With regard to individual security performance, the top performers were
Amrep Corp. and Corvel Corp., with returns of 368.8% and 275.8% respectively.
The worst performers were Renovis, Inc. and Neurocrine Bioscience, with returns
of -79.4% and -83.4%, respectively.
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*
---------
Veritas DGC, Incorporated 0.2%
Alexandria Real Estate Equities,
Incorporated 0.2%
Time Warner Telecom Incorporated 0.2%
Realty Income Corporation 0.2%
Phillips-Van Heusen Corporation 0.2%
Polycom, Incorporated 0.2%
Hologic, Incorporated 0.2%
Varian Semiconductor Equipment
Association 0.2%
Big Lots, Incorporated 0.2%
Herman Miller Incorporated 0.2%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES*
---------
Financial Services 23.8%
Consumer Discretionary 20.2%
Technology 13.3%
Health Care 11.7%
Materials & Processing 8.9%
Producer Durables 7.4%
Other Energy 4.3%
Utilities 4.2%
Autos & Transportation 3.4%
Consumer Staples 2.2%
Other 0.4%
Integrated Oils 0.2%
</Table>
* Percent of equity portion of Master Small Cap Index Series
5
INTERNATIONAL MARKET OVERVIEW
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
International equity markets generated positive performance in 2006 as European
economic growth continued to strengthen. During the reporting period,
international equity markets outperformed U.S. equity markets.
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 rate 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 25 basis points 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.
International equity markets began the third quarter of 2006 with a decline
during the first two weeks of July. However, the subsequent recovery resulted in
a gain of 1.0% for the MSCI EAFE Index ("EAFE") for the month. There were no
significant variations in regional performances, but the Europe, Emerging Europe
and Latin America markets outperformed those in Japan and Emerging Asia.
The markets continued to rally in August and September. The main global
sector trend, late in the quarter, was the underperformance of metals and
resources, reflecting the weakness in commodity prices. Financials,
Telecommunication Services, Information Technology and Consumer Staples each
outperformed the broad market. The Information Technology sector outperformed
the EAFE index for the second consecutive month in September, following its
substantial underperformance earlier in the year. Consumer Staples benefited
from the decline in oil prices.
There is some evidence that slowing corporate earnings momentum in Europe
may be easing. Analysts' earnings revisions stabilized during the fourth quarter
following a period of deceleration in the summer. Although there is little doubt
that the European economy has ended 2006 with less momentum than a year ago,
there are some signs that domestic demand is helping to ease the transition.
Consumer spending in France and retail sales in Spain have exceeded expectations
even as manufacturing confidence appears to be peaking.
Leading indicators of activity, such as business confidence, remain
relatively buoyant. However, it is important to note that these measures have
tended to overstate activity in the recent past. Looking ahead, we believe the
approach of fiscal tightening in Germany and Italy is likely to drive a moderate
downshift in these indicators during the first quarter of 2007.
The European Central Bank remains committed to normalizing interest rates.
This year, though, we believe that there eventually will be an extended pause as
core inflation abates and the effects of fiscal changes are assessed, although
rates could reach between 3.5% and 4% before this happens. The Euro appreciated
significantly versus the U.S. Dollar and the Japanese Yen amid expected
increases in Euro interest rates.
Given the persistence of the gearing to global economic conditions, it is
unlikely that the Japanese market will deliver more revenue surprises than the
rest of the world. However, in the medium term, we believe that Japanese
companies may have greater potential for margin expansion than their Western
counterparts as a result of their greater exposure to commodity costs and
impressive ongoing control of labor expenses.
Recent economic data, while far from disastrous, has not inspired
confidence that Japan has decoupled from the U.S. and mainland Asian economies.
Gross domestic product growth has remained at an annualized rate of
approximately 1.0% since the spring of 2006, with the only areas of strength
being exports and business investment (which is itself highly correlated with
exports). The third quarter 2006 consumption report and subsequent retail sales
data emphasize that the domestic household demand miracle is yet to materialize
and gearing to the global economy remains a key factor.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
For the twelve months ended December 31, 2006, the Institutional Class of
the American Beacon International Equity Index Fund posted a total return of
26.52%, slightly above the MSCI EAFE Index ("EAFE") return of 26.34% and well
above the Lipper International Funds Index return of 25.89%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00 THROUGH 12/31/06
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-------------------------------------
PERIODS ENDED 12/31/06
-------------------------------------
VALUE OF
SINCE $10,000
INCEPTION 7/31/00 -
1 YEAR 5 YEARS (7/31/00) 12/31/06
------ ------- --------- ---------
Institutional Class(1)... 26.52% 15.12% 6.12% $14,636
Lipper International
Funds Index(2)......... 25.89% 15.14% 6.53% $15,004
EAFE Index(2)............ 26.34% 15.06% 6.26% $14,766
</Table>
1. Performance show is historical and may not be indicative of future
returns. Investment returns and principle 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 data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call 1-
800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
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.
All 21 countries of the EAFE Index posted positive returns for the period.
Spain (up 49.4%), Portugal (up 47.4%) and Ireland (up 46.8%) were the leading
regional performers. At the other end of the spectrum were Japan (up 6.2%), New
Zealand (up 16.6%) and Switzerland (up 27.4%).
With regards to sector performance, all of the 10 sectors in EAFE posted
positive returns. Utilities (up 49.0%), Materials (up 32.0%) and
Telecommunication Services (up 29.5%) were the three top-performing sectors of
the period. Information Technology (up 11.9%), Energy (up 17.1%) and Health Care
(up 18.3%), which were the three lowest performing sectors, still contributed
positive returns for the year.
At the individual security level, the top performers for the year were
Paladin Resources and OC Oerlikon Corp. with returns of 367.5% and 228.7%,
respectively. The worst performers were Aiful Corp. and BWIN with returns of -
66.9% and -79.0%, respectively.
The American Beacon International Equity Index 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 1.7%
HSBC Holdings plc 1.6%
Toyota Motor Corporation 1.5%
Total S.A. 1.2%
GlaxoSmithKline plc 1.2%
Vodafone Group plc 1.1%
Nestle S.A. 1.1%
Novartis AG 1.1%
Roche Holding AG 1.0%
Royal Dutch Shell plc 1.0%
</Table>
* Percent of equity portion of Master International Index Series
7
PERFORMANCE OVERVIEW
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) -- CONTINUED
DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES* EAFE
--------- -----
Telecommunication Services 30.0% 30.0%
Consumer Discretionary 12.1% 11.9%
Information Technology 10.9% 11.0%
Industrials 8.4% 8.4%
Utilities 7.8% 7.8%
Financials 7.2% 7.2%
Materials 7.1% 7.1%
Consumer Staples 5.6% 5.6%
Energy 5.5% 5.5%
Health Care 5.4% 5.5%
</Table>
* Percent of equity portion of Master International Index Series
COUNTRY ALLOCATION
(COUNTRY CHART)
<Table>
<Caption>
% OF
EQUITIES* EAFE
--------- -----
United Kingdom 23.7% 23.7%
Japan 22.6% 22.6%
France 10.2% 10.1%
Germany 7.5% 7.4%
Switzerland 6.9% 6.9%
Australia 5.6% 5.6%
Spain 4.1% 4.1%
Italy 3.9% 3.9%
Netherlands 3.4% 3.4%
Sweden 2.6% 2.6%
Hong Kong 1.8% 1.8%
Finland 1.5% 1.4%
Belgium 1.2% 1.3%
Singapore 0.9% 0.9%
Norway 0.9% 0.9%
Ireland 0.8% 0.8%
Denmark 0.8% 0.8%
Greece 0.6% 0.6%
Austria 0.6% 0.6%
Portugal 0.3% 0.4%
New Zealand 0.1% 0.2%
</Table>
* Percent of equity portion of Master International Index Series
8
FUND EXPENSES
DECEMBER 31, 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, distribution (12b-1) fees, and other Fund expenses. The examples below are
intended to help you understand the ongoing cost (in dollars) of investing in
the Fund and to compare these costs with the ongoing costs of investing in other
mutual funds. The examples are based on an investment of $1,000 invested at the
beginning of the period and held for the entire period from July 1, 2006 through
December 31, 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 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.
ACTUAL
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INSTITUTIONAL CLASS INDEX INDEX EQUITY INDEX
- ------------------- --------- --------- -------------
Beginning Account Value
7/1/06................. $1,000.00 $1,000.00 $1,000.00
Ending Account Value
12/31/06............... $1,127.04 $1,090.60 $1,149.49
Expenses Paid During
Period* 7/1/06 -
12/31/06............... $ 0.79 $ 0.88 $ 1.40
Annualized Expense
Ratio.................. 0.15% 0.17% 0.26%
</Table>
<Table>
<Caption>
S&P 500
PLANAHEAD CLASS INDEX
- --------------- ---------
Beginning Account Value
7/1/06................. $1,000.00
Ending Account Value
12/31/06............... $1,124.06
Expenses Paid During
Period* 7/1/06 -
2/31/06................ $ 2.88
Annualized Expense
Ratio.................. 0.54%
</Table>
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.
HYPOTHETICAL
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INSTITUTIONAL CLASS INDEX INDEX EQUITY INDEX
- ------------------- --------- --------- -------------
Beginning Account Value
7/1/06................. $1,000.00 $1,000.00 $1,000.00
Ending Account Value
12/31/06............... $1,024.46 $1,024.36 $1,023.90
Expenses Paid During
Period* 7/1/06 -
12/31/06............... $ 0.75 $ 0.85 $ 1.32
Annualized Expense
Ratio.................. 0.15% 0.17% 0.26%
</Table>
<Table>
<Caption>
S&P 500
PLANAHEAD CLASS INDEX
- --------------- ---------
Beginning Account Value
7/1/06................. $1,000.00
Ending Account Value
12/31/06............... $1,022.50
Expenses Paid During
Period* 7/1/06 -
12/31/06 $ 2.74
Annualized Expense
Ratio.................. 0.54%
</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 (184) by days in the year (365) to reflect the half-year period.
- --------------------------------------------------------------------------------
9
AMERICAN BEACON FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
American Beacon Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Funds, comprised of the American Beacon S&P 500 Index Fund, the
American Beacon Small Cap Index Fund, and the American Beacon International
Equity Index Fund (collectively, the "Funds") as of December 31, 2006, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Funds' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the Master
Portfolios. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Beacon Funds at December 31, 2006, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
10
AMERICAN BEACON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (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.............. $ 238,674 $ 151,917 $ 161,587
Receivable for fund shares sold....................... 570 5 830
----------- ----------- -----------
TOTAL ASSETS..................................... 239,244 151,922 162,417
----------- ----------- -----------
LIABILITIES:
Payable for fund shares redeemed...................... 110 -- 240
Administrative service fees payable (Note 2).......... 13 6 6
Other liabilities..................................... 57 38 58
----------- ----------- -----------
TOTAL LIABILITIES................................ 180 44 304
----------- ----------- -----------
NET ASSETS................................................. $ 239,064 $ 151,878 $ 162,113
=========== =========== ===========
ANALYSIS OF NET ASSETS:
Paid-in capital....................................... $ 171,783 $ 149,826 $ 134,725
Undistributed net investment income................... 13 24 (243)
Accumulated net realized gain (loss).................. (44,459) (760) (531)
Unrealized net appreciation (depreciation) of
investments and futures contracts................... 111,727 2,788 28,162
----------- ----------- -----------
NET ASSETS................................................. $ 239,064 $ 151,878 $ 162,113
=========== =========== ===========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class................................... 11,623,275 10,196,959 12,707,279
=========== =========== ===========
PlanAhead Class....................................... 846,318 N/A N/A
=========== =========== ===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class................................... $ 19.19 $ 14.89 $ 12.76
=========== =========== ===========
PlanAhead Class....................................... $ 18.97 N/A N/A
=========== =========== ===========
</Table>
See accompanying notes
See accompanying Financial Statements of the respective Master Portfolios
attached
- --------------------------------------------------------------------------------
11
AMERICAN BEACON FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
S&P 500 SMALL CAP INTERNATIONAL
INDEX INDEX EQUITY INDEX
------- --------- -------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO:
Dividend income.......................................... $ 4,837 $ 1,181 $ 2,762
Interest income.......................................... 283 681 125
Securities lending income................................ -- 99 --
Other income............................................. -- 2 15
Portfolio expenses....................................... (116) (78) (105)
------- ------- -------
NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO.. 5,004 1,885 2,797
------- ------- -------
FUND EXPENSES:
Administrative service fees (Note 2):
Institutional Class.................................... 107 59 55
PlanAhead Class........................................ 112 -- --
Sub-administrative service fees
Institutional Class.................................... -- 16 26
Transfer agency fees:
Institutional Class.................................... 14 9 9
PlanAhead Class........................................ 13 -- --
Custody and Accounting fees.............................. 6 10 13
Professional fees........................................ 19 7 17
Registration fees........................................ 33 -- --
Service fees -- PlanAhead Class (Note 2)................. 112 -- --
Printing................................................. 15 19 14
Other expenses........................................... 28 12 5
------- ------- -------
TOTAL FUND EXPENSES.................................... 459 132 139
------- ------- -------
NET INVESTMENT INCOME......................................... 4,545 1,753 2,658
------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER
PORTFOLIO:
Net realized gain (loss) from:
Investments............................................ 363 7,172 1,226
Foreign currency transactions.......................... -- -- 264
Futures contracts...................................... 453 (1,403) 454
Change in net unrealized appreciation or depreciation of:
Investments............................................ 31,937 (2,418) 22,434
Foreign currency transactions.......................... -- -- 2
Futures contracts...................................... 140 36 51
------- ------- -------
NET GAIN ON INVESTMENTS............................. 32,893 3,387 24,431
------- ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $37,438 $ 5,140 $27,089
======= ======= =======
</Table>
See accompanying notes
See accompanying Financial Statements of the respective Master Portfolios
attached
- --------------------------------------------------------------------------------
12
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX
--------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006 2005 2006 2005
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......... $ 4,545 $ 4,606 $ 1,753 $ 592 $ 2,658 $ 1,582
Net realized gain (loss) on
investments, foreign
currency and futures
transactions................ 816 (651) 5,769 1,052 1,943 589
Change in net unrealized
appreciation (depreciation)
of investments and futures
contracts................... 32,077 8,505 (2,382) (3,264) 22,488 5,507
--------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 37,438 12,460 5,140 (1,620) 27,089 7,678
--------- -------- --------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class......... (3,990) (4,029) (1,732) (606) (2,887) (2,005)
PlanAhead Class............. (517) (677) -- -- -- --
Net realized gain from
investments, foreign
currency and futures
transactions:
Institutional Class......... -- -- -- (521) (877) --
Tax return of capital:
Institutional Class......... -- (59) -- (167) -- (778)
PlanAhead Class............. -- (11) -- -- -- --
--------- -------- --------- --------- -------- --------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS........... (4,507) (4,776) (1,732) (1,294) (3,764) (2,783)
--------- -------- --------- --------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares...................... 28,321 45,216 232,022 132,413 108,842 102,863
Reinvestments of dividends and
distributions............... 4,484 4,749 1,732 1,291 3,764 2,783
Cost of shares redeemed....... (101,514) (73,819) (131,397) (123,873) (64,018) (43,497)
--------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
CAPITAL SHARE
TRANSACTIONS........... (68,709) (23,854) 102,357 9,831 48,588 62,149
--------- -------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS........................... (35,778) (16,170) 105,765 6,917 71,913 67,044
--------- -------- --------- --------- -------- --------
NET ASSETS:
Beginning of period........... 274,842 291,012 46,113 39,196 90,200 23,156
--------- -------- --------- --------- -------- --------
END OF PERIOD*................ $ 239,064 $274,842 $ 151,878 $ 46,113 $162,113 $ 90,200
========= ======== ========= ========= ======== ========
* Includes undistributed net
investment income of........ $ 13 $ 11 $ 24 $ -- $ (243) $ (286)
========= ======== ========= ========= ======== ========
</Table>
See accompanying notes
See accompanying Financial Statements of the respective Master Portfolios
attached
- --------------------------------------------------------------------------------
13
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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: DECEMBER 31, 2006
- ---------------- ----------- -----------------
S&P 500 Index Fund State Street Equity 500 Index Portfolio 8.6%
Small Cap Index Fund Master Small Cap Index Series 27.1%
International Equity Index Fund Master International Index Series 19.6%
</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:
CLASS: OFFERED TO: SERVICE FEES:
- ------ ----------- -------------
INSTITUTIONAL CLASS Investors making an initial investment of $2 million Administrative Service Fee -- 0.05%
PLANAHEAD CLASS General public and investors investing through an Administrative Service Fee -- 0.25%
intermediary Service Fee -- 0.25%
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.
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
- --------------------------------------------------------------------------------
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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. 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.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
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
- --------------------------------------------------------------------------------
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. FEES AND TRANSACTIONS WITH AFFILIATES
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
that obligates the Manager to provide or oversee administrative and management
services to each Fund. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
0.05% of the average daily net assets of the Institutional Class of the S&P 500
Index Fund, International Equity Index Fund, and Small Cap Index Fund and an
annualized fee of 0.25% of the average daily net assets of the PlanAhead Class
of the S&P 500 Index Fund.
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. For the year ended December 31, 2006 there are no
fees subject to recoupment.
Subadministration Agreement
The Trust, the Manager and Blackrock Advisors, LLC ("Blackrock") entered
into a Subadministration Agreement that obligates Blackrock to provide certain
other administrative services to the Small Cap Index Fund and the International
Equity Index Fund. As compensation for performing these services, Blackrock
receives an annualized fee of 0.08% of the average daily net assets of the Small
Cap Index Fund and 0.12% of the average daily net assets of the International
Equity Index Fund; however, the fee for each Fund is be reduced by the total
expense ratio of its corresponding Portfolio, net of any fee waivers.
Other
At December 31, 2006, the employee benefit plans of AMR Corporation and its
subsidiary companies owned 89.2% of the Institutional Class of the S&P 500 Index
Fund, 99.4% of the Small Cap Index Fund and 76.4% of the International Equity
Index Fund.
3. FEDERAL INCOME 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 categorized 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
- --------------------------------------------------------------------------------
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
and composition of net assets for tax purposes may differ from those reflected
in the accompanying financial statements.
The tax character of distributions paid for the years ended December 31,
2006 and December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 INDEX SMALL CAP INDEX EQUITY INDEX
---------------- ---------------- ----------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
2006 2005 2006 2005 2006 2005
------ ------ ------ ------ ------ ------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME:*
Institutional Class......................... $3,990 $4,029 $1,732 $ 606 $2,887 $2,005
PlanAhead Class............................. 517 677 -- -- -- --
LONG-TERM CAPITAL GAIN
Institutional Class......................... -- -- -- 521 877 --
RETURN OF CAPITAL
Institutional Class......................... -- 59 -- 167 -- 778
PlanAhead Class............................. -- 11 -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL TAXABLE DISTRIBUTIONS............ $4,507 $4,776 $1,732 $1,294 $3,764 $2,783
====== ====== ====== ====== ====== ======
</Table>
- --------
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 SMALL CAP EQUITY INDEX
INDEX FUND INDEX FUND FUND
---------- ---------- -------------
Cost basis of investments for federal income tax purposes.... $145,390 $149,812 $134,590
Unrealized appreciation.................................... 118,977 3,287 28,774
Unrealized depreciation.................................... (25,693) (1,182) (1,777)
-------- -------- --------
Net unrealized appreciation/(depreciation)................. 93,284 2,105 26,997
Undistributed ordinary income.............................. -- 24 374
Undistributed long-term loss............................... (26,001) (220) 62
-------- -------- --------
Distributable earnings....................................... $ 67,283 $ 1,909 $ 27,433
======== ======== ========
</Table>
Financial reporting records are adjusted for permanent book/tax differences
to reflect tax character. Financial records are not adjusted for temporary
differences. The temporary differences between financial reporting and tax-basis
reporting of unrealized appreciation/(depreciation) are attributable primarily
to the tax deferral of wash sales, the realization for tax purposes of
unrealized gains/(losses) on certain derivative instruments, reclassifications
of income from real estate investment securities, and the realization for tax
purposes of unrealized gains /(losses) on investments in passive foreign
investment companies.
Due to the inherent differences in the recognition of income, expenses and
realized gains/(losses) under the U.S. generally accepted accounting principles
and federal income tax regulations, permanent differences between book and tax
reporting have been identified and appropriately reclassified on the Statement
of Assets and Liabilities.
- --------------------------------------------------------------------------------
17
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
Accordingly, the following amounts represent current year permanent
differences derived from reclassifications of income from real estate
securities, foreign currency, and partnership transactions that have been
reclassified as of December 31, 2006 (in thousands):
<Table>
<Caption>
INTERNATIONAL
S&P 500 SMALL CAP EQUITY INDEX
INDEX FUND INDEX FUND FUND
---------- ---------- -------------
Paid-in-capital.............................................. $(1,266) $ 6,188 $ 535
Undistributed net investment income.......................... (36) 3 272
Accumulated net realized gain/(loss)......................... 1,305 (6,195) (743)
Unrealized appreciation (depreciation) of investments,
futures contracts, and foreign currency.................... (3) 4 (64)
</Table>
At December 31, 2006, capital loss carryforward positions and expiration
dates for federal income tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND 2007 2008 2009 2010 2011 2012 2013 2014 TOTAL
- ---- ---- ------ ------ ------- ---- ------ ------ ---- -------
S&P 500 Index Fund......................... $45 $8,848 $1,300 $11,516 $635 $1,060 $2,311 $286 $26,001
Small Cap Index Fund....................... -- -- -- -- -- -- -- 220 220
</Table>
For the period ended December 31, 2006, the International Equity Index Fund
utilized $506 of net capital loss carryovers. The S&P 500 Index Fund had $815 of
expired capital loss carryovers.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares of the Funds
(shares and dollars in thousands):
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
------------------------------------------ ----------------------------------------
FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
2006 2005 2006 2005
------------------- ------------------- ------------------ ------------------
S&P 500 INDEX FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------ ------ --------- ------ --------- ------ -------- ------ --------
Shares sold......................... 874 $ 15,548 1,805 $ 29,463 732 $ 12,773 978 $ 15,753
Reinvestment of dividends........... 222 3,990 248 4,086 28 494 41 663
Shares redeemed..................... (2,834) (49,785) (3,587) (58,696) (2,850) (51,729) (938) (15,123)
------ --------- ------ --------- ------ -------- ---- --------
Net increase/(decrease) in capital
shares outstanding................ (1,738) $ (30,247) (1,534) $ (25,147) (2,090) $(38,462) 81 $ 1,293
====== ========= ====== ========= ====== ======== ==== ========
<Caption>
INSTITUTIONAL CLASS
------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
2006 2005
------------------- -------------------
SMALL CAP INDEX FUND SHARES AMOUNT SHARES AMOUNT
- -------------------- ------ --------- ------ ---------
Shares sold......................... 16,217 $ 232,022 10,087 $ 132,413
Reinvestment of dividends........... 118 1,732 100 1,291
Shares redeemed..................... (9,747) (131,397) (9,695) (123,873)
------ --------- ------ ---------
Net increase/(decrease) in capital
shares outstanding................ 6,588 $ 102,357 492 $ 9,831
====== ========= ====== =========
<Caption>
INSTITUTIONAL CLASS
------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
2006 2005
------------------- -------------------
INTERNATIONAL EQUITY INDEX FUND SHARES AMOUNT SHARES AMOUNT
- ------------------------------- ------ --------- ------ ---------
Shares sold......................... 9,373 $ 108,842 10,624 $ 102,863
Reinvestment of dividends........... 298 3,764 268 2,783
Shares redeemed..................... (5,697) (64,018) (4,624) (43,497)
------ --------- ------ ---------
Net increase/(decrease) in capital
shares outstanding................ 3,974 $ 48,588 6,268 $ 62,149
====== ========= ====== =========
</Table>
- --------------------------------------------------------------------------------
18
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 16.90 $ 16.43 $ 15.10 $ 11.96 $ 15.62
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income........................ 0.33 0.29 0.29 0.21 0.20
Net gains (losses) on investments and futures
transactions (both realized and
unrealized)................................ 2.30 0.47 1.32 3.14 (3.66)
-------- -------- -------- -------- --------
Total from investment operations.................. 2.63 0.76 1.61 3.35 (3.46)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income......... (0.34) (0.29) (0.28) (0.21) (0.20)
Tax return of capital........................ -- --(B) -- -- --
-------- -------- -------- -------- --------
Total distributions............................... (0.34) (0.29) (0.28) (0.21) (0.20)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.................... $ 19.19 $ 16.90 $ 16.43 $ 15.10 $ 11.96
======== ======== ======== ======== ========
TOTAL RETURN...................................... 15.69% 4.74% 10.76% 28.26% (22.27%)
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $223,008 $225,857 $244,668 $245,251 $195,368
Ratios to average net assets (annualized):(A)
Net investment income...................... 1.85% 1.75% 1.85% 1.63% 1.47%
Expenses, including expenses of the master
portfolio............................... 0.14% 0.13% 0.17% 0.14% 0.14%
</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.
- --------------------------------------------------------------------------------
19
AMERICAN BEACON S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 16.69 $ 16.23 $ 14.96 $ 11.85 $ 15.49
------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income......................... 0.17 0.21 0.21 0.15 0.14
Net gains (losses) on investments and futures
transactions (both realized and
unrealized)................................. 2.33 0.48 1.31 3.12 (3.64)
------- ------- ------- ------- --------
Total from investment operations................... 2.50 0.69 1.52 3.27 (3.50)
------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.22) (0.23) (0.25) (0.16) (0.14)
Tax return of capital......................... -- --(B) -- -- --
------- ------- ------- ------- --------
Total distributions................................ (0.22) (0.23) (0.25) (0.16) (0.14)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 18.97 $ 16.69 $ 16.23 $ 14.96 $ 11.85
======= ======= ======= ======= ========
TOTAL RETURN....................................... 15.09% 4.32% 10.21% 27.65% (22.59%)
======= ======= ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $16,056 $48,985 $46,344 $34,729 $ 24,885
Ratios to average net assets (annualized):(A)
Net investment income, net of waivers....... 1.37% 1.28% 1.43% 1.16% 1.06%
Net investment income, before waivers....... 1.37% 1.28% 1.43% 1.15% 0.98%
Expenses, including expenses of the master
portfolio, net of waivers(C)............. 0.61% 0.61% 0.62% 0.63% 0.55%
Expenses, including expenses of the master
portfolio, before waivers................ 0.61% 0.61% 0.62% 0.64% 0.63%
</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.
- --------------------------------------------------------------------------------
20
AMERICAN BEACON SMALL CAP INDEX FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2006 2005 2004 2003 2002
-------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 12.78 $ 12.57 $ 11.27 $ 7.70 $ 9.79
-------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income.......................... 0.17 0.16 0.14 0.04 0.11
Net gains (losses) on investments and futures
transactions (both realized and unrealized).. 2.11 0.42 1.87 3.57 (2.10)
-------- ------- ------- ------- --------
Total from investment operations.................... 2.28 0.58 2.01 3.61 (1.99)
-------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income........... (0.17) (0.17) (0.13) (0.04) (0.10)
Distributions from net realized gain on
investments.................................. -- (0.15) (0.58) -- --
Tax return of capital.......................... -- (0.05)(B) -- -- --
-------- ------- ------- ------- --------
Total distributions................................. (0.17) (0.37) (0.71) (0.04) (0.10)
-------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 14.89 $ 12.78 $ 12.57 $ 11.27 $ 7.70
======== ======= ======= ======= ========
TOTAL RETURN........................................ 17.85% 4.51% 17.91% 46.90% (20.37%)
======== ======= ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $151,878 $46,113 $39,196 $67,756 $ 11,227
Ratios to average net assets (annualized):(A)
Net investment income........................ 1.49% 1.12% 0.90% 1.04% 1.13%
Expenses, including expenses of the master
portfolio................................. 0.18% 0.18% 0.22% 0.24% 0.20%
</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.
- --------------------------------------------------------------------------------
21
AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2006 2005 2004 2003 2002
-------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.33 $ 9.39 $ 8.01 $ 5.86 $ 7.07
-------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:(A)
Net investment income........................ 0.23 0.21 0.17 0.14 0.11
Net gains (losses) on investments, foreign
currency and futures transactions (both
realized and unrealized)................... 2.50 1.06 1.44 2.13 (1.23)
-------- ------- ------- ------- --------
Total from investment operations.................. 2.73 1.27 1.61 2.27 (1.12)
-------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income......... (0.23) (0.24) (0.23) (0.12) (0.09)
Dividends from net realized gains on
investments................................ (0.07) -- -- -- --
Tax return of capital........................ -- (0.09)(B) -- -- --
-------- ------- ------- ------- --------
Total distributions............................... (0.30) (0.33) (0.23) (0.12) (0.09)
-------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD.................... $ 12.76 $ 10.33 $ 9.39 $ 8.01 $ 5.86
======== ======= ======= ======= ========
TOTAL RETURN...................................... 26.52% 13.58% 20.12% 38.87% (15.65%)
======== ======= ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $162,113 $90,200 $23,156 $10,043 $ 4,912
Ratios to average net assets (annualized):(A)
Net investment income...................... 2.44% 2.49% 2.16% 2.71% 1.97%
Expenses, including expenses of the master
portfolio............................... 0.22% 0.23% 0.26% 0.31% 0.25%
</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.
- --------------------------------------------------------------------------------
22
AMERICAN BEACON FUNDS
TAX INFORMATION
FOR THE TAX YEAR ENDED DECEMBER 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For corporate shareholders in the Funds, the percentage of ordinary
dividend income distributed for the year ended December 31, 2006, which is
designated as qualifying for the dividends-received deduction, is as follows:
<Table>
S&P 500 Index Fund 95.57%
Small Cap Index Fund 23.53%
International Equity Index Fund 0.00%
</Table>
For shareholders in the Funds, the percentage of dividend income
distributed for the year ended December 31, 2006, which is designated as
qualified dividend income under the Jobs and Growth Tax Relief Act of 2003, is
as follows:
<Table>
S&P 500 Index Fund 100.0%
Small Cap Index Fund 45.76%
International Equity Index Fund 90.48%
</Table>
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate
the following amounts as long-term capital gain dividends for their taxable year
ended December 31, 2006:
<Table>
S&P 500 Index Fund $0
Small Cap Index Fund $0
International Equity Index Funds $877,484
</Table>
Of the ordinary dividends distributed to shareholders during the tax year
ended December 31, 2006, the percentage of income derived from U.S. Treasury
Obligations is as follows:
<Table>
S&P 500 Index Fund 0.4%
Small Cap Index Fund 0.0%
International Equity Index Fund 0.0%
</Table>
- --------------------------------------------------------------------------------
23
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
- --------------------------------------------------------------------------------
The Trustees and officers of the American Beacon Funds (the "Trust") are
listed below, together with their principal occupations during the past five
years. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
Lifetime of Trust until
removal, resignation or
retirement*
William F. Quinn** (58) Trustee and President since Chairman and CEO (2006-Present) and President (1986-
1987 2006), American Beacon Advisors, Inc.; Chairman
(1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment
Committee, Southern Methodist University Endowment
Fund (1996-Present); Member, Southern Methodist
University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange Pension
Manager Committee (1997-1998, 2000-2002, 2006-
Present); Chairman (2007-Present) and Vice Chairman
(2004-2006), Committee for the Investment of
Employee Benefits; Chairman, Committee for the
Investment of Employee Benefits Defined Benefit Sub-
Committee (2002-2004); Director, United Way of
Metropolitan Tarrant County (1988-2000, 2004-
Present); Trustee, American Beacon Mileage Funds
(1995-Present); Trustee, American Beacon Select
Funds (1999-Present); Trustee, American Beacon
Master Trust (1995-Present).
Alan D. Feld** (69) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law
firm) (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint
Properties (1994-Present); Trustee, American Beacon
Mileage Funds (1996-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1996-Present).
NON-INTERESTED TRUSTEES
TERM
Lifetime of Trust until
removal, resignation or
retirement*
W. Humphrey Bogart (62) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
servicing company) (1998-2003); Board Member, Baylor
University Medical Center Foundation (1992-2004);
President and CEO, Allmerica Trust Company, NA
(1996-1997); President and CEO, Fidelity Investments
Southwest Company (1983-1995); Senior Vice President
of Regional Centers, Fidelity Investments (1988-
1995); Trustee, American Beacon Mileage Funds (2004-
Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation) (2001-
Present); Director, Christian Church Foundation
(1999-Present); Trustee, American Beacon Mileage
Funds (2004-Present); Trustee, American Beacon
Select Funds (2004-Present); Trustee, American
Beacon Master Trust (2004-Present).
</Table>
- --------------------------------------------------------------------------------
24
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON -- CONTINUED
(UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Richard A. Massman (63) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in
energy, real estate, farming, ranching and venture
capital activities) (1994-Present); Trustee,
American Beacon Mileage Funds (2004-Present);
Trustee, American Beacon Select Funds (2004-
Present); Trustee, American Beacon Master Trust
(2004-Present).
Stephen D. O'Sullivan (71) Trustee since 1987 Consultant (1994-Present); Trustee, American Beacon
Mileage Funds (1995-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University (1995-
225 Perkins Admin. Bldg. Present); Director, ChemFirst (1986-2002); Director,
Southern Methodist Univ. J.C. Penney Company, Inc. (1996-Present); Director,
Dallas, Texas 75275 California Federal Preferred Capital Corp. (2001-
2003); Director, Kronus Worldwide Inc. (chemical
manufacturing) (2003-Present); Director, First
Broadcasting Investment Partners, LLC (2003-
Present); Member, United Way of Dallas Board of
Directors; Member, Salvation Army of Dallas Board of
Directors; Member, Methodist Hospital Advisory
Board; Member, Knight Commission on Intercollegiate
Athletics; Trustee, American Beacon Mileage Funds
(2001-Present); Trustee, American Beacon Select
Funds (2001-Present); Trustee, American Beacon
Master Trust (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Chairman since private equity firm) (1998-Present); Director,
Suite 1740 2005 Burger King Corporation (2004-Present); Trustee,
Dallas, Texas 75201 City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School (1997-
2005); Director, Starwood Hotels and Resorts (2001-
Present); Member, Council on Foreign Relations
(1995-Present); Director, Just For the Kids (1995-
2001); Director, L&B Realty Advisors (1998-2000);
Trustee, Teachers Retirement System of Texas (1993-
1999); Director, Starwood Financial Trust (1998-
2001); Trustee, St. Mark's School of Texas (2002-
Present); Trustee, American Beacon Mileage Funds
(1996-Present); Trustee, American Beacon Select
Funds (1999-Present); Trustee, American Beacon
Master Trust (1996-Present).
OFFICERS
TERM
One Year
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American
Chief Legal Beacon Advisors, Inc. (2006- Present); Assistant
Officer since 2006 General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988- Present).
Rebecca L. Harris (40) Treasurer since 1995 Vice President, Finance, American Beacon Advisors,
Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors,
Officer since 2004 Inc. (2004-Present); Senior Compliance Analyst,
and Asst. American Beacon Advisors, Inc. (1998-2004).
Secretary since
1999
</Table>
- --------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
72, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust, as
defined by the 1940 Act. Mr. Quinn is Chairman of the Manager. Mr. Feld's law
firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services
within the past two years to one or more of the Trust's Investment advisors.
- --------------------------------------------------------------------------------
25
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
COMMON STOCKS - 97.2%
CONSUMER DISCRETIONARY - 10.5%
Amazon.Com, Inc. (a).......... 65,208 $ 2,573
Apollo Group, Inc. Class A
(a)......................... 29,567 1,152
AutoNation, Inc. (a).......... 30,237 645
AutoZone, Inc. (a)............ 11,422 1,320
Bed Bath & Beyond, Inc. (a)... 59,201 2,256
Best Buy Co., Inc. ........... 84,650 4,164
Big Lots, Inc. (a)............ 24,510 562
Black & Decker Corp. ......... 14,082 1,126
Brunswick Corp. .............. 19,991 638
Carnival Corp. ............... 93,213 4,572
CBS Corp. Class B............. 163,615 5,102
Centex Corp. ................. 25,855 1,455
Circuit City Stores, Inc. .... 31,532 598
Clear Channel Communications,
Inc. ....................... 103,193 3,667
Coach, Inc. (a)............... 77,242 3,318
Comcast Corp. Class A (a)..... 441,651 18,695
D.R. Horton, Inc. ............ 56,880 1,507
Darden Restaurants, Inc. ..... 29,706 1,193
Dillard's, Inc. Class A....... 13,693 479
DIRECTV Group, Inc. (a)....... 162,100 4,043
Dollar General Corp. ......... 64,322 1,033
Dow Jones & Co., Inc. ........ 12,569 478
Eastman Kodak Co. ............ 61,027 1,574
eBay, Inc. (a)................ 243,697 7,328
EW Scripps Co. Class A........ 18,055 902
Family Dollar Stores, Inc. ... 33,168 973
Federated Department Stores,
Inc. ....................... 113,240 4,318
Ford Motor Co. (a)............ 401,099 3,012
Fortune Brands, Inc. ......... 31,265 2,670
Gannett Co., Inc. ............ 50,094 3,029
Gap, Inc. .................... 114,286 2,229
General Motors Corp. ......... 118,147 3,629
Genuine Parts Co. ............ 35,606 1,689
Goodyear Tire & Rubber Co.
(a)......................... 38,059 799
H&R Block, Inc. .............. 69,033 1,591
Harley-Davidson, Inc. ........ 55,312 3,898
Harman International
Industries, Inc. ........... 13,943 1,393
Harrah's Entertainment,
Inc. ....................... 38,556 3,189
Hasbro, Inc. ................. 33,195 905
Hilton Hotels Corp. .......... 81,798 2,855
Home Depot, Inc. ............. 430,622 17,294
International Game Technology 72,177 3,335
Interpublic Group of Cos.,
Inc. (a).................... 88,768 1,087
JC Penney & Co., Inc. ........ 47,336 3,662
Johnson Controls, Inc. ....... 41,725 3,585
Jones Apparel Group, Inc. .... 24,054 804
KB HOME 15,914 816
Kohl's Corp. (a).............. 69,127 4,730
Leggett & Platt, Inc. ........ 38,373 917
Lennar Corp. Class A.......... 28,791 1,510
Limited Brands 71,194 2,060
Liz Claiborne, Inc. .......... 22,110 961
Lowe's Cos., Inc. ............ 324,557 10,110
Marriot International, Inc.
Class A..................... 71,406 3,407
Mattel, Inc. ................. 81,695 1,851
McDonald's Corp. ............. 260,413 11,544
McGraw-Hill, Inc. ............ 74,259 5,051
Meredith Corp. ............... 8,973 506
New York Times Co. Class A.... 30,840 751
Newell Rubbermaid, Inc. ...... 57,904 1,676
News Corp. Class A............ 496,345 10,661
NIKE, Inc. Class B............ 39,839 3,945
Nordstrom, Inc. .............. 47,327 2,335
Office Depot, Inc. (a)........ 59,858 2,285
OfficeMax, Inc. .............. 14,368 713
Omnicom Group, Inc. .......... 35,730 3,735
Pulte Homes, Inc. ............ 45,012 1,491
Radioshack Corp. ............. 28,742 482
Sears Holdings Corp. (a)...... 17,607 2,957
Sherwin-Williams Co. ......... 23,645 1,503
Snap-On, Inc. ................ 12,587 600
Stanley Works 16,186 814
Staples, Inc. ................ 152,606 4,075
Starbucks Corp. (a)........... 159,552 5,651
Starwood Hotels & Resorts
Worldwide, Inc. ............ 45,356 2,835
Target Corp. ................. 182,425 10,407
Tiffany & Co. ................ 30,159 1,183
Time Warner, Inc. ............ 845,437 18,414
TJX Cos., Inc. ............... 93,610 2,670
Tribune Co. .................. 40,281 1,240
Univision Communications, Inc.
Class A (a)................. 53,184 1,884
V.F. Corp. ................... 18,547 1,522
Viacom, Inc. Class B (a)...... 147,967 6,071
Walt Disney Co. .............. 436,355 14,954
Wendy's International, Inc. .. 19,445 643
Whirlpool Corp. .............. 16,314 1,354
Wyndham Worldwide Corp. (a)... 41,656 1,334
Yum! Brands, Inc. ............ 56,301 3,310
----------
291,284
----------
CONSUMER STAPLES - 9.0%
Altria Group, Inc. ........... 443,148 38,031
Anheuser-Busch Cos., Inc. .... 163,576 8,048
Archer-Daniels-Midland Co. ... 138,600 4,430
Avon Products, Inc. .......... 94,744 3,130
Brown-Forman Corp. Class B.... 17,234 1,142
Campbell Soup Co. ............ 45,335 1,763
Clorox Co. ................... 31,410 2,015
Coca-Cola Co. ................ 429,883 20,742
Coca-Cola Enterprises, Inc. .. 58,182 1,188
Colgate-Palmolive Co. ........ 107,777 7,031
ConAgra Foods, Inc. .......... 108,384 2,926
Constellation Brands, Inc.
Class A (a)................. 42,839 1,243
Costco Wholesale Corp. ....... 98,160 5,190
CVS Corp. .................... 173,828 5,373
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
26
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
Dean Foods Co. (a)............ 28,488 $ 1,204
Estee Lauder Cos, Inc. Class
A........................... 26,085 1,065
General Mills, Inc. .......... 72,098 4,153
H.J. Heinz Co. ............... 70,540 3,175
Hershey Foods Corp. .......... 37,424 1,864
Kellogg Co. .................. 51,894 2,598
Kimberly-Clark Corp. ......... 95,667 6,501
Kroger Co. ................... 152,500 3,518
McCormick & Co., Inc. ........ 27,487 1,060
Molson Coors Brewing Co.,
Class B..................... 9,674 739
Pepsi Bottling Group, Inc. ... 28,442 879
PepsiCo, Inc. ................ 347,700 21,749
Procter & Gamble Co. ......... 669,257 43,013
Reynolds American, Inc. ...... 35,793 2,343
Safeway, Inc. ................ 93,987 3,248
Sara Lee Corp. ............... 159,220 2,712
SuperValu, Inc. .............. 43,143 1,542
Sysco Corp. .................. 129,690 4,767
Tyson Foods, Inc., Class A.... 53,967 888
UST Corp. .................... 33,653 1,959
Wal-Mart Stores, Inc. ........ 518,655 23,952
Walgreen Co. ................. 214,277 9,833
Whole Foods Market, Inc. ..... 29,093 1,365
Wrigley Wm., Jr. Co. ......... 46,515 2,406
----------
248,785
----------
ENERGY - 9.4%
Anadarko Petroleum Corp. ..... 96,412 4,196
Apache Corp. ................. 69,248 4,606
Baker Hughes, Inc. ........... 67,398 5,032
BJ Services Co. .............. 63,108 1,850
Chesapeake Energy Corp. ...... 88,050 2,558
ChevronTexaco Corp. .......... 461,642 33,944
ConocoPhillips 347,586 25,009
Devon Energy Corp. ........... 93,214 6,253
El Paso Corp. ................ 145,854 2,229
EOG Resources, Inc. .......... 50,728 3,168
ExxonMobil Corp. ............. 1,232,334 94,434
Halliburton Co. .............. 212,954 6,612
Hess Corp. ................... 57,066 2,829
Kinder Morgan, Inc. .......... 22,209 2,349
Marathon Oil Corp. ........... 74,794 6,918
Murphy Oil Corp. ............. 39,623 2,015
Nabors Industries, Ltd. (a)... 65,339 1,946
National Oilwell Varco, Inc.
(a)......................... 36,416 2,228
Noble Corp. .................. 28,613 2,179
Occidental Petroleum Corp. ... 183,115 8,941
Rowan Cos., Inc. ............. 23,312 774
Schlumberger, Ltd. ........... 249,997 15,790
Smith International, Inc. .... 42,332 1,738
Sunoco, Inc. ................. 25,642 1,599
Transocean, Inc. (a).......... 61,904 5,007
Valero Energy Corp. .......... 127,305 6,513
Weatherford International Ltd.
(a)......................... 73,029 3,052
Williams Cos., Inc. .......... 126,532 3,305
XTO Energy, Inc. ............. 77,341 3,639
----------
260,713
----------
FINANCIALS - 21.9%
ACE, Ltd. .................... 68,370 4,141
AFLAC, Inc. .................. 103,444 4,758
Allstate Corp. ............... 131,623 8,570
Ambac Financial Group, Inc. .. 22,117 1,970
American Express Co. ......... 256,477 15,560
American International Group,
Inc. ....................... 550,102 39,420
Ameriprise Financial, Inc. ... 52,055 2,837
AON Corp. .................... 66,231 2,341
Apartment Investment &
Management Co. Class A...... 20,565 1,152
Archstone-Smith Trust......... 46,242 2,692
Bank of America Corp. ........ 951,021 50,775
Bank of New York Co., Inc. ... 161,084 6,342
BB&T Corp. ................... 113,373 4,980
Bear Stearns Cos., Inc. ...... 25,379 4,131
Boston Properties, Inc. ...... 24,276 2,716
Capital One Financial Corp. .. 86,384 6,636
CB Richard Ellis Group, Inc.
Class A (a)................. 38,900 1,291
Charles Schwab Corp. ......... 215,277 4,163
Chicago Mercantile Exchange
Holdings, Inc. ............. 7,459 3,802
Chubb Corp. .................. 87,049 4,606
Cincinnati Financial Corp. ... 36,619 1,659
CIT Group, Inc. .............. 42,131 2,350
Citigroup, Inc. .............. 1,040,542 57,958
Comerica, Inc. ............... 33,939 1,992
Commerce Bancorp, Inc. ....... 38,423 1,355
Compass Bancshares, Inc. ..... 27,185 1,622
Countrywide Financial Corp. .. 131,490 5,582
E*Trade Financial Corp. (a)... 89,682 2,011
Equity Office Properties
Trust....................... 73,873 3,558
Equity Residential............ 61,100 3,101
Fannie Mae.................... 205,469 12,203
Federal Home Loan Mortgage
Corp. ...................... 146,803 9,968
Federated Investors, Inc.
Class B..................... 18,160 613
Fidelity National Information
Services, Inc. ............. 34,498 1,383
Fifth Third Bancorp........... 117,969 4,828
First Horizon National
Corp. ...................... 26,198 1,095
Franklin Resources, Inc. ..... 35,354 3,895
Genworth Financial, Inc. Class
A........................... 96,501 3,301
Goldman Sachs Group, Inc. .... 89,885 17,919
Hartford Financial Services
Group, Inc. ................ 67,089 6,260
Huntington Bancshares, Inc. .. 50,711 1,204
J.P. Morgan Chase & Co. ...... 735,016 35,501
Janus Capital Group, Inc. .... 45,056 973
KeyCorp....................... 83,775 3,186
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
27
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
Kimco Realty Corp. ........... 47,843 $ 2,151
Legg Mason, Inc. ............. 27,686 2,632
Lehman Brothers Holdings,
Inc. ....................... 113,292 8,850
Lincoln National Corp. ....... 59,782 3,970
Loews Corp. .................. 96,944 4,020
M & T Bank Corp. ............. 16,052 1,961
Marsh & McLennan Cos., Inc. .. 116,800 3,581
Marshall & Ilsley Corp. ...... 53,960 2,596
MBIA, Inc. ................... 28,847 2,108
Mellon Financial Corp. ....... 86,595 3,650
Merrill Lynch & Co., Inc. .... 187,113 17,420
MetLife, Inc. ................ 161,409 9,525
MGIC Investment Corp. ........ 18,418 1,152
Moody's Corp. ................ 49,487 3,418
Morgan Stanley................ 223,352 18,188
National City Corp. .......... 133,791 4,891
Northern Trust Corp. ......... 38,964 2,365
Plum Creek Timber Co., Inc. .. 38,698 1,542
PNC Financial Services Group,
Inc. ....................... 62,042 4,594
Principal Financial Group,
Inc. ....................... 56,228 3,301
Progressive Corp. ............ 161,699 3,916
ProLogis...................... 51,362 3,121
Prudential Financial, Inc. ... 100,521 8,631
Public Storage, Inc. ......... 25,680 2,504
Realogy Corp. (a)............. 43,639 1,323
Regions Financial Corp. ...... 153,917 5,756
SAFECO Corp. ................. 21,841 1,366
Simon Property Group, Inc. ... 46,909 4,751
SLM Corp. .................... 85,313 4,161
Sovereign Bancorp, Inc. ...... 73,343 1,862
St. Paul Travelers Cos.,
Inc. ....................... 145,882 7,832
State Street Corp. (b)........ 69,744 4,704
SunTrust Banks, Inc. ......... 76,113 6,428
Synovus Financial Corp. ...... 67,819 2,091
T. Rowe Price Group, Inc. .... 55,753 2,440
Torchmark Corp. .............. 20,742 1,323
U.S. Bancorp.................. 370,737 13,417
UnumProvident Corp. .......... 70,362 1,462
Vornado Realty Trust.......... 27,180 3,302
Wachovia Corp. ............... 403,744 22,993
Washington Mutual, Inc. ...... 199,150 9,059
Wells Fargo Co. .............. 714,949 25,424
Western Union Co. ............ 162,410 3,641
XL Capital, Ltd. Class A...... 37,851 2,726
Zions Bancorp................. 22,290 1,838
----------
604,386
----------
HEALTH CARE - 11.6%
Abbott Laboratories........... 325,078 15,835
Aetna, Inc. .................. 110,591 4,775
Allergan, Inc. ............... 32,090 3,842
AmerisourceBergen Corp. ...... 41,365 1,860
Amgen, Inc. (a)............... 247,049 16,876
Applera Corp. -- Applied
Biosystems Group 38,487 1,412
Barr Pharmaceuticals, Inc.
(a)......................... 22,471 1,126
Bausch & Lomb, Inc. .......... 11,361 591
Baxter International, Inc. ... 138,557 6,428
Becton, Dickinson & Co. ...... 51,991 3,647
Biogen Idec, Inc. (a)......... 71,901 3,537
Biomet, Inc. ................. 52,003 2,146
Boston Scientific Corp. (a)... 248,691 4,273
Bristol-Myers Squibb Co. ..... 417,718 10,994
C.R. Bard, Inc. .............. 21,663 1,797
Cardinal Health, Inc. ........ 85,634 5,517
Caremark Rx, Inc. ............ 90,090 5,145
Celgene Corp. (a)............. 79,000 4,545
CIGNA Corp. .................. 21,763 2,863
Coventry Health Care, Inc.
(a)......................... 33,705 1,687
Eli Lilly & Co. .............. 208,848 10,881
Express Scripts, Inc. (a)..... 29,091 2,083
Forest Laboratories, Inc.
(a)......................... 66,417 3,361
Genzyme Corp. (a)............. 55,278 3,404
Gilead Sciences, Inc. (a)..... 97,402 6,324
Health Management Associates,
Inc. Class A................ 50,557 1,067
Hospira, Inc. (a)............. 32,339 1,086
Humana, Inc. (a).............. 34,534 1,910
IMS Health, Inc. ............. 42,014 1,155
Johnson & Johnson 613,981 40,535
King Pharmaceuticals, Inc.
(a)......................... 50,093 798
Laboratory Corp. of America
Holdings (a)................ 26,382 1,938
Manor Care, Inc. ............. 14,700 690
McKesson Corp. ............... 62,129 3,150
Medco Health Solutions, Inc.
(a)......................... 62,067 3,317
MedImmune, Inc. (a)........... 48,823 1,580
Medtronic, Inc. .............. 243,962 13,054
Merck & Co., Inc. ............ 459,042 20,014
Millipore Corp. (a)........... 10,763 717
Mylan Laboratories Inc. ...... 43,339 865
Patterson Cos., Inc. (a)...... 29,591 1,051
Pfizer, Inc. ................. 1,526,997 39,549
Quest Diagnostics, Inc. ...... 33,907 1,797
Schering-Plough Corp. ........ 314,004 7,423
St. Jude Medical, Inc. (a).... 74,428 2,721
Stryker Corp. ................ 61,705 3,401
Tenet Healthcare Corp. (a).... 99,321 692
Thermo Electron Corp. (a)..... 85,997 3,895
UnitedHealth Group, Inc. ..... 284,559 15,289
Watson Pharmaceuticals, Inc.
(a)......................... 22,071 575
Wellpoint, Inc. (a)........... 131,688 10,363
Wyeth......................... 284,221 14,473
Zimmer Holdings, Inc. (a)..... 51,281 4,019
----------
322,073
----------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
28
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 10.6%
3M Co. ....................... 155,982 $ 12,156
Allied Waste Industries, Inc.
(a)......................... 50,835 625
American Power Conversion
Corp. ...................... 36,779 1,125
American Standard Cos.,
Inc. ....................... 37,436 1,716
Avery Dennison Corp. ......... 19,933 1,354
Boeing Co. ................... 167,871 14,914
Burlington Northern Santa Fe
Corp. ...................... 76,490 5,646
Caterpillar, Inc. ............ 137,003 8,402
Cintas Corp. ................. 28,572 1,135
Cooper Industries, Ltd. ...... 19,182 1,735
CSX Corp. .................... 92,941 3,200
Cummins, Inc. ................ 11,508 1,360
Danaher Corp. ................ 49,582 3,592
Deere & Co. .................. 48,394 4,601
Dover Corp. .................. 42,847 2,100
Eaton Corp. .................. 32,077 2,410
Emerson Electric Co. ......... 169,008 7,452
Equifax, Inc. ................ 26,852 1,090
FedEx Corp. .................. 64,549 7,011
Fluor Corp. .................. 18,164 1,483
General Dynamics Corp. ....... 85,678 6,370
General Electric Co. ......... 2,177,851 81,038
Goodrich Co. ................. 25,837 1,177
Honeywell International,
Inc. ....................... 172,884 7,821
Illinois Tool Works, Inc. .... 87,506 4,042
Ingersoll-Rand Co. Class A.... 64,113 2,509
ITT Industries, Inc. ......... 38,526 2,189
L-3 Communications Holdings,
Inc. ....................... 25,281 2,068
Lockheed Martin Corp. ........ 75,007 6,906
Masco Corp. .................. 83,337 2,489
Monster Worldwide, Inc. (a)... 26,276 1,226
Norfolk Southern Corp. ....... 83,334 4,191
Northrop Grumman Corp. ....... 71,806 4,861
PACCAR, Inc. ................. 53,220 3,454
Pall Corp. ................... 26,856 928
Parker-Hannifin Corp. ........ 25,303 1,945
Pitney Bowes, Inc. ........... 46,085 2,129
R.R. Donnelley & Sons Co. .... 45,803 1,628
Raytheon Co. ................. 93,511 4,937
Robert Half International,
Inc. ....................... 36,327 1,348
Rockwell Automation, Inc. .... 37,236 2,274
Rockwell Collins, Inc. ....... 35,532 2,249
Ryder Systems, Inc. .......... 12,821 655
Southwest Airlines Co. ....... 166,660 2,553
Terex Corp. (a)............... 21,500 1,388
Textron, Inc. ................ 27,058 2,537
Tyco International, Ltd. ..... 421,181 12,804
Union Pacific Corp. .......... 56,518 5,201
United Parcel Service, Inc.
Class B..................... 228,116 17,104
United Technologies Corp. .... 213,583 13,353
W.W. Grainger, Inc. .......... 16,159 1,130
Waste Management, Inc. ....... 112,537 4,138
----------
291,749
----------
INFORMATION TECHNOLOGY - 14.4%
ADC Telecommunications, Inc.
(a)......................... 25,096 365
Adobe Systems, Inc. (a)....... 122,225 5,026
Advanced Micro Devices, Inc.
(a)......................... 116,605 2,373
Affiliated Computer Services,
Inc. Class A (a)............ 24,679 1,205
Agilent Technologies, Inc.
(a)......................... 86,267 3,006
Altera Corp. (a).............. 76,216 1,500
Analog Devices, Inc. ......... 75,095 2,468
Apple Computer, Inc. (a)...... 179,554 15,233
Applied Materials, Inc. ...... 289,679 5,345
Autodesk, Inc. (a)............ 48,583 1,966
Automatic Data Processing,
Inc. ....................... 117,306 5,777
Avaya, Inc. (a)............... 92,417 1,292
BMC Software, Inc. (a)........ 44,771 1,442
Broadcom Corp. Class A (a).... 97,879 3,162
CA, Inc. ..................... 86,100 1,950
CIENA Corp. (a)............... 18,068 501
Cisco Systems, Inc. (a)....... 1,282,397 35,048
Citrix Systems, Inc. (a)...... 38,274 1,035
Cognizant Technology Solutions
Corp. Class A............... 29,900 2,307
Computer Sciences Corp. (a)... 36,295 1,937
Compuware Corp. (a)........... 78,803 656
Comverse Technology, Inc.
(a)......................... 42,971 907
Convergys Corp. (a)........... 28,696 682
Corning, Inc. (a)............. 331,317 6,199
Dell, Inc. (a)................ 481,994 12,093
Electronic Arts, Inc. (a)..... 63,803 3,213
Electronic Data Systems
Corp. ...................... 108,129 2,979
EMC Corp. .................... 466,362 6,156
First Data Corp. ............. 162,410 4,145
Fiserv, Inc. (a).............. 36,462 1,911
Google, Inc. Class A (a)...... 45,351 20,883
Hewlett-Packard Co. .......... 577,631 23,793
IAC (a)....................... 46,900 1,743
Intel Corp. .................. 1,216,018 24,624
International Business
Machines Corp. ............. 318,025 30,896
Intuit, Inc. (a).............. 72,828 2,222
Jabil Circuit, Inc. .......... 37,335 917
Juniper Networks, Inc. (a).... 117,475 2,225
KLA-Tencor Corp. ............. 41,996 2,089
Lexmark International Group,
Inc. Class A (a)............ 21,769 1,593
Linear Technology Corp. ...... 63,875 1,937
LSI Logic Corp. (a)........... 82,199 740
Maxim Integrated Products,
Inc. ....................... 67,368 2,063
Micron Technology, Inc. (a)... 159,715 2,230
Microsoft Corp. .............. 1,832,017 54,704
Molex, Inc. .................. 29,603 936
Motorola, Inc. ............... 509,619 10,478
National Semiconductor
Corp. ...................... 62,815 1,426
NCR Corp. (a)................. 38,303 1,638
Network Appliance, Inc. (a)... 78,313 3,076
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
29
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
Novell, Inc. (a).............. 69,067 $ 428
Novellus Systems, Inc. (a).... 27,450 945
NVIDIA Corp. (a).............. 74,136 2,744
Oracle Corp. (a).............. 851,387 14,593
Paychex, Inc. ................ 70,251 2,778
PerkinElmer, Inc. ............ 27,340 608
PMC-Sierra, Inc. (a).......... 43,362 291
QLogic Corp. (a).............. 34,395 754
QUALCOMM, Inc. ............... 350,570 13,248
Sabre Holdings Corp. Class A.. 28,511 909
SanDisk Corp. (a)............. 48,429 2,084
Sanmina-SCI Corp. (a)......... 113,211 391
Solectron Corp. (a)........... 187,819 605
Sun Microsystems, Inc. (a).... 735,209 3,985
Symantec Corp. (a)............ 198,688 4,143
Symbol Technologies, Inc. .... 52,353 782
Tektronix, Inc. .............. 16,785 490
Tellabs, Inc. (a)............. 93,871 963
Teradyne, Inc. (a)............ 41,522 621
Texas Instruments, Inc. ...... 314,217 9,049
Unisys Corp. (a).............. 73,007 572
VeriSign, Inc. (a)............ 51,462 1,238
Waters Corp. (a).............. 21,925 1,074
Xerox Corp. (a)............... 206,489 3,500
Xilinx, Inc. ................. 72,429 1,724
Yahoo!, Inc. (a).............. 262,402 6,702
----------
397,313
----------
MATERIALS - 3.0%
Air Products & Chemicals,
Inc. ....................... 46,035 3,235
Alcoa, Inc. .................. 180,719 5,423
Allegheny Technologies,
Inc. ....................... 21,296 1,931
Ashland, Inc. ................ 13,322 922
Ball Corp. ................... 21,739 948
Bemis Co., Inc. .............. 21,698 737
Consol Energy, Inc. .......... 38,421 1,235
Dow Chemical Co. ............. 204,034 8,149
E.I. Du Pont de Nemours &
Co. ........................ 195,949 9,545
Eastman Chemical Co. ......... 16,917 1,003
Ecolab, Inc. ................. 38,344 1,733
Freeport-McMoRan Copper &
Gold, Inc. Class B.......... 40,644 2,265
Hercules, Inc. (a)............ 24,773 478
International Flavors &
Fragrances, Inc. ........... 16,257 799
International Paper Co. ...... 94,457 3,221
MeadWestvaco Corp. ........... 37,708 1,134
Monsanto Co. ................. 113,151 5,944
Newmont Mining Corp. ......... 94,339 4,259
Nucor Corp. .................. 64,112 3,504
Pactiv Corp. (a).............. 29,855 1,066
Peabody Energy Corp. ......... 55,400 2,239
Phelps Dodge Corp. ........... 42,645 5,105
PPG Industries, Inc. ......... 34,599 2,222
Praxair, Inc. ................ 67,634 4,013
Rohm & Haas Co. .............. 29,991 1,533
Sealed Air Corp. ............. 17,090 1,110
Sigma-Aldrich Corp. .......... 13,837 1,075
Temple-Inland, Inc. .......... 23,000 1,059
United States Steel Corp. .... 26,183 1,915
Vulcan Materials Co. ......... 19,760 1,776
Weyerhaeuser Co. ............. 49,587 3,503
----------
83,081
----------
TELECOMMUNICATION SERVICES - 3.4%
ALLTEL Corp. ................. 80,854 4,890
AT&T, Inc. ................... 811,422 29,008
BellSouth Corp. .............. 386,329 18,200
CenturyTel, Inc. ............. 23,885 1,043
Citizens Communications Co. .. 69,090 993
Embarq Corp. ................. 31,143 1,637
JDS Uniphase Corp. (a)........ 44,204 736
Qwest Communications
International, Inc. (a)..... 332,980 2,787
Sprint Corp. (Fon Group)...... 613,076 11,581
Verizon Communications,
Inc. ....................... 618,227 23,023
Windstream Corp. ............. 99,356 1,413
----------
95,311
----------
UTILITIES - 3.4%
AES Corp. (a)................. 138,351 3,049
Allegheny Energy, Inc. (a).... 34,008 1,561
Ameren Corp. ................. 42,678 2,293
American Electric Power Co.,
Inc. ....................... 82,514 3,513
CenterPoint Energy, Inc. ..... 64,100 1,063
CMS Energy Corp. (a).......... 46,751 781
Consolidated Edison, Inc. .... 54,385 2,614
Constellation Energy Group,
Inc. ....................... 37,222 2,563
Dominion Resources, Inc. ..... 74,121 6,214
DTE Energy Co. ............... 37,063 1,794
Duke Energy Corp. ............ 266,428 8,848
Dynegy Inc. Class A (a)....... 77,580 562
Edison International.......... 67,978 3,092
Entergy Corp. ................ 44,181 4,079
Exelon Corp. ................. 142,321 8,808
FirstEnergy Corp. ............ 69,031 4,163
FPL Group, Inc. .............. 85,845 4,672
KeySpan Corp. ................ 36,721 1,512
Nicor, Inc. .................. 9,343 437
NiSource, Inc. ............... 58,048 1,399
Peoples Energy Corp. ......... 8,157 364
PG&E Corp. ................... 73,854 3,495
Pinnacle West Capital Corp. .. 20,647 1,047
PPL Corp. .................... 79,488 2,849
Progress Energy, Inc. ........ 52,576 2,580
Public Service Enterprise
Group, Inc. ................ 52,589 3,491
Questar Corp. ................ 18,000 1,495
Sempra Energy................. 54,262 3,041
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
30
STATE STREET EQUITY 500 INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
VALUE
SHARES (000)
---------- ----------
(DOLLARS IN THOUSANDS)
Southern Co. ................. 154,849 $ 5,708
TECO Energy, Inc. ............ 43,414 748
TXU Corp. .................... 96,201 5,215
Xcel Energy, Inc. ............ 84,065 1,939
----------
94,989
----------
TOTAL COMMON STOCKS
(COST $1,689,558,213).. 2,689,684
----------
<Caption>
PAR
AMOUNT
(000)
----------
(IN THOUSANDS)
U.S. GOVERNMENT SECURITIES - 0.2%
United States Treasury Bill
4.83% due 03/08/07 (c)(d)... $ $4,299 4,261
----------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST $4,260,932)...... 4,261
----------
<Caption>
SHARES VALUE
---------- ----------
(IN THOUSANDS)
MONEY MARKET FUNDS - 2.5%
AIM Short Term Investment
Prime Portfolio............. 68,244 $ $68,244
Federated Money Market
Obligations Trust........... 526 526
----------
TOTAL MONEY MARKET FUNDS
(COST $68,770,218)..... 68,770
----------
TOTAL INVESTMENTS - 99.9%
(IDENTIFIED COST
$1,762,589,363)............. $2,762,715
----------
OTHER ASSETS IN EXCESS OF
LIABILITIES - 0.1%.......... 3,981
----------
NET ASSETS - 100%............. $2,766,696
==========
</Table>
SCHEDULE OF FUTURES CONTRACTS
<Table>
<Caption>
UNREALIZED
NUMBER OF APPRECIATION
CONTRACTS (000)
--------- ------------
(DOLLARS IN THOUSANDS)
S&P 500 Financial Futures
Contracts (long) Expiration
Date 03/2007................. 1,070 $12
---
Total unrealized appreciation
on open futures contracts
purchased.................... $12
===
</Table>
- --------
(a) Non-income producing security.
(b) Affiliated issuer. See table that follows for more information.
(c) Rate represents annualized yield at date of purchase.
(d) Security held as collateral in relation to initial margin requirements on
futures contracts.
AFFILIATE TABLE
<Table>
<Caption>
SHARES PURCHASED INCOME EARNED
NUMBER OF FOR THE SHARES SOLD THE NUMBER OF FOR THE
SHARES HELD YEAR ENDED YEAR ENDED SHARES HELD AT YEAR ENDED
SECURITY DESCRIPTION AT 12/31/2005 12/31/06 12/31/06 12/31/06 12/31/06 (000)
- -------------------- ------------- ---------------- --------------- -------------- --------------
State Street Corp. 70,325 1,419 2,000 69,744 $56
<Caption>
REALIZED GAIN
ON SHARES SOLD
SECURITY DESCRIPTION (000)
- -------------------- --------------
State Street Corp. $42
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
31
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006 (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in unaffiliated issuers at market (identified cost
$1,760,261)......................................................... $2,758,011
Investments in non-controlled affiliates at market (identified cost
$2,328) (Note 4).................................................... 4,704
----------
2,762,715
Receivables:
Investment securities sold.......................................... 421
Dividends and interest.............................................. 3,949
----------
TOTAL ASSETS..................................................... 2,767,085
----------
LIABILITIES
Payables:
Daily variation margin on futures contracts......................... 285
Management fees (Note 4)............................................ 104
----------
TOTAL LIABILITIES................................................ 389
----------
NET ASSETS................................................................. $2,766,696
==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
32
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME
Dividend income -- unaffiliated issuers.......................... $ 47,819
Dividend income -- non-controlled affiliated issuer.............. 56
Interest......................................................... 2,803
--------
TOTAL INVESTMENT INCOME..................................... 50,678
--------
EXPENSES
Management fees (Note 4)......................................... $ 1,146
========
TOTAL EXPENSES.............................................. 1,146
--------
NET INVESTMENT INCOME................................................. 49,532
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments -- unaffiliated issuers.............................. 4,724
Investments -- non-controlled affiliated issuer................ 42
Futures contracts.............................................. 5,128 9,894
========
Net change in net unrealized appreciation (depreciation) on:
Investments.................................................... 317,818
Futures contracts 778
========
318,596
--------
Net realized and unrealized gain...................................... 328,490
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $378,022
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
33
STATE STREET EQUITY 500 INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS (Amounts in thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Income........................................ $ 49,532 $ 45,936
Net realized gain (loss) on investments and futures
contracts.................................................. 9,894 (7,186)
Net change in net unrealized appreciation (depreciation)..... 318,596 63,727
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 378,022 102,477
---------- ----------
CAPITAL TRANSACTIONS
Proceeds from contributions.................................. 310,574 278,352
Contributions in-kind........................................ 8,054 --
Fair value of withdrawals.................................... (383,063) (457,339)
Withdrawals in-kind.......................................... -- (237,848)
---------- ----------
NET DECREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (64,435) (416,835)
---------- ----------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS....................... 313,587 (314,358)
NET ASSETS
Beginning of period.......................................... 2,453,109 2,767,467
---------- ----------
END OF PERIOD................................................ $2,766,696 $2,453,109
========== ==========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
34
STATE STREET EQUITY 500 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected supplemental data and ratios to
average net assets:
<Table>
<Caption>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/06 12/31/05 12/31/04 12/31/03 12/31/02
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands).. $2,766,696 $2,453,109 $2,767,467 $2,714,672 $1,992,548
Ratios to average net assets:
Operating expenses................... 0.045% 0.045% 0.045% 0.045% 0.045%
Net investment income................ 1.94% 1.84% 1.97% 1.74% 1.57%
Portfolio turnover rate* 10% 8% 9% 12% 13%
Total return(a) 15.75% 4.87% 10.86% 28.62% (22.16%)
</Table>
- --------
* The portfolio turnover rate excludes in-kind security transactions.
(a) Results represent past performance and are not indicative of future results.
See notes to financial statements.
- --------------------------------------------------------------------------------
35
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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 December 31,
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 for financial
statement purposes. 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.
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
- --------------------------------------------------------------------------------
36
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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 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 year ended December 31, 2006, purchases and sales of investment
securities, excluding short-term investments, futures contracts, and in-kind
contributions and withdrawals, aggregated to $237,271,572 and $269,069,491,
respectively. The aggregate value of in-kind contributions and withdrawals were
$8,053,539 and $0, respectively.
At December 31, 2006, the book cost of investments was $1,762,589,363 which
approximates cost computed on a federal tax basis. The aggregate gross
unrealized appreciation and gross unrealized depreciation was $1,064,901,605 and
$64,775,938, respectively, resulting in net appreciation of $1,000,125,667 for
all securities as computed on a federal income tax basis.
The difference between book and tax cost amounts are primarily due to wash
sale loss deferrals.
4. RELATED PARTY FEES AND TRANSACTIONS
The Portfolio has entered into an investment advisory agreement with SSgA
Funds Management, Inc. ("SSgA FM" or the "Adviser"), a subsidiary of State
Street Corp. and an affiliate of State Street, under which SSgA FM directs the
investments of the Portfolio in accordance with its investment objective,
policies, and limitations. The Trust has contracted with State Street to provide
custody, administration and transfer agent services to the Portfolio. In
compensation for SSgA FM's services as investment adviser and for State Street's
services as administrator, custodian and transfer agent (and for assuming
ordinary operating expenses of the Portfolio, including ordinary legal, audit
and trustees expense), 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
- --------------------------------------------------------------------------------
37
STATE STREET EQUITY 500 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
portion of the S&P 500(R) Index. The market value of this investment at December
31, 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 is unknown as this could involve future claims against
the Trust.
6. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (the "Interpretation"). The
Interpretation establishes for all entities, including pass-through entities
such as the Portfolio, a minimum threshold for financial statement recognition
of the benefit of positions taken in filing tax returns (including whether an
entity is taxable in a particular jurisdiction), and requires certain expanded
tax disclosures. The Interpretation is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission notified the industry that the implementation of the Interpretation
must be incorporated no later than the last day on which a NAV is calculated
preceding the Portfolio's 2007 semi-annual report, June 29, 2007. Management
continues to evaluate the application of the Interpretation to the Portfolio,
and is not in a position at this time to estimate the significance of its
impact, if any, on the Portfolio's financial statements.
In addition, in September 2006, Statement of Accounting Standards No. 157,
Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Portfolio's financial statement disclosures.
- --------------------------------------------------------------------------------
38
STATE STREET EQUITY 500 INDEX PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of State Street Master Funds and
Owners of Beneficial Interest of State Street Equity 500 Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the State Street Equity 500 Index
Portfolio (one of the portfolios constituting State Street Master Funds) (the
Portfolio) as of December 31, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Portfolio's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolio's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
State Street Equity 500 Index Portfolio of State Street Master Funds at December
31, 2006, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
-s- ERNST & YOUNG LLP
Boston, Massachusetts
February 22, 2007
- --------------------------------------------------------------------------------
39
STATE STREET EQUITY 500 INDEX PORTFOLIO
GENERAL INFORMATION (UNAUDITED)
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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.
ADVISORY AGREEMENT RENEWAL
The Board of Trustees of the Trust met on November 30, 2006 (the "Meeting")
to consider the renewal of the investment advisory agreement for the Portfolio
(the "Advisory Agreement"). In preparation for considering the Advisory
Agreement, the Trustees had thoroughly reviewed the renewal materials provided
by the Adviser, which they had requested through independent counsel. In
deciding whether to renew the Advisory Agreement, the Trustees considered
various factors, including (i) the nature, extent and quality of the services
provided by the SSgA Funds Management, Inc. (the "Adviser") under the Advisory
Agreement, (ii) the investment performance of the Portfolio, (iii) the costs to
the Adviser of its services and the profits realized by the Adviser and its
affiliates from their relationship with the Trust, (iv) the extent to which
economies of scale would be realized if and as the Trust grows and whether the
fee levels in the Advisory Agreement reflect these economies of scale, and (v)
any additional benefits to the Adviser from its relationship with the Trust.
In considering the nature, extent and quality of the services provided by
the Adviser, the Trustees relied on their prior direct experience as Trustees of
the Trust as well as on the materials provided at the Meeting. The Board
reviewed the Adviser's responsibilities under the Advisory Agreement and noted
the experience and expertise that would be appropriate to expect of an adviser
to the Portfolio, which is an index fund. The Trustees reviewed the background
and experience of the Adviser's senior management, including those individuals
responsible for the investment and compliance operations relating to the
investments of the Portfolio, and the responsibilities of the latter with
respect to the Portfolio. They also considered the resources, operational
structures and practices of the Adviser in managing the Portfolio's investments,
in monitoring and securing the Portfolio's compliance with its investment
objective and policies with respect to its investments and with applicable laws
and regulations, and in seeking best execution of portfolio transactions. The
Trustees also considered information about the Adviser's overall investment
management business, noting that the Adviser manages assets for a variety of
institutional investors and that the Adviser and its affiliates had over $1.6
trillion in assets under management as of September 30, 2006. They reviewed
information regarding State Street's business continuity and disaster recovery
program. Drawing upon the materials provided and their general knowledge of the
business of the Adviser, the Trustees determined that the experience, resources
and strength of the Adviser in the management of index products is exceptional.
As discussed more fully below, they also determined that the advisory fee for
the Portfolio was fair and reasonable and that its performance and expense ratio
was satisfactory. On the basis of this review, the Trustees determined that the
nature and extent of the services provided by the Adviser to the Portfolio was
appropriate, had been of uniformly high quality, and could be expected to remain
so.
- --------------------------------------------------------------------------------
40
STATE STREET EQUITY 500 INDEX PORTFOLIO
GENERAL INFORMATION (UNAUDITED) -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
The Trustees noted that, in view of the investment objective of the
Portfolio, the investment performance was satisfactory. The Trustees noted that
the performance of the Portfolio in absolute terms was not of the importance
that normally attaches to that of actively-managed funds. Of more importance to
the Trustees was the extent to which the Portfolio achieved its objective of
replicating, before expenses, the total return of the S&P 500 Index. Drawing
upon information provided at the Meeting and upon reports provided to the
Trustees by the Adviser throughout the preceding year, they determined that the
Portfolio had in fact tracked the index within an acceptable range of tracking
error. Accordingly, they concluded that the performance the Portfolio was
satisfactory.
The Trustees considered the profitability to the Adviser and its affiliate,
State Street, of the advisory relationships with the Trust. The Trustees had
been provided with data regarding the profitability to the Adviser and its
affiliated service providers with respect to the Portfolio individually, and on
an aggregate basis, for the year ended September 30, 2006. Having discussed with
representatives of the Adviser the methodologies used in computing the costs
that formed the bases of the profitability calculations, they concluded that
these methodologies were reasonable and turned to the data provided. After
discussion and analysis they concluded that, to the extent that the Adviser's
and State Street's relationships with the Trust had been profitable to either or
both of those entities, the profitability was in no case such as to render the
advisory fee excessive.
In order better to evaluate the Portfolio's advisory fee, the Trustees had
requested comparative information from Lipper Inc. with respect to fees paid by,
and expense ratios of, similar funds. The Trustees found that that the
Portfolio's advisory fee and total expense ratio were lower than the average for
its peer group. The Trustees concluded that the data available provided
confirmation of the reasonableness of the Adviser's fee. The Board determined
that the Adviser's fees were fair and reasonable.
In considering whether the Adviser benefits in other ways from its
relationship with the Trust, the Trustees also considered whether the Adviser's
affiliates may benefit from the Trust' relationship with State Street as fund
administrator, custodian and transfer agent. They noted that the Adviser
utilizes no soft-dollar arrangements in connection with the Portfolio's
brokerage transactions. The Trustees concluded that, to the extent that the
Adviser or its affiliates derive other benefits from their relationships with
the Trust, those benefits are not so significant as to render the Adviser's fees
excessive.
The Board also considered the extent to which economies of scale may be
realized by the Portfolio as assets grow and whether the Portfolio's fee levels
reflect such economies of scale, if any, for the benefit of investors. In
considering the matter, the Board determined that, to the extent economies of
scale were in fact realized, such economies of scale were shared with the
Portfolio by virtue of advisory fees of comparatively low levels that subsumed
economies of scale in the fees themselves. The Trustees also recognized,
however, that should sustained, substantial asset growth be realized in the
future, it might be necessary to consider additional measures.
- --------------------------------------------------------------------------------
41
STATE STREET EQUITY 500 INDEX PORTFOLIO
TRUSTEES AND EXECUTIVE OFFICERS (UNAUDITED)
- --------------------------------------------------------------------------------
The table below includes information about the Trustees and Executive
Officers of the State Street Master Funds, including their:
- business addresses and ages;
- principal occupations during the past five years; and
- other directorships of publicly traded companies or funds.
As of December 31, 2006, none of the Trustees were considered to be an
"interested person" of the Trust, as that term is defined in the Investment
Company Act of 1940, as amended (the "Independent Trustees").
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND
POSITION(S) TERM OF OFFICE COMPLEX
NAME, ADDRESS, AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY OTHER DIRECTORSHIPS
DATE OF BIRTH ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE* HELD BY TRUSTEE
- --------------------- ----------- ---------------- ------------------------- ------------- -------------------------
INDEPENDENT TRUSTEES
Michael F. Holland Trustee and Term: Indefinite Chairman, Holland & 12 Trustee, State Street
Holland & Company, LLC Chairman of Elected: 2/00 Company L.L.C. Institutional Investment
375 Park Avenue the Board (investment adviser) Trust; Director, the
New York, NY 10152 (1995-present). Holland Series Fund,
DOB: July 7, 1944 Inc.; Director, the China
Fund, Inc.; Chairman and
Trustee, Scottish Widows
Investment Partnership
Trust; and Director,
Reaves Utility Income
Fund
William L. Boyan Trustee Term: Indefinite Trustee of Old Mutual 12 Trustee, State Street
State Street Master Funds Elected: 2/00 South Africa Master Trust Institutional Investment
P.O. Box 5049 (investments) (1995- Trust; and Trustee, Old
Boston, MA 02206 present); Chairman Mutual South Africa
DOB: January 20, 1937 emeritus, Children's Master Trust
Hospital (1984-present);
Director, Boston Plan For
Excellence (non-profit)
(1994-present); President
and Chief Operations
Officer, John Hancock
Mutual Life Insurance
Company (1959-1999). Mr.
Boyan retired in 1999.
Rina K. Spence Trustee Term: Indefinite President of SpenceCare 12 Trustee, State Street
7 Acacia Street Elected: 2/00 International LLC (1998- Institutional Investment
Cambridge, MA 02138 present); Member of the Trust; Director,
DOB: October 24, 1948 Advisory Board, Ingenium Berkshire Life Insurance
Corp. (technology Company of America; and
company) (2001-present); Director, IEmily.com
Chief Executive Officer,
IEmily.com (internet
company) (2000-2001);
Chief Executive Officer
of Consensus
Pharmaceutical, Inc.
(1998-1999); Founder,
President and Chief
Executive Officer of
Spence Center for Women's
Health (1994-1998);
Trustee, Eastern
Enterprise (utilities)
(1988-2000).
Douglas T. Williams Trustee Term: Indefinite Executive Vice President 12 Trustee, State Street
State Street Master Funds Elected: 2/00 of Chase Manhattan Bank Institutional Investment
P.O. Box 5049 (1987-1999). Mr. Trust
Boston, MA 02206 Williams retired in 1999.
DOB: December 23, 1940
</Table>
* The "Fund Complex" consists of six series of the Trust and six series of
State Street Institutional Investment Trust.
- --------------------------------------------------------------------------------
42
STATE STREET EQUITY 500 INDEX PORTFOLIO
TRUSTEES AND EXECUTIVE OFFICERS (UNAUDITED) -- CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS, HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
AND DATE OF BIRTH ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS* TRUSTEE TRUSTEE
- ------------------------- ----------- ---------------- ------------------------------------ ------------- -------------
EXECUTIVE OFFICERS
James E. Ross President Term: Indefinite President, SSgA Funds Management, -- --
SSgA Funds Elected: 4/05 inc. (2005-present); Principal, SSgA
Management, Inc. Funds Management, Inc. (2001-2005);
State Street Senior Managing Director, State
Financial Center Street Global Advisors (March 2006-
One Lincoln Street present); Principal, State Street
Boston, MA 02111 Global Advisers (March 2000-March
DOB: June 24, 1965 2006).
Gary L. French Treasurer Term: Indefinite Senior Vice President of State -- --
State Street Bank Elected: 5/05 Street Bank and Trust Company (2002-
and Trust Company present); Managing Director,
2 Avenue de Lafayette Deutsche Bank (including its
Boston, MA 02111 predecessor, Scudder Investments),
DOB: July 4, 1951 Fund Operations Unit (2001-2002);
President, UAM Fund Services (1995
to 2001).
Karen Jacoppo-Wood Secretary Term: Indefinite Vice President and Managing Counsel -- --
State Street Bank Elected: 11/06 of State Street Bank and Trust
and Trust Company Company (2006-present); Counsel,
2 Avenue de Lafayette Pioneer Investment Management USA
Boston, MA 02111 Inc. (2004 to 2006); Vice President
DOB: December 29, 1966 and Counsel of State Street Bank and
Trust Company (2002-2004).
Peter A. Ambrosini Chief Term: Indefinite Senior Principal and Chief -- --
SSgA Funds Compliance Elected: 5/04 Compliance and Risk Management
Management, Inc. Officer Officer, SSgA Funds Management, Inc.
State Street and State Street Global Advisors
Financial Center (2001-present); Managing Director,
One Lincoln Street PricewaterhouseCoopers LLP (1986-
Boston, MA 02111 2001).
DOB: December 17, 1943
</Table>
* Each officer may have served in various other capacities for the same
organization during the length of time served.
The Statement of Additional Information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(toll free) 877-521-4083.
- --------------------------------------------------------------------------------
43
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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 800-441-7762
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 31,880 ValueClick, Inc. (a) $ 753,324 0.1%
Other Securities 2,137,385 0.4
------------ ----
2,890,709 0.5
------------ ----
Aerospace Other Securities 2,745,868 0.5
Agriculture, Fishing & Other Securities
Ranching 643,263 0.1
Air Transport 55,000 JetBlue Airways Corp. (a)(e) 781,000 0.1
Other Securities 3,319,994 0.6
------------ ----
4,100,994 0.7
------------ ----
Aluminum Other Securities 370,684 0.1
Auto Parts: After Market Other Securities 639,196 0.1
Auto Parts: Original Other Securities
Equipment 2,332,606 0.4
Auto, Trucks & Parts 19,700 Navistar International Corp. (a) 658,571 0.1
Other Securities 537,528 0.1
------------ ----
1,196,099 0.2
------------ ----
Banks: New York City Other Securities 337,682 0.1
Banks: Outside New York 17,700 First Midwest Bancorp, Inc.
City 684,636 0.1
Other Securities 31,147,987 5.6
------------ ----
31,832,623 5.7
------------ ----
Beverage: Brewers Other Securities
(Wineries) 161,910 0.0
Beverage: Soft Drinks Other Securities 466,677 0.1
Biotechnology Research & 23,000 ICOS Corp. (a)
Production 777,170 0.1
Other Securities 10,593,492 1.9
------------ ----
11,370,662 2.0
------------ ----
Building Materials Other Securities 2,463,019 0.4
Building: Cement Other Securities 98,256 0.0
Building: Heating & Other Securities
Plumbing 528,588 0.1
Building: Miscellaneous Other Securities 692,135 0.1
Building: Roofing & Other Securities
Wallboard 641,095 0.1
Cable Television Services Other Securities 624,817 0.1
Casinos & Gambling Other Securities 3,427,331 0.6
Chemicals 36,000 Hercules, Inc. (a) 695,160 0.1
Other Securities 5,943,984 1.1
------------ ----
6,639,144 1.2
------------ ----
Coal Other Securities 512,457 0.1
Commercial Information Other Securities
Services 1,003,261 0.2
Communications & Media Other Securities 481,230 0.1
Communications Technology 87,000 Brocade Communications Systems,
Inc. (a) 714,270 0.1
48,400 Foundry Networks, Inc. (a) 725,032 0.1
Other Securities 12120,320 2.2
------------ ----
13,559,622 2.4
------------ ----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
44
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN
FUND
PRINCIPAL COMPLEX
POSITION(S) TERM OF OFFICE OCCUPATION OVERSEEN
NAME, ADDRESS, AND HELD WITH AND LENGTH OF DURING PAST BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED FIVE YEARS TRUSTEE*
- --------------------- ------------ ---------------------------------- ------------ ----------
OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- -------------------------
Computer Services 12,500 Digital River, Inc. (a)
Software & Systems $ 697,375 0.1%
10,000 Equinix, Inc. (a)(e) 756,200 0.2
18,500 Hyperion Solutions Corp. (a) 664,890 0.1
13,798 Micros Systems, Inc. (a) 727,155 0.1
39,160 Parametric Technology Corp. (a) 705,663 0.1
28,000 Sybase, Inc. (a) 691,600 0.1
Other Securities 18,526,821 3.3
------------ ----
22,769,704 4.0
------------ ----
Computer Technology Other Securities 5,210,964 0.9
Construction Other Securities 2,169,725 0.4
Consumer Electronics Other Securities 3,902,842 0.7
Consumer Products Other Securities 3,377,388 0.6
Containers & Packaging: 11,700 AptarGroup, Inc.
Metals & Glass 690,768 0.1
6,075 Greif, Inc. 719,280 0.2
Other Securities 653,403 0.1
------------ ----
2,063,451 0.4
------------ ----
Containers & Packaging: Other Securities
Paper & Plastic 289,695 0.1
Copper Other Securities 379,829 0.1
Cosmetics Other Securities 586,290 0.1
Diversified Financial Other Securities
Services 2,246,259 0.4
Diversified Materials & 14,960 Acuity Brands, Inc. (g)
Processing 778,518 0.1
Other Securities 2,543,895 0.5
------------ ----
3,322,413 0.6
------------ ----
Drug & Grocery Store Other Securities
Chains 2,479,848 0.4
Drugs & Pharmaceuticals Other Securities 10,890,856 1.9
Education Services Other Securities 2,089,459 0.4
Electrical & Electronics Other Securities 1,229,190 0.2
Electrical Equipment & 15,990 General Cable Corp. (a)
Components 698,923 0.1
Other Securities 3,809,119 0.7
------------ ----
4,508,042 0.8
------------ ----
Electrical: Household Other Securities
Appliance 92,799 0.0
Electronics 21,800 Flir Systems, Inc. (a) 693,894 0.1
Other Securities 2,691,602 0.5
------------ ----
3,385,496 0.6
------------ ----
Electronics: Instruments, Other Securities
Gauges & Meters 726,622 0.1
Electronics: Medical 18,080 Hologic, Inc. (a)
Systems 854,822 0.2
Other Securities 3,561,686 0.6
------------ ----
4,416,508 0.8
------------ ----
Electronics: Semi- Other Securities
Conductors/Components 8,747,869 1.6
Electronics: Technology Other Securities 2,453,787 0.4
Energy Equipment Other Securities 178,350 0.0
Energy Miscellaneous 11,097 Veritas DGC, Inc. (a) 950,236 0.2
Other Securities 2,137,648 0.4
------------ ----
3,087,884 0.6
------------ ----
Engineering & Contracting Other Securities
Services 1,469,726 0.3
Entertainment 13,255 Gaylord Entertainment Co. (a) 675,077 0.1
Other Securities 992,849 0.2
------------ ----
1,667,926 0.3
------------ ----
Fertilizers Other Securities 361,796 0.1
Finance Companies Other Securities 1,362,060 0.2
Finance: Small Loan Other Securities 455,570 0.1
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
45
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN
FUND
PRINCIPAL COMPLEX
POSITION(S) TERM OF OFFICE OCCUPATION OVERSEEN
NAME, ADDRESS, AND HELD WITH AND LENGTH OF DURING PAST BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED FIVE YEARS TRUSTEE*
- --------------------- ------------ ---------------------------------- ------------ ----------
OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- -------------------------
Financial Data Processing Other Securities
Services & Systems $ 4,536,527 0.8%
Financial Information Other Securities
Services 1,193,689 0.2
Financial Miscellaneous Other Securities 4,089,995 0.7
Foods 17,600 NBTY, Inc. (a) 731,632 0.1
Other Securities 4,274,591 0.8
------------ ----
5,006,223 0.9
------------ ----
Forest Products Other Securities 474,289 0.1
Forms & Bulk Printing Other Securities
Services 290,326 0.1
Funeral Parlors & Other Securities
Cemeteries 208,275 0.0
Glass Other Securities 229,789 0.0
Gold Other Securities 671,339 0.1
Health Care Facilities Other Securities 3,045,898 0.5
Health Care Management Other Securities
Services 3,330,138 0.6
Health Care Services Other Securities 2,569,700 0.5
Homebuilding Other Securities 1,506,558 0.3
Hotel/Motel Other Securities 385,322 0.1
Household Furnishings Other Securities 2,040,374 0.4
Identification Control & Other Securities
Filter Devices 2,813,820 0.5
Industrial Products Other Securities 179,140 0.0
Insurance: Life Other Securities 2,042,142 0.4
Insurance: Multi-Line Other Securities 2,346,386 0.4
Insurance: Property- Other Securities
Casualty 6,657,005 1.2
Investment Management 28,300 Waddell & Reed Financial, Inc.
Companies Class A 774,288 0.1
Other Securities 2,470,023 0.5
------------ ----
3,244,311 0.6
------------ ----
Jewelry, Watches & Other Securities
Gemstones 570,080 0.1
Leisure Time Other Securities 1,808,945 0.3
Machinery & Engineering Other Securities 373,339 0.1
Machinery: Agricultural Other Securities 258,652 0.1
Machinery: Construction & Other Securities
Handling 530,573 0.1
Machinery: Engines Other Securities 485,690 0.1
Machinery: Other Securities
Industrial/Specialty 2,205,496 0.4
Machinery: Oil Well Other Securities
Equipment & Services 5,782,415 1.0
Machinery: Specialty Other Securities 877,024 0.2
Manufactured Housing Other Securities 414,653 0.1
Manufacturing Other Securities 363,195 0.1
Medical & Dental Other Securities
Instruments & Supplies 12,486,141 2.2
Medical Services Other Securities 1,162,327 0.2
Metal Fabricating Other Securities 4,080,855 0.7
Metals & Minerals 13,836 Cleveland-Cliffs, Inc.
Miscellaneous 670,216 0.1
Other Securities 1,885,529 0.4
------------ ----
2,555,745 0.5
------------ ----
Milling: Fruit & Grain Other Securities
Processing 92,701 0.0
Miscellaneous Business & Other Securities
Consumer Discretionary 86,970 0.0
Miscellaneous Consumer Other Securities
Staples 185,904 0.0
Miscellaneous Materials & Other Securities
Commodities 968,466 0.2
Miscellaneous Materials & Other Securities
Processing 1,280,779 0.2
Miscellaneous Producer 27,200 BE Aerospace, Inc. (a)
Durables 698,496 0.1
Other Securities 149,406 0.0
------------ ----
847,902 0.1
------------ ----
Miscellaneous Technology Other Securities 305,382 0.1
Multi-Sector Companies Other Securities 1,392,739 0.3
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN
FUND
PRINCIPAL COMPLEX
POSITION(S) TERM OF OFFICE OCCUPATION OVERSEEN
NAME, ADDRESS, AND HELD WITH AND LENGTH OF DURING PAST BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED FIVE YEARS TRUSTEE*
- --------------------- ------------ ---------------------------------- ------------ ----------
OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- -------------------------
Office Furniture & 22,200 Herman Miller, Inc.
Business Equipment $ 807,192 0.1%
Other Securities 848,961 0.2
------------ ----
1,656,153 0.3
------------ ----
Offshore Drilling Other Securities 627,509 0.1
Oil: Crude Producers Other Securities 9,545,289 1.7
Oil: Integrated Domestic Other Securities 908,620 0.2
Oil: Integrated Other Securities
International 146,475 0.0
Paints & Coatings Other Securities 924,293 0.2
Paper Other Securities 1,941,526 0.4
Plastics Other Securities 608,128 0.1
Pollution Control & Other Securities
Environmental Services 693,952 0.1
Power Transmission Other Securities
Equipment 512,025 0.1
Printing & Copying Other Securities
Services 698,445 0.1
Production Technology 18,113 Varian Semiconductor Equipment
Equipment Associates, Inc. (a) 824,504 0.1
Other Securities 5,574,713 1.0
------------ ----
6,399,217 1.1
------------ ----
Publishing: Miscellaneous Other Securities 2,141,762 0.4
Publishing: Newspapers Other Securities 1,704,126 0.3
Radio & TV Broadcasters Other Securities 2,235,799 0.4
Railroad Equipment Other Securities 919,482 0.2
Railroads 11,181 Florida East Coast Industries,
Inc. 666,388 0.1
Other Securities 498,920 0.1
------------ ----
1,165,308 0.2
------------ ----
Real Estate Other Securities 834,493 0.1
Real Estate Investment 9,276 Alexandria Real Estate Equities,
Trusts (REITs) Inc. 931,310 0.2
15,100 First Industrial Realty Trust,
Inc. 708,039 0.1
16,900 Highwoods Properties, Inc. 688,844 0.1
25,000 KKR Financial Corp. 669,750 0.1
25,559 Nationwide Health Properties, Inc. 772,393 0.1
31,600 Realty Income Corp. 875,320 0.2
Other Securities 27,737,865 5.0
------------ ----
32,383,521 5.8
------------ ----
Recreational Vehicles & Other Securities
Boats 1,350,644 0.2
Rental & Leasing Other Securities
Services: Commercial 687,977 0.1
Rental & Leasing 23,400 Rent-A-Center, Inc. (a)
Services: Consumer 690,534 0.1
Other Securities 1,039,693 0.2
------------ ----
1,730,227 0.3
------------ ----
Restaurants 11,218 Jack in the Box, Inc. (a) 684,747 0.1
Other Securities 7,855,135 1.4
------------ ----
8,539,882 1.5
------------ ----
Retail 35,500 Big Lots, Inc. (a) 813,660 0.2
21,100 Payless Shoesource, Inc. (a) 692,502 0.1
Other Securities 16,862,326 3.0
------------ ----
18,368,488 3.3
------------ ----
Savings & Loan Other Securities 9,160,581 1.6
Scientific Equipment & Other Securities
Suppliers 731,798 0.1
Securities Brokerage & Other Securities
Services 2,217,917 0.4
Services: Commercial 15,718 Waste Connections, Inc. (a) 653,083 0.1
Other Securities 15,791,734 2.8
------------ ----
16,444,817 2.9
------------ ----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
47
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS IN
FUND
PRINCIPAL COMPLEX
POSITION(S) TERM OF OFFICE OCCUPATION OVERSEEN
NAME, ADDRESS, AND HELD WITH AND LENGTH OF DURING PAST BY
DATE OF BIRTH ("DOB") TRUST TIME SERVED FIVE YEARS TRUSTEE*
- --------------------- ------------ ---------------------------------- ------------ ----------
OTHER DIRECTORSHIPS
HELD BY TRUSTEE
- -------------------------
Shipping 10,000 American Commercial Lines, Inc.
(a)(g) $ 655,100 0.1%
Other Securities 387,176 0.1
------------ ----
1,042,276 0.2
------------ ----
Shoes Other Securities 3,139,750 0.6
Steel 15,890 Chaparral Steel Co. 703,450 0.1
11,900 Oregon Steel Mills, Inc. (a) 742,679 0.1
Other Securities 1,695,448 0.3
------------ ----
3,141,577 0.5
------------ ----
Sugar Other Securities 113,787 0.0
Telecommunications 27,400 Polycom, Inc. (a)
Equipment 846,934 0.2
Other Securities 3,364,246 0.6
------------ ----
4,211,180 0.8
------------ ----
Textile Products Other Securities 215,021 0.0
Textiles Apparel 17,154 Phillips-Van Heusen Corp.
Manufacturers 860,616 0.1
Other Securities 3,739,967 0.7
------------ ----
4,600,583 0.8
------------ ----
Tires & Rubber Other Securities 500,492 0.1
Tobacco Other Securities 992,177 0.2
Toys Other Securities 804,961 0.1
Transportation Other Securities
Miscellaneous 953,186 0.2
Truckers Other Securities 2,096,922 0.4
Utilities: Cable TV & Other Securities
Radio 141,504 0.0
Utilities: Electrical 21,400 PNM Resources, Inc. 665,540 0.1
27,200 Westar Energy, Inc. 706,112 0.1
Other Securities 5,836,204 1.1
------------ ----
7,207,856 1.3
------------ ----
Utilities: Gas 25,100 Piedmont Natural Gas Co. (e)
Distributors 671,425 0.1
Other Securities 3,851,936 0.7
------------ ----
4,523,361 0.8
------------ ----
Utilities: Miscellaneous Other Securities 556,950 0.1
Utilities: 47,100 Time Warner Telecom, Inc. Class A
Telecommunications (a) 938,703 0.2
Other Securities 4,759,699 0.8
------------ ----
5,698,402 1.0
------------ ----
Utilities: Water Other Securities 677,709 0.1
Wholesale & International Other Securities
Trade 345,262 0.1
Wholesalers Other Securities 1,196,287 0.2
------------ ----
TOTAL COMMON STOCKS
(COST -- $331,305,141) 439,097,192 78.2
------------ ----
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
169,590 iShares Russell 2000 Index Fund
(e) 13,241,587 2.4
------------ ----
TOTAL EXCHANGE-TRADED FUNDS
(COST -- $12,341,064) 13,241,587 2.4
------------ ----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
48
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD MUTUAL FUNDS VALUE NET ASSETS
- -------- ----------- ------------ ------------ ----------
Investment Management Other Securities
Companies $ 104,984 0.0%
------------ -----
TOTAL MUTUAL FUNDS
(COST -- $92,876) 104,984 0.0
------------ -----
<Caption>
RIGHTS
------
Cosmetics Other Securities 2,376 0.0
Real Estate Investment Other Securities
Trust (REITs) 8,656 0.0
------------ -----
TOTAL RIGHTS (COST -- $0) 11,032 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST OTHER INTERESTS (B)
---------- -------------------
Oil: Crude Producers Other Securities 0 0.0
------------ -----
TOTAL OTHER INTERESTS
(COST -- $0) 0 0.0
------------ -----
<Caption>
SHORT-TERM SECURITIES
---------------------
$$108,812,950 BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.26% (c)(f) 108,812,950 19.4
34,166,480 BlackRock Liquidity Series, LLC
Money Market Series, 5.29%
(c)(d)(f) 34,166,480 6.1
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST -- $142,979,430) 142,979,430 25.5
------------ -----
TOTAL INVESTMENTS (COST -- $486,718,511*) 595,434,225 106.1
LIABILITIES IN EXCESS OF OTHER ASSETS (34,061,648) (6.1)
------------ -----
NET ASSETS $561,372,577 100.0%
============ =====
</Table>
- --------
* The cost and unrealized appreciation (depreciation) of investments, as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost......................................................... $491,852,083
Gross unrealized appreciation.......................................... $123,684,950
Gross unrealized depreciation.......................................... (20,102,808)
------------
Net unrealized appreciation............................................ $103,582,142
------------
</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
- --------- ------------ ----------
BlackRock Liquidity Series, LLC Cash Sweep Series.............. $108,171,275 $2,287,352
BlackRock Liquidity Series, LLC Money Market Series............ $ 20,701,425 $ 417,774
</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 December 31, 2006.
See notes to financial statements.
- --------------------------------------------------------------------------------
49
MASTER SMALL CAP INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
(g) Security held as collateral in connection with open future contracts.
- - "Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
Some securities, or a portion of, in this category are either held as
collateral in connection with open financial future contracts or are out
on loan.
- - 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 percentage of net assets. These
industry classifications are unaudited.
- - Financial futures contracts purchased as of December 31, 2006, were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE DEPRECIATION
- --------- ----- ---------- ---------- ------------
274 Russell 2000 Index March 2007 $109,431,543 $(530,243)
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
MASTER SMALL CAP INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $32,546,712) (identified
cost -- $343,739,081)...................................... $452,454,795
Investments in affiliated securities, at value (identified
cost -- $142,979,430)...................................... 142,979,430
Cash......................................................... 305,104
Receivables:
Contributions.............................................. $1,204,969
Dividends.................................................. 498,496
Securities sold............................................ 396,086
Securities lending......................................... 33,821 2,133,372
----------
Prepaid expenses and other assets............................ 6,410
------------
TOTAL ASSETS............................................ 597,879,111
------------
LIABILITIES:
Collateral on securities loaned, at value.................... 34,166,480
Payables:
Withdrawals................................................ 1,012,161
Variation margin........................................... 835,700
Securities purchased....................................... 386,928
Other affiliates........................................... 4,350
Investment adviser......................................... 3,633 2,242,772
----------
Accrued expenses............................................. 97,282
------------
TOTAL LIABILITIES....................................... 36,506,534
------------
NET ASSETS:
Net assets................................................... $561,372,577
============
NET ASSETS CONSIST OF
Investors' capital........................................... $453,187,106
Unrealized appreciation -- net............................... 108,185,471
------------
NET ASSETS........................................................ $561,372,577
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
MASTER SMALL CAP INDEX SERIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $2,037 foreign withholding tax)............ $ 5,108,467
Interest from affiliates..................................... 2,287,352
Securities lending -- net.................................... 417,774
-----------
TOTAL INCOME............................................ 7,813,593
-----------
EXPENSES:
Professional fees............................................ $ 118,057
Custodian fees............................................... 85,333
Accounting services.......................................... 82,261
Investment advisory fees..................................... 48,385
Trustees' fees and expenses.................................. 3,674
Other........................................................ 8,185
-----------
TOTAL EXPENSES BEFORE REIMBURSEMENT..................... 345,895
Reimbursement of expenses.................................... (9,889)
-----------
TOTAL EXPENSES AFTER REIMBURSEMENT...................... 336,006
-----------
INVESTMENT INCOME -- NET.......................................... 7,477,587
-----------
REALIZED & UNREALIZED GAIN (LOSS) -- NET:
Realized gain (loss) on:
Investments -- net......................................... 30,900,688
In-kind redemption -- net.................................. (1,199,610)
Financial futures contracts -- net......................... (4,101,665) 25,599,413
-----------
Change in unrealized appreciation/depreciation on:
Investments -- net......................................... 31,766,471
Financial futures contracts -- net......................... (529,395) 31,237,076
----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN -- NET............... 56,836,489
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $64,314,076
===========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
52
MASTER SMALL CAP INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income -- net................................... $ 7,477,587 $ 4,325,603
Realized gain -- net....................................... 25,599,413 13,549,496
Change in unrealized appreciation/depreciation -- net...... 31,237,076 (5,151,541)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. 64,314,076 12,723,558
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions................................ 555,696,889 267,164,255
Fair value of withdrawals.................................. (428,783,737) (275,403,741)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM
CAPITAL TRANSACTIONS................................ 126,913,152 (8,239,486)
------------- -------------
NET ASSETS:
Total increase in net assets............................... 191,227,228 4,484,072
Beginning of year.......................................... 370,145,349 365,661,277
------------- -------------
END OF YEAR................................................ $ 561,372,577 $ 370,145,349
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
MASTER SMALL CAP INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN........................... 18.13% 4.63% 18.15% 47.11% (20.19%)
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement............... .07% .07% .08% .09% .08%
-------- -------- -------- -------- --------
Expenses..................................... .07% .08% .08% .10% .14%
-------- -------- -------- -------- --------
Investment income -- net..................... 1.55% 1.17% 1.11% 1.13% 1.26%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)....... $561,373 $370,145 $365,661 $335,659 $181,915
-------- -------- -------- -------- --------
Portfolio turnover........................... 40.29% 36.63% 37.74% 28.57% 39.00%
-------- -------- -------- -------- --------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Master Small Cap Index Series (the "Series"), a non-diversified investment
company, is part of Quantitative Master Series Trust (the "Trust").The Trust is
registered under the Investment Company Act of 1940, as amended, and is
organized as a Delaware statutory trust. The Declaration of Trust permits the
Trustees to issue nontransferable interests in the Trust, subject to certain
limitations. The Series' financial statements are prepared in conformity with
U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the NASDAQ Global 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 Capital Market
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 or purchased are valued at the last sales price in the case
of exchange-traded options. Options traded in the OTC market are valued at the
last asked price (options written) or the last bid price (options purchased).
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 BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., 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 Trust under the general supervision by the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net assets of the Series are determined as of such times. Foreign
currency exchange rates are generally determined as of 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 will be valued
at their fair value as determined in good faith by the Board of Trustees of
- --------------------------------------------------------------------------------
55
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
the Trust or by the Manager 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 financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specified price or yield.
Upon entering into a contract, the Series deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Series agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Series as unrealized gains or
losses. When the contract is closed, the Series records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
- Options -- The Series may purchase and write call and put options. When
the Series writes an option, an amount equal to the premium received by
the Series is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Series enters into a closing
transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income taxes
The Series is classified as a partnership for federal income tax purposes.
As such, each investor in the Series is treated as owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Series. Therefore, no federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends and capital gains at various rates. It is intended that the
Series' assets will be managed so an investor in the Series can satisfy the
requirements of Subchapter M of the Internal Revenue Code.
(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.
- --------------------------------------------------------------------------------
56
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
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.
(f) Recent accounting pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109." FIN 48 prescribes the
minimum recognition threshold a tax position must meet in connection with
accounting for uncertainties in income tax positions taken or expected to be
taken by an entity including mutual funds before being measured and recognized
in the financial statements. Adoption of FIN 48 is required for the last net
asset value calculation in the first required financial statement reporting
period for fiscal years beginning after December 15, 2006. The impact on the
Series' financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time, its impact on the Series' financial statements has not
been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc.
("Merrill Lynch") combined Merrill Lynch's investment management business,
Merrill Lynch Investment Managers, L.P. ("MLIM"), and its affiliates including
Fund Asset Management, L.P. ("FAM"), with BlackRock, Inc. to create a new
independent company. Merrill Lynch has a 49.8% economic interest and a 45%
voting interest in the combined company and The PNC Financial Services Group,
Inc. ("PNC"), has approximately a 34% economic and voting interest. The new
company operates under the BlackRock name and is governed by a board of
directors with a majority of independent members.
On September 29, 2006, shareholders of the investors of the Series approved
a new Investment Advisory Agreement for the Trust with the Manager. BlackRock
Advisors, Inc. was recently reorganized into a limited liability company and
renamed BlackRock Advisors, LLC. The new Investment Advisory Agreement between
the Trust and the Manager became effective on September 29, 2006. Prior to
September 29, 2006, FAM was the Manager. The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch,
which is the limited partner.
The Manager is responsible for the management of the Series' investments
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. The Manager (and previously FAM) has entered into a
contractual arrangement with the Series under which all
- --------------------------------------------------------------------------------
57
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
expenses incurred by the Series will not exceed .08%. This arrangement has a
one-year term and is renewable. The reimbursements were as follows:
<Table>
<Caption>
FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 2006 TO SEPTEMBER 30, 2006 TO
SEPTEMBER 29, 2006 DECEMBER 31, 2006
REIMBURSEMENT REIMBURSEMENT
BY FAM BY THE MANAGER
- ---------------------- ----------------------
$1,969 $7,920
</Table>
In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, under
which the Manager pays the Sub-Advisor for services it provides a monthly fee
that is a percentage of the management fee paid by the Series to the Manager.
Merrill Lynch Trust Company ("MLTC"), an indirect, wholly owned subsidiary
of Merrill Lynch, 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 the Manager, or its
affiliates. As of December 31, 2006, the Series lent securities with a value of
$51,831 to MLPF&S or its affiliates. Pursuant to that order, the Trust has
retained BIM as the securities lending agent for a fee based on a share of the
returns on investment of cash collateral. Prior to September 29, 2006, BIM was
organized as Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of FAM, and MLIM, LLC was the Trust's securities lending agent. BIM 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 the Manager or in registered money market funds advised by the
Manager or its affiliates. For the year ended December 31, 2006, BIM received
$179,594 in securities lending agent fees.
For the year ended December 31, 2006, the Series reimbursed FAM and the
Manager $7,486 and $2,091, respectively, for certain accounting services.
In addition, MLPF&S received $217 in commissions on the execution of
portfolio security transactions for the Series for the year ended December 31,
2006.
Prior to September 29, 2006, certain officers and/or trustees of the Trust
were officers and/or directors of FAM, PSI, MLTC, Merrill Lynch, MLIM, and/or
MLIM, LLC.
Commencing September 29, 2006, certain officers and/or trustees of the
Trust are officers and/or directors of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including in-kind redemptions) of investments,
excluding short-term securities, for the year ended December 31, 2006 were
$197,782,011 and $175,034,540, respectively.
- --------------------------------------------------------------------------------
58
MASTER SMALL CAP INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
4. SHORT-TERM BORROWINGS:
The Trust, on behalf of the Series, along with certain other funds managed
by the Manager and its affiliates (or FAM and its affiliates), is a party to a
$500,000,000 credit agreement with a group of lenders. The Series may borrow
under the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Series may borrow up to the maximum amount
allowable under the Series' current prospectus and statement of additional
information, subject to various other legal, regulatory or contractual limits.
On November 22, 2006 the credit agreement was renewed for one year under
substantially the same terms. The Series pays a commitment fee of .06% 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 .35% or a base
rate as defined in the credit agreement. The Series did not borrow under the
credit agreement during the year ended December 31, 2006.
- --------------------------------------------------------------------------------
59
MASTER SMALL CAP INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the summary schedule of investments, of Master Small Cap Index Series,
one of the portfolios constituting Quantitative Master Series Trust (the
"Trust") as of December 31, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master Small Cap Index Series of the Quantitative Master Series Trust as of
December 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
- --------------------------------------------------------------------------------
60
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 2006 (IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
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 800-441-7762
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 $ $5,007,074 0.6%
Air Freight & Logistics Other Securities 3,579,299 0.4
Airlines Other Securities 2,496,539 0.3
Auto Components Other Securities 6,404,735 0.8
Automobiles 55,234 DaimlerChrysler AG 3,412,252 0.4
100,700 Honda Motor Co., Ltd. 3,977,060 0.5
171,800 Toyota Motor Corp. 11,491,349 1.4
Other Securities 5,822,711 0.7
------------ -----
24,703,372 3.0
------------ -----
Beverages 171,754 Diageo Plc 3,371,319 0.4
Other Securities 7,139,965 0.9
------------ -----
10,511,284 1.3
------------ -----
Biotechnology Other Securities 1,029,699 0.1
Building Products Other Securities 4,438,488 0.5
Capital Markets 69,210 Credit Suisse Group 4,842,144 0.6
30,533 Deutsche Bank AG Registered Shares 4,084,502 0.5
128,266 UBS AG 7,794,910 1.0
Other Securities 9,384,071 1.1
------------ -----
26,105,627 3.2
------------ -----
Chemicals Other Securities 22,243,064 2.7
Commercial Banks 117,826 ABN AMRO Holding NV 3,787,292 0.5
50,675 BNP Paribas 5,528,729 0.7
226,568 Banco Bilbao Vizcaya Argentaria SA 5,455,218 0.7
351,590 Banco Santander Central Hispano SA 6,562,580 0.8
416,115 Barclays Plc 5,947,643 0.7
223,922 HBOS Plc 4,963,086 0.6
697,941 HSBC Holdings Plc 12,722,634 1.5
365,971 Lloyds TSB Group Plc 4,095,166 0.5
496 Mitsubishi UFJ Financial Group,
Inc. 6,126,801 0.7
545 Mizuho Financial Group, Inc. 3,892,694 0.5
194,197 Royal Bank of Scotland Group Plc 7,578,067 0.9
23,828 Societe Generale 4,044,988 0.5
352 Sumitomo Mitsui Financial Group,
Inc. 3,608,588 0.4
457,392 UniCredito Italiano SpA 4,009,086 0.5
Other Securities 47,738,893 5.7
------------ -----
126,061,465 15.2
------------ -----
Commercial Services & Supplies Other Securities 7,756,461 0.9
Communications Equipment 249,391 Nokia Oyj 5,096,129 0.6
821,376 Telefonaktiebolaget LM Ericsson 3,317,443 0.4
Other Securities 2,881,896 0.4
------------ -----
11,295,468 1.4
------------ -----
Computers & Peripherals Other Securities 3,605,407 0.4
Construction & Engineering Other Securities 7,372,796 0.9
Construction Materials Other Securities 6,962,401 0.8
Consumer Finance Other Securities 2,988,346 0.4
Containers & Packaging Other Securities 828,723 0.1
Distributors Other Securities 864,203 0.1
Diversified Consumer Services Other Securities 374,466 0.1
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
61
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006 (IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Diversified Financial Services 110,603 ING Groep NV CVA $ 4,904,171 0.6%
Other Securities 8,687,981 1.0
------------ -----
13,592,152 1.6
------------ -----
Diversified Telecommunication 534,108 BT Group Plc
Services 3,153,008 0.4
168,503 Deutsche Telekom AG 3,078,452 0.4
266,279 Telefonica SA 5,666,184 0.7
Other Securities 16,266,761 1.9
------------ -----
28,164,405 3.4
------------ -----
Electric Utilities 38,076 E.ON AG 5,168,444 0.6
Other Securities 19,892,222 2.4
------------ -----
25,060,666 3.0
------------ -----
Electrical Equipment Other Securities 8,130,950 1.0
Electronic Equipment & Instruments Other Securities 7,685,795 0.9
Energy Equipment & Services Other Securities 2,516,396 0.3
Food & Staples Retailing 466,946 Tesco Plc 3,698,229 0.4
Other Securities 11,502,867 1.4
------------ -----
15,201,096 1.8
------------ -----
Food Products 25,319 Nestle SA Registered Shares 8,997,232 1.1
Other Securities 12,574,636 1.5
------------ -----
21,571,868 2.6
------------ -----
Gas Utilities Other Securities 2,677,952 0.3
Health Care Equipment & Supplies Other Securities 4,283,944 0.5
Health Care Providers & Services Other Securities 1,181,749 0.1
Hotels, Restaurants & Leisure Other Securities 8,645,950 1.0
Household Durables Other Securities 14,486,260 1.8
Household Products Other Securities 2,510,800 0.3
IT Services Other Securities 2,597,669 0.3
Independent Power Producers & Other Securities 1,083,620 0.1
Energy Traders
Industrial Conglomerates 51,478 Siemens AG 5,106,009 0.6
Other Securities 5,925,648 0.7
------------ -----
11,031,657 1.3
------------ -----
Insurance 102,693 AXA 4,157,606 0.5
25,428 Allianz AG Registered Shares 5,194,690 0.6
Other Securities 29,417,640 3.6
------------ -----
38,769,936 4.7
------------ -----
Internet & Catalog Retail Other Securities 838,975 0.1
Internet Software & Services Other Securities 595,690 0.1
Leisure Equipment & Products Other Securities 2,919,903 0.4
Life Sciences Tools & Services Other Securities 71,081 0.0
Machinery Other Securities 16,656,338 2.0
Marine Other Securities 2,526,660 0.3
Media Other Securities 15,481,845 1.9
Metals & Mining 84,731 Anglo American Plc 4,132,613 0.5
204,569 BHP Billiton Ltd. 4,085,341 0.5
62,276 Rio Tinto Plc Registered Shares 3,314,201 0.4
Other Securities 20,962,014 2.5
------------ -----
32,494,169 3.9
------------ -----
Multi-Utilities Other Securities 13,256,748 1.6
Multiline Retail Other Securities 4,066,129 0.5
Office Electronics 60,600 Canon, Inc. 3,411,789 0.4
Other Securities 1,631,973 0.2
------------ -----
5,043,762 0.6
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
62
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006 (IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY SHARES HELD COMMON STOCKS VALUE NET ASSETS
- -------- ----------- ------------- ------------ ----------
Oil, Gas & Consumable Fuels 3,749 BP Plc (a)(d) $ 251,558 0.0%
1,174,823 BP Plc 13,054,100 1.6
149,876 ENI SpA 5,041,041 0.6
223,403 Royal Dutch Shell Plc 7,807,929 0.9
163,342 Royal Dutch Shell Plc Class B 5,724,790 0.7
132,168 Total SA 9,534,659 1.2
------------ -----
Other Securities 12,677,627 1.5
------------ -----
54,091,704 6.5
------------ -----
Paper & Forest Products Other Securities 2,773,070 0.3
Personal Products Other Securities 2,289,750 0.3
Pharmaceuticals 99,175 AstraZeneca Plc 5,328,377 0.6
347,078 GlaxoSmithKline Plc 9,133,453 1.1
800 GlaxoSmithKline Plc (a) 42,208 0.0
149,259 Novartis AG Registered Shares 8,605,207 1.0
44,819 Roche Holding AG 8,036,891 1.0
61,777 Sanofi-Aventis 5,704,311 0.7
57,500 Takeda Pharmaceutical Co., Ltd. 3,947,523 0.5
Other Securities 8,232,087 1.0
------------ -----
49,030,057 5.9
------------ -----
Real Estate Investment Trusts Other Securities
(REITs) 7,445,711 0.9
Real Estate Management & Other Securities
Development 16,776,399 2.0
Road & Rail Other Securities 6,432,984 0.8
Semiconductors & Semiconductor Other Securities
Equipment 6,590,454 0.8
Software Other Securities 6,023,735 0.7
Specialty Retail Other Securities 6,046,874 0.7
Textiles, Apparel & Luxury Goods Other Securities 7,260,044 0.9
Thrifts & Mortgage Finance Other Securities 616,262 0.1
Tobacco Other Securities 8,006,544 1.0
Trading Companies & Distributors Other Securities 7,679,268 0.9
Transportation Infrastructure Other Securities 2,749,376 0.3
Water Utilities Other Securities 912,623 0.1
Wireless Telecommunication 3,133,112 Vodafone Group Plc 8,680,425 1.1
Services 3,655 Vodafone Group Plc (a) 101,536 0.0
Other Securities 5,066,695 0.6
------------ -----
13,848,656 1.7
------------ -----
TOTAL COMMON STOCKS
(COST -- $553,557,827) 776,346,593 93.5
------------ -----
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
284,277 iShares MSCI EAFE Index Fund (d) 20,826,133 2.5
------------ -----
TOTAL EXCHANGE-TRADED FUNDS
(COST -- $17,644,632) 20,826,133 2.5
------------ -----
<Caption>
PREFERRED STOCKS
----------------
Automobiles Other Securities 1,101,651 0.2
Chemicals Other Securities 602,026 0.1
Media Other Securities 164,376 0.0
Multi-Utilities Other Securities 177,636 0.0
------------ -----
TOTAL PREFERRED STOCKS
(COST -- $1,109,749) 2,045,689 0.3
------------ -----
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
63
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006 (IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
EXCHANGE-TRADED FUNDS
---------------------
Metals & Mining Other Securities $ 0 0.0%
------------ -----
TOTAL RIGHTS
(COST -- $0) 0 0.0
------------ -----
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
----------- ---------------------
$25,751,297 BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.26% (b)(c)... 25,751,297 3.1
------------ -----
TOTAL SHORT-TERM SECURITIES
(COST -- $25,751,297)............. 25,751,297 3.1
------------ -----
TOTAL INVESTMENTS (COST -- $598,063,505*) 824,969,712 99.4
OTHER ASSETS LESS LIABILITIES 5,016,069 0.6
------------ -----
NET ASSETS $829,985,781 100.0%
============ =====
</Table>
- --------
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost......................................................... $607,157,326
------------
Gross unrealized appreciation.......................................... $222,862,516
Gross unrealized depreciation.......................................... (5,050,130)
------------
Net unrealized appreciation............................................ $217,812,386
============
</Table>
(a) Depositary receipts.
(b) 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
- --------- ------------ --------
BlackRock Liquidity Series, LLC Cash Sweep Series................. $5,422,422 $735,993
</Table>
(c) Represents the current yield as of December 31, 2006.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
- - "Other Securities" represent issues that are not identified as the 50
largest holdings of the Series and issues not exceeding 1% of net assets.
Some securities, or a portion of, in this category are held as collateral
in connection with open financial futures contracts.
- - For Series compliance purposes, the Series' industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
- - Financial futures contracts purchased as of December 31, 2006 were as
follows:
<Table>
<Caption>
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE EXCHANGE DATE VALUE APPRECIATION
- --------- ----- -------- ------------ ---------- ------------
9 Hang Seng Index Future Hong Kong January 2007 $1,118,379 $ 39,728
117 OMX Stock Index Future Stockholm January 2007 $1,939,329 32,048
109 DJ Euro Stoxx 50 Eurex March 2007 $5,914,231 67,064
38 FTSE 100 Index Future LIFFE March 2007 $4,610,863 14,046
40 SPI 200 Index Future Sydney March 2007 $4,342,551 114,102
69 TOPIX Index Future Tokyo March 2007 $9,356,847 398,415
--------
TOTAL UNREALIZED APPRECIATION $665,403
========
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
64
MASTER INTERNATIONAL INDEX SERIES
SUMMARY SCHEDULE OF INVESTMENTS -- CONTINUED
AS OF DECEMBER 31, 2006 (IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
- - Forward foreign exchange contracts purchased as of December 31, 2006 were
as follows:
<Table>
<Caption>
FOREIGN CURRENCY UNREALIZED APPRECIATION
PURCHASED SETTLEMENT DATE (DEPRECIATION)
- ---------------- --------------- -----------------------
AUD 3,898,000 February 2007 $ 45,845
CHF 6,125,200 February 2007 34,457
EUR 17,913,900 February 2007 334,063
GBP 7,351,400 February 2007 172,607
JPY 1,813,274,700 February 2007 (282,858)
SEK 10,242,400 February 2007 23,891
---------
TOTAL UNREALIZED APPRECIATION ON
FORWARD FOREIGN EXCHANGE
CONTRACTS -- NET (USD
COMMITMENT -- $62,708,033) $ 328,005
=========
</Table>
- - Forward foreign exchange contracts sold as of December 31, 2006 were as
follows:
<Table>
<Caption>
FOREIGN CURRENCY UNREALIZED APPRECIATION
SOLD SETTLEMENT DATE (DEPRECIATION)
- ------------------ --------------- -----------------------
AUD 2,921,000 February 2007 $ (38,340)
CHF 4,097,000 February 2007 14,226
EUR 11,734,000 February 2007 (110,785)
GBP 4,605,000 February 2007 (91,716)
JPY 1,204,800,000 February 2007 202,603
SEK 7,050,000 February 2007 (9,428)
TOTAL UNREALIZED DEPRECIATION ON
FORWARD FOREIGN EXCHANGE
CONTRACTS -- NET (USD
COMMITMENT -- $41,398,627) $ (33,440)
=========
</Table>
<Table>
<Caption>
CURRENCY ABBREVIATIONS:
AUD Australian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
JPY Japanese Yen
SEK Swedish Krona
USD U.S. Dollar
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
65
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in unaffiliated securities, at value (identified
cost -- $572,312,208)...................................... $799,218,415
Investments in affiliated securities, at value (identified
cost -- $25,751,297)....................................... 25,751,297
Cash......................................................... 307,920
Foreign cash (cost -- $1,305,741)............................ 1,309,885
Unrealized appreciation on forward foreign exchange
contracts.................................................. 827,692
Receivables:
Contributions.............................................. $4,125,718
Dividends.................................................. 1,530,188
Securities sold............................................ 160,700
Investment adviser......................................... 22,183 5,838,789
----------
Prepaid expenses and other assets............................ 10,252
------------
TOTAL ASSETS............................................ 833,264,250
------------
LIABILITIES
Unrealized depreciation on forward foreign exchange
contracts.................................................. 533,127
Payables:
Withdrawals................................................ 2,542,618
Variation margin........................................... 31,003
Other affiliates........................................... 6,886
Investment adviser......................................... 6,368 2,586,875
----------
Accrued expenses and other liabilities....................... 158,467
------------
TOTAL LIABILITIES....................................... 3,278,469
------------
NET ASSETS
Net assets................................................... $829,985,781
============
NET ASSETS CONSIST OF
Investors' capital........................................... $601,945,406
Unrealized appreciation -- net............................... 228,040,375
------------
NET ASSETS........................................................ $829,985,781
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
66
MASTER INTERNATIONAL INDEX SERIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $1,257,223 foreign withholding tax)....... $ 17,557,657
Interest from affiliates.................................... 735,993
------------
TOTAL INCOME........................................... 18,293,650
------------
EXPENSES:
Custodian fees.............................................. $ 369,434
Accounting services......................................... 112,429
Professional fees........................................... 76,419
Investment advisory fees.................................... 65,424
Pricing fees................................................ 54,443
Trustees' fees and expenses................................. 5,190
Other....................................................... 18,576
------------
TOTAL EXPENSES BEFORE REIMBURSEMENT.................... 701,915
Reimbursement of expenses................................... (68,252)
------------
TOTAL EXPENSES AFTER REIMBURSEMENT..................... 633,663
------------
INVESTMENT INCOME -- NET......................................... 17,659,987
------------
REALIZED & UNREALIZED GAIN (LOSS) -- NET:
Realized gain on:
Investments -- net........................................ 7,339,310
In-kind redemption -- net................................. 562,842
Financial futures contracts -- net........................ 2,402,795
Foreign currency transactions -- net...................... 1,761,193 12,066,140
------------
Change in unrealized appreciation/depreciation on:
Investments -- net........................................ 125,579,064
Financial futures contracts -- net........................ 99,408
Foreign currency transactions -- net...................... 759,651 126,438,123
------------ ------------
TOTAL REALIZED AND UNREALIZED GAIN -- NET.............. 138,504,263
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $156,164,250
============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
67
MASTER INTERNATIONAL INDEX SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income -- net................................... $ 17,659,987 $ 10,676,216
Realized gain -- net....................................... 12,066,140 3,554,079
Change in unrealized appreciation/depreciation -- net...... 126,438,123 44,436,350
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. 156,164,250 58,666,645
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from contributions................................ 517,743,669 274,141,104
Fair value of withdrawals.................................. (367,077,433) (131,719,318)
------------- -------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL
TRANSACTIONS........................................ 150,666,236 142,421,786
------------- -------------
NET ASSETS:
Total increase in net assets............................... 306,830,486 201,088,431
Beginning of year.......................................... 523,155,295 322,066,864
------------- -------------
END OF YEAR................................................ $ 829,985,781 $ 523,155,295
============= =============
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
68
MASTER INTERNATIONAL INDEX SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios have been derived from information provided in the
financial statements.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN........................... 26.61% 13.64% 20.32% 38.97% (15.81%)
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement............... .10% .10% .09% .09% .08%
-------- -------- -------- -------- --------
Expenses..................................... .11% .10% .10% .10% .16%
-------- -------- -------- -------- --------
Investment income -- net..................... 2.70% 2.53% 2.55% 2.23% 2.21%
-------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)....... $829,986 $523,155 $322,067 $553,129 $166,820
-------- -------- -------- -------- --------
Portfolio turnover........................... 22.69% 11.33% 13.50% 8.55% 19.52%
-------- -------- -------- -------- --------
</Table>
See notes to financial statements.
- --------------------------------------------------------------------------------
69
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Master International Index Series (the "Series"), a non-diversified
investment company, is part of Quantitative Master Series Trust (the "Trust").
The Trust is registered under the Investment Company Act of 1940, as amended,
and is organized as a Delaware statutory trust. The Declaration of Trust permits
the Trustees to issue nontransferable interests in the Series, subject to
certain limitations. The Series' financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments
Equity securities that are held by the Series that are traded on stock
exchanges or the NASDAQ Global 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") markets, NASDAQ Capital Market
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 markets are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC markets and on a stock exchange are valued according to the broadest and
most representative market.
Options written or purchased are valued at the last sale price in the case
of exchange-traded options. Options traded in the OTC market are valued at the
last asked price (options written) or the last bid price (options purchased).
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 BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., 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 securities used in
computing the net assets of the Series are determined as of such times. Foreign
currency exchange rates are generally determined as of 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
- --------------------------------------------------------------------------------
70
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
securities, those securities will be valued at their fair value as determined in
good faith by the Trust's Board of Trustees or by the Manager 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 financial futures contracts.
Financial 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 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.
- --------------------------------------------------------------------------------
71
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
(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.
(g) Recent accounting pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109." FIN 48 prescribes the
minimum recognition threshold a tax position must meet in connection with
accounting for uncertainties in income tax positions taken or expected to be
taken by an entity including mutual funds before being measured and recognized
in the financial statements. Adoption of FIN 48 is required for the last net
asset value calculation in the first required financial statement reporting
period for fiscal years beginning after December 15, 2006. The impact on the
Series' financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time, its impact on the Series' financial statements has not
been determined.
- --------------------------------------------------------------------------------
72
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc.
("Merrill Lynch") combined Merrill Lynch's investment management business,
Merrill Lynch Investment Managers, L.P. ("MLIM"), and its affiliates including
Fund Asset Management, L.P. ("FAM"), with BlackRock, Inc. to create a new
independent company. Merrill Lynch has a 49.8% economic interest and a 45%
voting interest in the combined company and The PNC Financial Services Group,
Inc. ("PNC"), has approximately a 34% economic and voting interest. The new
company operates under the BlackRock name and is governed by a board of
directors with a majority of independent members.
On September 29, 2006, shareholders of the investors of the Series approved
a new Investment Advisory Agreement for the Trust with the Manager. BlackRock
Advisors, Inc. was recently reorganized into a limited liability company and
renamed BlackRock Advisors, LLC. The new Investment Advisory Agreement between
the Trust and the Manager became effective on September 29, 2006. Prior to
September 29, 2006, FAM was the Manager. The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch,
which is the limited partner.
The Manager is responsible for the management of the Series' investments
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. The Manager (and previously 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. The reimbursements were as follows:
<Table>
<Caption>
FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 2006 TO SEPTEMBER 30, 2006 TO
SEPTEMBER 29, 2006 DECEMBER 31, 2006
REIMBURSEMENT REIMBURSEMENT
BY FAM BY THE MANAGER
- ------------------ ---------------------
$52,657 $15,595
</Table>
In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC, an affiliate of the Manager, under which
the Manager pays the Sub-Advisor for services it provides a monthly fee that is
a percentage of the management fee paid by the Series to the Manager.
For the year ended December 31, 2006, the Series reimbursed FAM and the
Manager $10,377 and $3,750, respectively, for certain accounting services.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"),
an affiliate of the Manager, received $37,152 in commissions on the execution of
portfolio security transactions for the Series for the year ended December 31,
2006.
Prior to September 29, 2006, certain officers and/or trustees of the Trust
were officers and/or directors of FAM, MLIM, PSI, and/or Merrill Lynch.
Commencing September 29, 2006, certain officers and/or trustees of the
Trust are officers and/or directors of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales ( including in-kind redemptions) of investments,
excluding short-term securities, for the year ended December 31, 2006 were
$320,252,993 and $143,844,935, respectively.
- --------------------------------------------------------------------------------
73
MASTER INTERNATIONAL INDEX SERIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
4. COMMITMENTS:
At December 31, 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 $2,177,000.
5. SHORT-TERM BORROWINGS:
The Trust, on behalf of the Series, along with certain other funds managed
by the Manager and its affiliates (or FAM and its affiliates), is a party to a
$500,000,000 credit agreement with a group of lenders. The Series may borrow
under the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Series may borrow up to the maximum amount
allowable under the Series' current prospectus and statement of additional
information, subject to various other legal, regulatory or contractual limits.
On November 22, 2006, the credit agreement was renewed for one year under
substantially the same terms. The Series pays a commitment fee of .06% 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 .35% or a base
rate as defined in the credit agreement. The Series did not borrow under the
credit agreement during the year ended December 31, 2006.
- --------------------------------------------------------------------------------
74
MASTER INTERNATIONAL INDEX SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DECEMBER 31, 2006
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the summary schedule of investments, of Master International Index
Series, one of the portfolios constituting Quantitative Master Series Trust (the
"Trust") as of December 31, 2006, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Master International Index Series of the Quantitative Master Series Trust as of
December 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
- --------------------------------------------------------------------------------
75
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
76
(This page intentionally left blank)
(LIGHTHOUSE LOGO)
- --------------------------------------------------------------------------------
77
(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:
Visit our website at www.americanbeaconfunds.com
american-beacon.funds@ambeacon.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(TELEPHONE GRAPHIC) (MAILBOX GRAPHIC)
BY TELEPHONE: BY MAIL:
American Beacon Funds
Institutional Class P.O. Box 219643
Call (800) 658-5811 Kansas City, MO 64121
PlanAhead Class(R)
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 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 proxies relating to portfolio securities is
of its portfolio holdings with the Securities available in each Fund's Statement of Additional
and Exchange Commission ("SEC") on Form N-Q Information, which may be obtained free of
as of the first and third fiscal quarters. charge by calling 1-800-967-9009 or by accessing
The Funds' Forms N-Q are available on the the SEC's website at www.sec.gov. Each Fund's
SEC's website at www.sec.gov. The Forms N-Q proxy voting record for the most recent year
may also be reviewed and copied at the SEC's ended June 30 is filed annually with the SEC on
Public Reference Room, 450 Fifth Street, NW, Form N-PX. The Funds' Forms N-PX are available
Washington, DC 20549. Information regarding on the SEC's website at www.sec.gov. Each Fund's
the operation of the SEC's Public Reference proxy voting record may also be obtained by
Room may be obtained by calling 1-800-SEC- calling 1-800-967-9009.
0330. A complete 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>
<Caption>
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Dallas, Texas
</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.
AR 12/06
539331
GUIDANCE | VISION | EXPERIENCE
(AMERICAN BEACON FUNDS(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
December 31, 2006
TREASURY INFLATION PROTECTED SECURITIES FUND
About American Beacon
Since 1986, American Beacon Advisors has offered a variety of products and
investment advisory services to numerous institutional and retail clients,
including a variety of mutual funds, corporate cash management, and separate
account management.
Our clients include defined benefit plans, defined contribution plans,
foundations, endowments, corporations, financial planners, and other
institutional investors. With American Beacon Advisors, you can put the
experience of a multi-billion dollar asset management firm to work for your
company.
Contents
President's Message................................................ 1
Market and Performance Overview.................................... 2
Schedule of Investments............................................ 6
Additional Information............................................. Back Cover
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Funds December 31, 2006
(AMERICAN BEACON ADVISORS)
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
I am pleased to present to you the American Beacon Treasury Inflation Protected
Securities Fund Annual Report for the twelve months ended December 31, 2006.
After 17 consecutive 25-basis point (0.25%) rate hikes, the Federal Open
Market Committee ("FOMC") held interest rates steady at 5.25% at their August
8th meeting. The Federal Reserve Board (the "Fed") will continue to weigh the
risks of accelerating inflation and decelerating economic growth. At the final
FOMC meeting in December 2006, the Fed acknowledged the cooling housing market,
but remained primarily concerned about inflation. The FOMC should hold rates
steady at least through the first half of 2007. The market is focused on slowing
housing and auto data and pricing in an ease for the next move by the Fed
(albeit in the late part of 2007). Fed officials continue to discuss that
additional firming may be needed because inflation remains on the higher-end of
their comfort range.
The American Beacon Treasury Inflation Protected Securities Fund realized
modest, but positive returns with a 1.05% return for the twelve-month period,
outperforming the Lipper TIPS Index return of -0.09%. 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 market overviews, 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. To obtain further details
about the American Beacon Funds family or to access your account information,
please visit our website at www.americanbeaconfunds.com. Thank you for your
continued confidence in the American Beacon Funds.
Sincerely,
/s/ William F. Quinn
----------------------------------------
William F. Quinn
President, American Beacon Funds
Performance shown is historical and may not be indicative of future returns.
Investment returns and principal value will vary, and shares may be worth more
or less at redemption than at original purchase. Performance shown is as of date
indicated, and current performance may be lower or higher than the performance
data quoted. To obtain performance as of the most recent month end, please visit
www.americanbeaconfunds.com or call 1-800-967-9009.
Investing in debt securities entails interest rate risk which is the risk that
debt securities will decrease in value with increases in market interest rates.
1
MARKET OVERVIEW
DECEMBER 31, 2006 (UNAUDITED)
Following four consecutive federal funds rate increases to begin 2006 and 4.75%
of overall rate hikes, the FOMC paused in the 2-year monetary policy tightening
cycle on August 7th. At its final meeting of the year, on December 12th, the
Federal Reserve held the funds rate steady at 5.25% as they continue to weigh
the impact of "elevated" inflation pressures against a slowing U.S. economy. As
the year closed, the yield curve was priced to reflect 25 basis points (0.25%)
of easing in 2007.
Key inflation metrics sent conflicting signals to the FOMC in 2006.
Following declines in energy prices, headline CPI receded from the elevated
levels of the first half of the year (3.4% - 4.3% range), with CPI now up 2.5%
over the past year. But core rates of inflation, which exclude more volatile
food and energy prices and have a major impact on monetary policy decisions,
have been steadily rising over the past few years in the context of steadily
rising utilization rates for labor and industry. In December of 2006, core rates
of inflation are close to 2.6% and reached an almost 10-year high of 2.9% in
September, stubbornly above the Fed's professed target range of 1% - 2%.
Although intermediate and long maturity Treasury inflation protected
securities ("TIPS") yields markedly increased in 2006, TIPS managed to post
positive total returns for the year, as the Lehman U.S. TIPS Index returned
0.41%. Intermediate TIPS, as measured by the Lehman 1-10 Year U.S. TIPS Index,
delivered a total return of 1.56%. With the exception of the two-year TIPS yield
which decreased by 15 basis points (0.15%), TIPS yields generally increased in
parallel by 35-40 (0.35% - 0.40%) basis points across intermediate and
longer-maturities. Yields on 5-, 10- and 30-year TIPS finished the year at
2.47%, 2.41% and 2.28%, respectively. The main driving force behind the rise in
global real yields, particularly in the first half of the year, was an
unprecedented period of global monetary policy tightening inclusive of both G8
and developing nations. For the first time in two decades, the three most
important central banks in the world - the Federal Reserve Bank, the European
Central Bank, and the Bank of Japan - all tightened policy simultaneously.
Inflation expectations as evidenced as breakeven inflation rates (the
spread between similar maturity nominal and inflation-protected securities),
mirrored movements in headline inflation reaching a high of 2.74% in May and a
low of 2.26% in late December. The second half plunge in inflation expectations
caused TIPS to underperform their nominal counterparts by 1.87% for the full
year. Much of the decline in inflation expectations was driven by sharp
reductions in oil/gasoline prices, exacerbated by unseasonably mild weather in
the Northeast.
Lastly and importantly, the TIPS market continued to be an integral part of
the fixed income landscape as approximately $72 billion in new supply was
introduced into the market through eight Treasury auctions. The total
outstanding market value of TIPS at the end of 2006 was approximately $370
billion. Additionally, Germany issued its first inflation-linked offering in the
first quarter joining the U.S., Canada, U.K., Sweden, France, Italy, Greece and
Japan as a participant in the nearly $1 trillion global inflation-linked market.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
The Institutional Class of the Fund returned 1.05% for the year ended
December 31, 2006, falling short of the Lehman Brothers 1-10 Yr U.S. TIPS Index
(the "Index") return of 1.56%. The Fund exceeded the Lehman Brothers U.S. TIPS
Index return of 0.41% and the Lipper TIPS Index return of -0.09% for the same
time period.
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 6/30/04 THROUGH 12/31/06
(PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS
PERIODS ENDED 12/31/06 VALUE OF
---------------------------- $10,000
SINCE 6/30/04-
1 YEAR 2 YEARS INCEPTION 12/31/06
------ ------- --------- --------
Institutional Class(1) .................... 1.05% 1.45% 2.73% $10,698
Lehman Bros. 1-10 Yr. U.S. TIPS Index(2) .. 1.56% 1.72% 3.35% $10,860
Lehman Bros. U.S. TIPS Index(2) ........... 0.41% 1.62% 3.86% $10,992
Lipper TIPS Index(2) ...................... -0.09% 1.31% 3.78% $10,972
(1.) Performance shown is historical and may not be indicative of future
returns. Investment returns and principal value will vary, and shares may
be worth more or less at redemption than at original purchase. Performance
shown is as of date indicated, and current performance may be lower or
higher than the performance data quoted. To obtain performance as of the
most recent month end, please visit www.americanbeaconfunds.com or call
1-800-967-9009. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
(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 year by 0.51%. While much of the
underperformance can be attributed to Fund expenses, sub-advisor performance
also negatively impacted the Fund over the past twelve months. Much of the
underperformance occurred in the second and third quarters of the year. The
Fund's "bulleted" yield curve strategy hurt performance during the year as
expectations of a steepening real yield curve did not materialize. Lastly, an
allocation to nominal bonds negatively impacted the Fund in the first half of
the year as TIPS outperformed nominal bonds due to strong oil and gas prices and
higher breakeven rates.
The Fund remains focused on investing primarily in Treasury inflation
protected securities to provide inflation protection and income to its
shareholders.
TOP TEN HOLDINGS
% OF
NET
ASSETS
------
U.S. Treasury Note, 3.000%, Due 7/15/2012 12.7%
U.S. Treasury Note, 3.500%, Due 1/15/2011 10.8%
U.S. Treasury Note, 1.875%, Due 7/15/2013 10.8%
U.S. Treasury Note, 0.875%, Due 4/15/2010 8.6%
U.S. Treasury Note, 1.875%, Due 7/15/2015 7.9%
U.S. Treasury Note, 2.000%, Due 1/15/2016 7.7%
U.S. Treasury Note, 2.000%, Due 1/15/2014 7.6%
U.S. Treasury Note, 3.375%, Due 1/15/2012 7.1%
U.S. Treasury Note, 3.875%, Due 1/15/2009 6.2%
U.S. Treasury Note, 2.375%, Due 4/15/2011 3.0%
3
PERFORMANCE OVERVIEW
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
PORTFOLIO DIVERSIFICATION
% OF
FIXED INCOME
------------
A 0.7%
AA 0.3%
AAA 99.0%
(PERFORMANCE GRAPH)
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period and held for the entire period from July 1, 2006 through December
31, 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 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.
EXPENSES
BEGINNING ENDING PAID DURING
ACCOUNT ACCOUNT PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
--------- --------- -----------
INSTITUTIONAL CLASS
Actual $1,000.00 $1,012.59 $2.84
Hypothetical $1,000.00 $1,022.38 $2.85
(5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.56% for the Institutional class, multiplied by the
average account value over the period, multiplied by the number derived by
dividing the number of days in the most recent fiscal half-year (184) by
days in the year (365) to reflect the half year period.
4
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
American Beacon Treasury Inflation Protected Securities Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the American Beacon Treasury Inflation Protected
Securities Fund (the "Fund"), a separate fund comprising the American Beacon
Funds, as of December 31, 2006, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Treasury Inflation Protected Securities Fund at December 31,
2006, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
5
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR AMOUNT VALUE
---------- -------
(DOLLARS IN
THOUSANDS)
CORPORATE OBLIGATIONS - 1.25%
Allstate Life Global Funding, 3.11%, Due
3/1/2010 ++ ....................................... $ 100 $ 93
Lehman Brothers Holdings, Inc., 2.58%, Due
6/2/2009 ++ ....................................... 80 77
SLM Corp., 4.18%, Due 1/31/2014 ++ ................... 167 156
Toyota Motor Credit Corp., 4.31%, Due 2/5/2016 ++ .... 100 97
-------
TOTAL CORPORATE OBLIGATIONS 423
-------
SOVEREIGN OBLIGATIONS - 0.87%
Deutsche Bundesrepublik, 1.50%, Due 4/15/2016 # ...... 229 292
-------
U.S. AGENCY OBLIGATIONS - 0.58%
FEDERAL HOME LOAN BANK - 0.29%
9.148%, Due 2/20/2007 ++ .......................... 100 100
-------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.29%
3.20%, Due 2/17/2009 ++ ........................... 100 97
-------
TOTAL U.S. AGENCY OBLIGATIONS 197
-------
U.S. TREASURY OBLIGATIONS - 91.87%
U.S. TREASURY NOTES - 91.87%
3.625%, Due 1/15/2008 # ........................... 981 991
3.875%, Due 1/15/2009 # ........................... 2,025 2,080
4.25%, Due 1/15/2010 # ............................ 450 474
0.875%, Due 4/15/2010 # ........................... 3,079 2,919
3.50%, Due 1/15/2011 # ............................ 3,502 3,646
2.375%, Due 4/15/2011 # ........................... 1,017 1,013
3.375%, Due 1/15/2012 # ........................... 2,285 2,385
3.00%, Due 7/15/2012 # ............................ 4,176 4,297
1.875%, Due 7/15/2013 # ........................... 3,764 3,636
2.00%, Due 1/15/2014 # ............................ 2,654 2,579
1.625%, Due 1/15/2015 # ........................... 830 781
1.875%, Due 7/15/2015 # ........................... 2,771 2,655
2.00%, Due 1/15/2016 # ............................ 2,695 2,602
2.50%, Due 7/15/2016 # ............................ 979 987
-------
TOTAL U.S. TREASURY OBLIGATIONS 31,045
-------
SHARES
----------
SHORT TERM INVESTMENTS - 4.24%
American Beacon Money Market Select Fund Section ..... 1,430,704 1,431
-------
TOTAL INVESTMENTS - 98.81% (COST $33,632) $33,388
OTHER ASSETS, NET OF LIABILITIES - 1.19% 404
-------
TOTAL NET ASSETS - 100.00% $33,792
=======
See accompanying notes
6
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
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.
# Inflation-Indexed Note
Section The Fund/Trust is affiliated by having the same investment advisor.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
(DOLLARS IN THOUSANDS)
SETTLEMENT MARKET UNREALIZED
DATE VALUE GAIN/(LOSS)
---------- ------ -----------
CONTRACTS TO DELIVER
228 Euro Currency .......................... 1/31/2007 $301 $(1)
TOTAL CONTRACTS TO DELIVER
---- ---
(RECEIVABLE AMOUNT $300) $301 $(1)
==== ===
NET CURRENCY FLUCTUATION $(1)
===
See accompanying notes
7
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS:
Investments in unaffiliated securities, at value A.............. $ 31,957
Investments in affiliated securities, at value B................ 1,431
Dividends and interest receivable............................... 357
Receivable for fund shares sold................................. 117
Prepaid expenses................................................ 8
----------
TOTAL ASSETS................................................. 33,870
----------
LIABILITIES:
Payable for fund shares redeemed................................ 39
Management and investment advisory fees payable (Note 2)........ 12
Administrative service and service fees payable................. 3
Net unrealized depreciation on foreign currency contracts....... 1
Other liabilities .............................................. 23
----------
TOTAL LIABILITIES............................................ 78
----------
NET ASSETS......................................................... $ 33,792
----------
ANALYSIS OF NET ASSETS:
Paid-in-capital................................................. 35,492
Undistributed net investment income............................. --
Accumulated net realized (loss)................................. (1,455)
Unrealized (depreciation) of investments and foreign currency... (245)
----------
NET ASSETS......................................................... $ 33,792
==========
SHARES OUTSTANDING (NO PAR VALUE):
Institutional Class............................................. 3,545,728
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Institutional Class............................................. $ 9.53
==========
- ----------
A Cost of investments in unaffiliated securities................... $ 32,201
B Cost of investments in affiliated securities..................... $ 1,431
See accompanying notes
8
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006 (IN THOUSANDS)
INVESTMENT INCOME:
Dividend income from affiliated securities ....................... $ 46
Interest income .................................................. 1,034
-------
TOTAL INVESTMENT INCOME .................................... 1,080
-------
EXPENSES:
Management and investment advisory fees (Note 2) ................. 69
Administrative service fees (Note 2):
Institutional Class ........................................... 31
Transfer agent fees:
Institutional Class ........................................... 4
Custody and fund accounting fees ................................. 6
Professional fees ................................................ 21
Registration fees and expenses ................................... 11
Prospectus and shareholder reports ............................... 9
Other expenses ................................................... 3
-------
TOTAL EXPENSES ............................................. 154
-------
NET INVESTMENT INCOME ............................................... 926
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investments ................................................... (976)
Foreign currency transactions ................................. 1
Change in net unrealized appreciation or depreciation of:
Investments ................................................... 357
-------
NET (LOSS) ON INVESTMENTS .................................. (618)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $ 308
=======
See accompanying notes
9
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ....................................................... $ 926 $ 1,561
Net realized gain (loss) on investments and foreign currency transactions ... (975) (413)
Change in net unrealized appreciation or depreciation of investments and
foreign currency translations ............................................ 357 (699)
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. 308 449
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Institutional Class ...................................................... (952) (1,588)
Net realized gain on investments:
Institutional Class ...................................................... -- (147)
Tax return of capital:
Institutional Class ...................................................... (95) --
-------- --------
NET DISTRIBUTIONS TO SHAREHOLDERS ..................................... (1,047) (1,735)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares ............................................... 16,407 44,770
Reinvestment of dividends and distributions ................................. 1,048 1,735
Cost of shares redeemed ..................................................... (13,508) (35,578)
-------- --------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............ 3,947 10,927
-------- --------
NET INCREASE IN NET ASSETS ..................................................... 3,208 9,641
-------- --------
NET ASSETS:
Beginning of period ......................................................... 30,584 20,943
-------- --------
END OF PERIOD * ............................................................. 33,792 30,584
======== ========
*Includes undistributed net investment income of ............................... $ -- $ 25
======== ========
See accompanying notes
10
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 Treasury Inflation Protected Securities Fund (the
"Fund"), a series of the Trust.
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.
Security Valuation
Investments are valued at the close of the New York Stock Exchange (the
"Exchange"), normally 4 p.m. ET, each day that the Exchange is open for
business.
Debt securities (other than short-term securities) normally are valued on
the basis of prices provided by an independent 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. When a price is unavailable from a
pricing service or when the price provided by the pricing service is deemed not
to represent fair value, 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, which approximates market value.
Securities for which the market prices are not readily available or are not
reflective of the fair value of the security, as determined by the Manager, will
be priced at fair value following procedures approved by the Board of Trustees
(the "Board").
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
The Fund may purchase securities with delivery or payment to occur at a
later date. At the time the Fund enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date
except certain dividends from foreign securities which are recorded as soon as
the information is available to the Fund. Interest income is earned from
settlement date, recorded on the accrual basis, and adjusted, if necessary, for
accretion of discounts and amortization of premiums. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
Inflation-indexed bonds are fixed-income securities whose principal value
is periodically adjusted to the rate of inflation. Interest is accrued based on
the principal value, which is adjusted for inflation. Any increase in the
principal amount of an inflation-indexed bond is recorded as interest income,
even though principal is not received until maturity.
11
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
Dividends to Shareholders
Dividends from net investment income of the Fund normally will be declared
and paid quarterly. Distributions, if any, of net realized capital gains are
generally paid annually and recorded on the ex-dividend date.
Currency Translation
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the mean of the bid and ask prices of
such currencies against U.S. dollars as last quoted by a recognized dealer.
Income, expenses and purchases and sales of investments are translated in 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 and
accompanying notes. Actual results may differ from those estimated.
Recently Issued Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Fund's net assets
or results of operations.
12
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 fund management. Investment assets of the Fund are
managed by multiple investment advisors which have entered into separate
investment advisory agreements with the Manager. As compensation for performing
the duties required under the Management Agreement, the Manager receives from
the Fund an annualized fee equal to 0.10% of the average daily net assets plus
amounts paid by the Manager to the investment advisors hired by the Manager to
direct investment activities of the Fund. Management fees paid during the year
ended December 31, 2006 were as follows:
AMOUNTS PAID NET AMOUNTS
MANAGEMENT FEE MANAGEMENT TO INVESTMENT RETAINED BY
RATE FEE ADVISORS MANAGER
- -------------- ---------- ------------- -----------
0.22% $69,164 $37,742 $31,422
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative and management
services to the Fund. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
0.10% of the average daily net assets of the Fund.
Investment in Affiliated Funds
The Fund is permitted, pursuant to an exemptive order by the Securities and
Exchange Commission ("SEC") and procedures approved by the Board, to invest up
to 25% of its total assets in the American Beacon Money Market Select Fund (the
"Select Fund"). The Fund and the Select Fund have the same investment advisor
and therefore, are considered to be affiliated. 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 year
ended December 31, 2006, fees earned by the Manager from the Select Fund were
$910.
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 as a borrower. This program
provides an alternative credit facility allowing the Fund to borrow from other
participating Funds. For the year ended December 31, 2006, the Fund did not
utilized the credit facility.
13
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
3. FEDERAL INCOME 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 or excise tax provision is required.
Dividends are categorized 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.
The tax character of distributions paid during the years ended December 31,
2006 and December 31, 2005 were as follows (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
DISTRIBUTIONS PAID FROM:
Ordinary income* .......... $ 952 $1,735
Tax return of capital ..... 95 --
------ ------
TOTAL TAXABLE DISTRIBUTIONS .. $1,047 $1,735
====== ======
* For tax purposes, short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows (in thousands):
Cost basis of investments for federal income tax purposes ............ $33,897
Unrealized appreciation .............................................. 12
Unrealized depreciation .............................................. (521)
-------
Net unrealized appreciation/(depreciation) ........................... (509)
Undistributed ordinary income ........................................ --
Undistributed long-term gain/(loss) .................................. (1,118)
-------
Distributable earnings ............................................... $ 1,627
=======
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 losses from wash sales and current recognition of
unrealized appreciation/(depreciation) on open foreign currency transactions.
Due to 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.
Accordingly, the following amounts represent current year permanent
differences derived from foreign currency transactions and return of capital
that have been reclassified as of December 31, 2006 (in thousands):
Paid-in-capital ...................................................... $(94)
Undistributed net investment income .................................. 96
Accumulated net realized gain (loss) ................................. (1)
Unrealized appreciation (depreciation) of investments, futures
contracts and foreign currency .................................... (1)
14
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
At December 31, 2006, the capital loss carry forward position for federal
income tax purposes was $144,311 and $974,237, expiring in 2013 and 2014,
respectively.
Net capital and foreign currency losses incurred after October 31, 2006 and
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. For the period ended December 31, 2006, the Fund
deferred $71,336 of capital losses and $579 of foreign currency losses to
January 1, 2007.
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of Investment transactions for the year
ended December 31, 2006, excluding short-term investments, were $82,100,790 and
$79,173,938, respectively. The Fund had purchases and sales of U.S. Government
securities of $81,488,093 and $79,350,437, respectively.
A summary of the Fund's direct ownership and transactions in the Select
Fund for the year ended December 31, 2006 is set forth below (in thousands):
DECEMBER 31, 2005 DECEMBER 31, 2006
AFFILIATE SHARES/MARKET VALUE PURCHASES SALES SHARES/MARKET VALUE
- --------- ------------------- ----------- ----------- -------------------
Select Fund $1,071,309 $33,016,029 $32,656,634 $1,430,704
5. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Fund (dollars and shares in thousands):
Year Ended December 31, 2006
INSTITUTIONAL
CLASS
-----------------
SHARES AMOUNT
------ ------
Shares sold......................... 1,696 $ 16,407
Reinvestment of dividends........... 109 1,048
Shares redeemed..................... (1,397) (13,508)
------ --------
Net increase in shares outstanding.. 408 $ 3,947
====== ========
Year Ended December 31, 2005
INSTITUTIONAL
CLASS
-----------------
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
====== ========
15
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Institutional Class
---------------------------------
Year Ended June
December 31 30 to
----------------- December
2006 2005 31, 2004(A)
------- ------- -----------
Net asset value, beginning of period ................................... $ 9.75 $ 10.16 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income ............................................... 0.29 0.56(B) 0.18(B)
Net gains (losses) on securities (both realized and unrealized) ..... (0.19) (0.37) 0.21
------- ------- -------
Total income (loss) from investment operations ......................... 0.10 0.19 0.39
------- ------- -------
Less distributions:
Dividends from net investment income ................................ (0.29) (0.55) (0.23)
Distributions from net realized gains on securities ................. -- (0.05) --(D)
Tax return of capital ............................................... (0.03) -- --
------- ------- -------
Total distributions .................................................... (0.32) (0.60) (0.23)
------- ------- -------
Net asset value, end of period ......................................... $ 9.53 $ 9.75 $ 10.16
======= ======= =======
Total return ........................................................... 1.05% 1.86% 3.94%(C)
======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands) ............................ $33,792 $30,584 $20,943
Ratios to average net assets (annualized):
Expenses, after expense reimbursements (recoupments) ............. 0.49% 0.44% 0.46%
Expenses, before expense reimbursements (recoupments) ............ 0.49% 0.39% 0.62%
Net investment income, after expense reimbursements
(recoupements) ................................................ 2.94% 5.45% 3.34%
Net investment income, before expense reimbursements
(recoupments) ................................................. 2.94% 5.50% 3.18%
Portfolio turnover rate ............................................. 259% 355% 190%(C)
(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 represents less than $0.01 per share.
16
AMERICAN BEACON FUNDS
PRIVACY POLICY
The American Beacon Funds recognizes and respects the privacy of our
shareholders. We are providing this notice to you so you will understand how
shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of
the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers;
and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our customers
or former customers to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those
employees or service providers who need to know that information to provide
products or services to you. To ensure the confidentiality of your nonpublic
personal information, we maintain safeguards that comply with federal standards.
AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2006
(UNAUDITED)
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those in this report because of differences
between tax and financial reporting requirement.
The Fund's distributions to shareholders did not include any short-term
capital gains.
Of the ordinary dividends paid to shareholders during the tax year ended
December 31, 2006, 58.53% was derived from U.S. Treasury Obligations.
17
AMERICAN BEACON FUNDS
PRIVACY POLICY
(UNAUDITED)
The Trustees and officers of the American Beacon Funds (the "Trust") are
listed below, together with their principal occupations during the past five
years. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
--------------------- ----------------- --------------------------------------------------------
INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (58) Trustee and Chairman and CEO (2006-Present) and President
President since (1986-2006), American Beacon Advisors, Inc.; Chairman
1987 (1989-2003) and Director (1979-1989, 2003-Present),
American Airlines Federal Credit Union; Director,
Crescent Real Estate Equities, Inc.(1994-Present);
Director, Pritchard, Hubble & Herr, LLC (investment
advisor) (2001-2006); Director of Investment Committee,
Southern Methodist University Endowment Fund
(1996-Present); Member, Southern Methodist University
Cox School of Business Advisory Board (1999-2002);
Member, New York Stock Exchange Pension Manager
Committee (1997-1998, 2000-2002, 2006-Present); Chairman
(2007-Present) and Vice Chairman (2004-2006), Committee
for the Investment of Employee Benefits; Chairman,
Committee for the Investment of Employee Benefits
Defined Benefit Sub-Committee (2002-2004); Director,
United Way of Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American Beacon Mileage Funds
(1995-Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1995-Present).
Alan D. Feld** (69) Trustee since Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law
1996 firm) (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee, CenterPoint
Properties (1994-Present); Trustee, American Beacon
Mileage Funds (1996-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1996-Present).
NON-INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (62) Trustee since Consultant, New River Canada Ltd. (mutual fund servicing
2004 company) (1998-2003); Board Member, Baylor University
Medical Center Foundation (1992-2004); President and
CEO, Allmerica Trust Company, NA (1996-1997); President
and CEO, Fidelity Investments Southwest Company
(1983-1995); Senior Vice President of Regional Centers,
Fidelity Investments (1988-1995); Trustee, American
Beacon Mileage Funds (2004-Present); Trustee, American
Beacon Select Funds (2004-Present); Trustee, American
Beacon Master Trust (2004-Present).
18
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
--------------------- ----------------- --------------------------------------------------------
NON-INTERESTED TRUSTEES
(CONT.)
Brenda A. Cline (45) Trustee since Executive Vice President, Chief Financial Officer,
2004 Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian University
(1998-Present); Trustee, W.I. Cook Foundation, Inc.
(d/b/a Cook Children's Health Foundation)
(2001-Present); Director, Christian Church Foundation
(1999-Present); Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master Trust
(2004-Present).
Richard A. Massman (63) Trustee since Senior Vice President and General Counsel, Hunt
2004 Consolidated, Inc. (holding company engaged in energy,
real estate, farming, ranching and venture capital
activities) (1994-Present); Trustee, American Beacon
Mileage Funds (2004-Present); Trustee, American Beacon
Select Funds (2004-Present); Trustee, American Beacon
Master Trust (2004-Present).
Stephen D. O'Sullivan Trustee since Consultant (1994-Present); Trustee, American Beacon
(71) 1987 Mileage Funds (1995-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American Beacon
Master Trust (1995-Present).
R. Gerald Turner (60) Trustee since President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. 2001 Director, ChemFirst (1986-2002); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California
Dallas, Texas 75275 Federal Preferred Capital Corp. (2001-2003); Director,
Kronus Worldwide Inc. (chemical manufacturing)
(2003-Present); Director, First Broadcasting Investment
Partners, LLC (2003-Present); Member, United Way of
Dallas Board of Directors; Member, Salvation Army of
Dallas Board of Directors; Member, Methodist Hospital
Advisory Board; Member, Knight Commission on
Intercollegiate Athletics; Trustee, American Beacon
Mileage Funds (2001-Present); Trustee, American Beacon
Select Funds (2001-Present); Trustee, American Beacon
Master Trust (2001-Present).
Kneeland Youngblood (50) Trustee since Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court 1996 equity firm) (1998-Present); Director, Burger King
Suite 1740 Chairman since Corporation (2004-Present); Trustee, City of Dallas,
Dallas, Texas 75201 2005 Texas Employee Retirement Fund (2004-Present); Trustee,
The Hockaday School (1997-2005); Director, Starwood
Hotels and Resorts (2001-Present); Member, Council on
Foreign Relations (1995-Present); Director, Just For the
Kids (1995-2001); Director, L&B Realty Advisors
(1998-2000); Trustee, Teachers Retirement System of
Texas (1993-1999); Director, Starwood Financial Trust
(1998-2001); Trustee, St. Mark's School of Texas
(2002-Present); Trustee, American Beacon Mileage Funds
(1996- Present); Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master Trust
(1996-Present).
19
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS--CONTINUED
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
--------------------- ----------------- --------------------------------------------------------
OFFICERS
Term
One Year
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American Beacon
Chief Legal Advisors, Inc. (2006-Present); Assistant General
Officer since Counsel, First Command Financial Planning, Inc.
2006 (2004-2006); Enforcement Attorney (2002-2004) and Branch
Chief (2000-2002); Securities and Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice President,
Neuberger Berman, LLC (investment advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
Rebecca L. Harris (40) Treasurer since Vice President, Finance, American Beacon Advisors, Inc.
1995 (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc.
Officer since (2004-Present); Senior Compliance Analyst, American
2004 Beacon Advisors, Inc. (1998-2004).
and Asst.
Secretary since
1999
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
72, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust,
as defined by the 1940 Act. Mr. Quinn is Chairman of the Manager. Mr.
Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal
services within the past two years to one or more of the Trust's Investment
advisors.
20
(This page intentionally left blank)
(AMERICAN BEACON FUNDS(SM) 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 Fund 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 FUND:
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_beacon.funds@ambeacon.com Visit our website at www.americanbeaconfunds.com
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Call (800) 658-5811 American Beacon Funds
P.O. Box 219643
Kansas City, MO 64121-9643
AVAILABILITY OF QUARTERLY AVAILABILITY OF PROXY VOTING POLICY AND RECORDS
PORTFOLIO SCHEDULES
A description of the policies and procedures the
In addition to the Schedule of Fund uses to determine how to vote proxies
Investments provided in each relating to portfolio securities is available in
semi-annual and annual report, the the Fund's Statement of Additional Information,
Fund files a complete schedule of is available free of charge on the Fund's website
its portfolio holdings with the (www.americanbeaconfunds.com) and by calling
Securities and Exchange Commission 1-800-967-9009 or by accessing the SEC's website
("SEC") on Form N-Q as of the at www.sec.gov. The Fund's proxy voting record
first and third fiscal quarters. for the most recent year ended June 30 is filed
The Fund's Forms N-Q are available annually with the SEC on Form N-PX. The Fund's
on the SEC's website at Forms N-PX are available on the SEC's website at
www.sec.gov. The Forms N-Q may www.sec.gov. The Fund's proxy voting record may
also be reviewed and copied at the also be obtained by calling 1-800-967-9009.
SEC's Public Reference Room, 450
Fifth Street, NW, Washington, DC
20549. Information regarding the
operation of the SEC's Public
Reference Room may be obtained by
calling 1-800-SEC-0330. A complete
schedule of the Fund's portfolio
holdings is also available on the
Funds' website
(www.americanbeaconfunds.com)
approximately thirty days after
the end of each month.
FUND SERVICE PROVIDERS:
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 Dallas, Texas
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
AR 12/06
539339
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(SM) LOGO)
ANNUAL REPORT
(GRAPHIC)
DECEMBER 31, 2006
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
About American Beacon
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 ............................................... 26
U.S. Government Money Market Portfolio ............................... 30
Municipal Money Market Portfolio ..................................... 31
Additional Information ............................................ Back Cover
</Table>
Any opinions herein, including forecasts, reflect our judgment as of the end of
the reporting period and are subject to change. Each advisor's strategies and
the Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, American Beacon
Advisors, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American Beacon Funds December 31, 2006
(AMERICAN BEACON ADVISORS)
(PHOTO OF WILLIAM F. QUINN)
FELLOW SHAREHOLDERS,
Enclosed please find the Annual Report for the American Beacon Money Market
Funds for the year ended December 31, 2006.
After 17 consecutive 25-basis point (0.25%) rate hikes, the Federal Open
Market Committee ("FOMC") held interest rates steady at 5.25% at their August
8th meeting. The Federal Reserve Board (the "Fed") will continue to weigh the
risks of accelerating inflation and decelerating economic growth. At the final
FOMC meeting in December 2006, the Fed acknowledged the cooling housing market,
but remained primarily concerned about inflation. The FOMC should hold rates
steady at least through the first half of 2007. The market is focused on slowing
housing and auto data and pricing in an ease for the next move by the Fed
(albeit in the late part of 2007). Fed officials continue to discuss that
additional firming may be needed because inflation remains on the higher-end of
their comfort range.
Despite rising interest rates earlier in the year, both the Institutional
and the Cash Management Classes of the American Beacon Money Market Fund
one-year returns of 4.99% and 5.05% outperformed the Lipper Institutional Money
Market Average return by 27 (0.27%) and 33 (0.33%) basis points, respectively.
The American Beacon U.S. Government Money Market Fund -- Cash Management Class
also outperformed the Lipper Institutional U.S. Government Money Market Average
with a one-year return of 4.97% versus 4.69%. Both Funds surpassed their
respective Lipper peer groups over all time periods. Additionally, the Municipal
Money Market Fund -- PlanAhead Class posted a return of 2.50%, underperforming
the Lipper Tax-Exempt Money Market Average return of 2.76%.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.americanbeaconfunds.com. Thank you for your continued confidence in the
American Beacon Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President, American Beacon Funds
1
ECONOMIC OVERVIEW
DECEMBER 31, 2006 (UNAUDITED)
The initial estimate of the U.S. gross domestic product ("GDP") growth rate rose
3.5% in the fourth quarter, after rising a modest 2.0% in the third quarter of
2006. Consumer spending was the primary driver, up 4.4%. Consumers used credit
cards to make up for diminished mortgage borrowing power. Business fixed
investment fell 0.4%, the first decline since the first quarter of 2003.
Inventories were up only $35.3 billion, trimming 0.7% from GDP growth. Growth
rose solidly above the Federal Reserve Board's (the "Fed") target after two
quarters of coming in below, leaving room for debate on the implications of
growth. In addition to the up tick in growth, the labor market remains healthy
as payroll gains averaged 136,000 per month during the fourth quarter and the
unemployment rate remained low at 4.5% in December.
The Federal Open Market Committee ("FOMC") ended a streak of seventeen
consecutive 25 basis point (0.25%) rate hikes at their August 8th meeting,
leaving rates unchanged at 5.25% through the rest of 2006. Fed officials
continue to weigh the risks of a slowing economy against the risks of higher
inflation in determining the future direction of interest rates. At the December
meeting, the Fed acknowledged the cooling housing market and its impact on
economic growth, but inflation remained their chief concern. "...participants
expressed concern that a failure of inflation to moderate as expected could
entail significant costs if an upward drift in inflation expectations ensued,"
the minutes said. As a result, the Fed retained a tightening bias in its
December statement maintaining the phrase that "the extent and timing of any
additional firming that may be needed to address these risks will depend on the
evolution of the outlook for both inflation and economic growth."
The latest readings of consumer and producer prices indicate that the
easing of inflationary pressures may be slow. The core consumer price index
("CPI") rose 0.2% in December after remaining flat in November, and the core
producer price index ("PPI"), which also rose 0.2% during the month, came in
above economists' expectations. In addition, despite a decline to an annual rate
of 2.2% in November which was unchanged in December, the core personal
consumption expenditures ("PCE") price index remains above the Fed's comfort
range of 1-2%.
U.S. Treasury yields rose during the fourth quarter as the likelihood of a
Fed ease during the first quarter of 2007 began to dissipate. Though the yield
curve remained inverted, Treasury yields reached five month highs in January
2007 on signals that the housing market is bottoming, inflation remains
stubborn, and employment is strengthening.
The FOMC should remain on hold at least through the first part of 2007 as
Fed officials wait for signs that inflation is indeed moderating. If inflation
remains above the Fed's comfort level for an extended period of time, an
additional Fed tightening is possible. Despite the Fed's stated tightening bias,
the market continues to expect an ease during the second half of 2007.
2
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
As the economy continued to show signs of strength during the year, the
Fed continued tightening monetary policy through June 2006. Since then the Fed
has been on hold with a tightening bias, resulting in a 5.25% fed funds target
by year end. This was a move of 25 basis points (0.25%) for each of the first
four FOMC meetings after starting the year at 4.25%. In response, the American
Beacon Money Market Fund's weighted-average maturity ("WAM") was maintained
below 45 days throughout the year. The primary strategy of the Fund was to buy
variable rate securities, short-dated commercial paper and overnight
investments. Due to maintaining a short WAM in a rising to stable interest rate
environment the Fund outperformed its Lipper peer group. This strategy will stay
in place until economic data suggest the Fed is about to enter into an easing
cycle.
For the year ended December 31, 2006, the total return of the Cash
Management Class of the American Beacon Money Market Fund was 5.05%. The Fund
outperformed the Lipper Institutional Money Market Average return of 4.72% by 33
basis points (0.33%). Lipper Inc. ranked the Cash Management Class of the Fund
14th among 357, 15th among 291 and 16th among 233 Institutional Money Market
Funds for the one-year, three-year and five-year periods ended December 31,
2006, respectively. 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.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
AS OF 12/31/2006
---------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class(1,2) ........... 5.05% 2.46% 3.92%
Institutional Class (1,3) ............ 4.99% 2.37% 3.87%
PlanAhead Class (1) .................. 4.69% 2.09% 3.58%
Platinum Class(1,2) .................. 4.17% 1.63% 3.13%
</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 Fund performance for the five and ten-year periods represent the total
returns achieved by the Institutional Class from 1/1/97 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 1/1/97. A portion of the fees charged to the Cash
Management and Platinum classes of the Fund has been waived. Performance
prior to waiving fees was lower than the actual returns shown.
3 A portion of the fees charged to the Institutional Class of the Fund has
been waived since 2006. Performance prior to waiving fees was lower than
the actual returns shown for periods after 2006.
3
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
---------- ------------- --------- ----------
7-day Current Yield* 5.25% 5.22% 4.97% 4.41%
7-day Effective Yield* 5.38% 5.35% 5.09% 4.50%
30-day Yield* 5.24% 5.21% 4.96% 4.40%
Weighted Avg. Maturity 47 Days 47 Days 47 Days 47 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 ISSUERS AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Wells Fargo & Co. 5.3%
US Bank, NA 5.1%
Caylon 4.7%
World Savings Bank FSB 4.5%
BNP Paribas 4.3%
Abbey National Treasury Services, PLC 4.3%
Credit Suisse USA, Inc. 4.2%
General Electric Capital Corp. 4.0%
Goldman Sachs Group, Inc. 3.9%
Royal Bank of Scotland PLC 3.4%
</Table>
** Percent of net assets of American Beacon Master Money Market Portfolio.
ASSET ALLOCATION AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Bank CDs, TDs and Notes 44.7%
Corporate Notes 41.0%
Commercial Paper 10.2%
Repurchase Agreements 2.5%
Fund Agreements 1.2%
Net Other Assets 0.4%
</Table>
** Percent of net assets of American Beacon Master Money Market Portfolio.
4
PERFORMANCE OVERVIEW
AMERICAN BEACON MONEY MARKET FUND(SM)
DECEMBER 31, 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 July 1, 2006 through December 31,
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 "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
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.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual.............................. $1,000.00 $1,026.71 $0.77
Hypothetical (5% return
before expenses).................... $1,000.00 $1,024.45 $0.77
INSTITUTIONAL CLASS
Actual.............................. $1,000.00 $1,026.54 $0.92
Hypothetical (5% return
before expenses).................... $1,000.00 $1,024.30 $0.92
PLANAHEAD CLASS
Actual.............................. $1,000.00 $1,025.11 $2.35
Hypothetical (5% return
before expenses).................... $1,000.00 $1,022.89 $2.35
PLATINUM CLASS
Actual.............................. $1,000.00 $1,022.39 $5.05
Hypothetical (5% return
before expenses).................... $1,000.00 $1,020.21 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.15%, 0.18%, 0.46% and 0.99% for the Cash Management,
Institutional, PlanAhead and Platinum Classes respectively, multiplied by
the average account value over the period, multiplied by the number derived
by dividing the number of days in the most recent fiscal half-year (184) by
days in the year (365) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
As the economy continued to show signs of strength during the year, the Fed
continued tightening monetary policy through June 2006. Since then the Fed has
been on hold with a tightening bias, resulting in a 5.25% fed funds target by
year end. This was a move of 25 basis points (0.25%) for each of the first four
FOMC meetings after starting the year at 4.25%. In response, the American Beacon
U.S. Government Money Market Fund's weighted-average maturity was maintained
below 20 days throughout the year. The primary strategy of the Fund was to buy
short-dated and variable rate agencies along with overnight repurchase
agreements. Due to maintaining short duration in a rising to stable interest
rate environment, the Fund outperformed its Lipper peer group. This strategy
will stay in place until economic data suggest the Fed is about to enter into an
easing cycle.
For the year ended December 31, 2006, the total return of the Cash
Management Class of the American Beacon U.S. Government Money Market Fund was
4.97%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 4.69% by 28 basis points (0.28%). Lipper Inc. ranked
the Cash Management Class of the Fund 7th among 147, 9th among 106 and 8th among
64 Institutional U.S. Government Money Market Funds for the one-year, five-year
and ten-year periods ended December 31, 2006, respectively. 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.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
------------------------------------
AS OF 12/31/2006
------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,2) ....... 4.97% 2.39% 3.81%
PlanAhead Class (1,3) ............. 4.51% 1.99% 3.44%
Platinum Class (1,4) .............. 4.14% 1.59% 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. A portion of the fees charged to the Cash
Management Class of the Fund has been waived since 2002. Performance prior
to waiving fees was lower than actual returns shown for periods after 2002.
3 A portion of the fees charged to the PlanAhead Class of the Fund has been
waived since 2003. Performance prior to waiving fees was lower than the
actual returns shown for periods after 2003.
4 A portion of the fees charged to the Platinum Class of the Fund has been
waived. Performance prior to waiving fees was lower than the actual returns
shown.
PORTFOLIO STATISTICS AS OF DECEMBER 31,2006
<Table>
<Caption>
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
---------- --------- --------
7-day Current Yield* 5.19% 4.73% 4.39%
7-day Effective Yield* 5.33% 4.84% 4.49%
30-day Yield* 5.17% 4.71% 4.37%
Weighted Avg. Maturity 6 Days 6 Days 6 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 DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Repurchase Agreements 94.8%
Government Securities 5.1%
Net Other Assets 0.1%
</Table>
** Percent of net assets of the American Beacon Master U.S. Government Money
Market Portfolio.
6
PERFORMANCE OVERVIEW
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM)
DECEMBER 31, 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 July 1, 2006 through December 31,
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 "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed 5% per year rate of return before expenses (not the
Fund's actual return). You may compare the ongoing costs of investing in the
Fund with other funds by contrasting this 5% hypothetical example and the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. Shareholders
of the PlanAhead Class that invest in the Fund through an IRA may be subject to
a custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher. You should also be aware that the expenses shown in the
table highlight only your ongoing costs and do not reflect any transaction costs
charged by the Fund. Similarly, the expense examples for other funds do not
reflect any transaction costs charged by those funds, such as sales charges
(loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines
of the table are useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different funds. If you were
subject to any transaction costs during the period, your costs would have been
higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
--------- --------- --------------
CASH MANAGEMENT CLASS
Actual.............................. $1,000.00 $1,026.31 $0.97
Hypothetical (5% return
before expenses).................... $1,000.00 $1,024.25 $0.97
PLANAHEAD CLASS
Actual.............................. $1,000.00 $1,024.14 $3.11
Hypothetical (5% return
before expenses).................... $1,000.00 $1,022.13 $3.11
PLATINUM CLASS
Actual.............................. $1,000.00 $1,022.19 $5.05
Hypothetical (5% return
before expenses).................... $1,000.00 $1,020.21 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.19%, 0.61% and 0.99% for the Cash Management,
PlanAhead and Platinum Classes respectively, multiplied by the average
account value over the period, multiplied by the number derived by dividing
the number of days in the most recent fiscal half-year (184) by days in the
year (365) to reflect the half-year period.
7
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM)
DECEMBER 31, 2006 (UNAUDITED)
The American Beacon Municipal Money Market Fund maintained a relatively
short average maturity during 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 increased 100
basis points (1.00%) during the year. The investment manager 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 year ended December 31, 2006, the total return of the PlanAhead
Class of the American Beacon Municipal Money Market Fund was 2.50%. The Fund
under-performed the Lipper Tax-Exempt Money Market Average return of 2.76%. The
Lipper Tax-Exempt Money Market Average is calculated by taking an arithmetic
average of the returns of the mutual funds in the Lipper Tax-Exempt Money Market
Funds category. Lipper is an independent mutual fund research and ranking
service that ranks mutual funds in various categories by making comparative
calculations using total returns.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
---------------------------
AS OF 12/31/2006
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class (1,2).... 2.50% 1.11% 2.04%
Platinum Class (1,3)...... 2.50% 1.00% 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.
2 A portion of the fees charged to the PlanAhead Class of the Fund has been
waived since 2003. Performance prior to waiving fees was lower than the
actual returns shown for periods after 2003.
3 A portion of the fees charged to the Platinum Class of the Fund has been
waived. Performance prior to waiving fees was lower than the actual returns
shown.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2006
<Table>
<Caption>
PLANAHEAD PLATINUM
CLASS CLASS
--------- --------
7-day Current Yield* 2.95% 2.95%
7-day Effective Yield* 3.00% 3.00%
30-day Yield* 2.71% 2.71%
Weighted Avg. 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 DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Alachua County, Florida Housing Financial Authority 5.7%
Michigan State Housing Development Authority 5.5%
Ohio Water Development Authority 5.3%
Montgomery Cnty, Maryland Variable Rate Housing 5.2%
University Athletic Association, Inc. 5.0%
New York State Housing Finance Agency 5.0%
Illinois Finance Authority 5.0%
Sweetwater County, Wyoming Pollution Control 4.7%
Indiana County Industrial Development Authority 4.7%
University of Colorado Hospital System 4.0%
</Table>
ASSET ALLOCATION AS OF DECEMBER 31, 2006
<Table>
<Caption>
% OF
NET ASSETS**
------------
Municipal Obligations 96.8%
Other Investments 3.0%
Net Other Assets 0.2%
</Table>
** Percent of net assets of the American Beacon Master Municipal Money Market
Portfolio.
8
PERFORMANCE OVERVIEW
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND(SM)
DECEMBER 31, 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 July 1, 2006 through December 31,
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 "Actual" line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period.
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.
You should also be aware that the expenses shown in the table highlight
only your ongoing costs and do not reflect any transaction costs charged by the
Fund. Similarly, the expense examples for other funds do not reflect any
transaction costs charged by those funds, such as sales charges (loads),
redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the
table are useful in comparing ongoing costs only and will not help you determine
the relative total costs of owning different funds. If you were subject to any
transaction costs during the period, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE VALUE 7/1/06-
7/1/06 12/31/06 12/31/06
--------- --------- --------------
PLANAHEAD CLASS
Actual............................... $1,000.00 $1,013.26 $5.02
Hypothetical (5% return
before expenses).................... $1,000.00 $1,020.21 $5.04
PLATINUM CLASS
Actual............................... $1,000.00 $1,013.26 $5.02
Hypothetical (5% return
before expenses).................... $1,000.00 $1,020.21 $5.04
</Table>
* Expenses are equal to the Fund's annualized expense ratios for the
six-month period of 0.99% and 0.99% for the PlanAhead and Platinum Classes
respectively, multiplied by the average account value over the period,
multiplied by the number derived by dividing the number of days in the most
recent fiscal half-year (184) by days in the year (365) to reflect the
half-year period.
9
AMERICAN BEACON FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
American Beacon Funds
We have audited the accompanying statements of assets and liabilities of
American Beacon Funds, comprised of the American Beacon Money Market Fund, the
American Beacon U.S. Government Money Market Fund, and the American Beacon
Municipal Money Market Fund (collectively, the "Funds") as of December 31, 2006,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Funds at December 31, 2006, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
10
AMERICAN BEACON FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (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.............................. $ 1,210,824 $ 9,669 $ 5,046
Receivable for fund share sold................................. 227 -- --
Receivable from Manager for expense reimbursement (Note 2)..... 6 1 3
Prepaid expenses............................................... 54 14 11
----------- --------- ---------
TOTAL ASSETS................................................ 1,211,111 9,684 5,060
----------- --------- ---------
LIABILITIES:
Dividends payable.............................................. 440 23 --
Administrative service and service fees payable (Note 2)....... 128 3 2
Distribution fees payable (Note 2)............................. 8 1 1
Other Liabilities.............................................. 53 19 9
----------- --------- ---------
TOTAL LIABILITIES........................................... 629 46 12
----------- --------- ---------
NET ASSETS..................................................... $ 1,210,482 $ 9,638 $ 5,048
=========== ========= =========
ANALYSIS OF NET ASSETS:
Paid-in-capital............................................. 1,210,482 9,638 5,048
----------- --------- ---------
NET ASSETS........................................................ $ 1,210,482 $ 9,638 $ 5,048
=========== ========= =========
SHARES OUTSTANDING (NO PAR VALUE):
Cash Management Class.......................................... 501,905,012 3,568,227 N/A
=========== ========= =========
Institutional Class............................................ 504,402,899 N/A N/A
=========== ========= =========
PlanAhead Class................................................ 170,517,540 2,057,988 1,591,386
=========== ========= =========
Platinum Class................................................. 33,656,256 4,011,670 3,456,953
=========== ========= =========
NET ASSET VALUE, 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
See accompanying Financial Statements of the American Beacon Master Portfolios
11
AMERICAN BEACON FUNDS
STATEMENT OF OPERATIONS
DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
--------------- --------------- ---------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest Income .......................................... $ 38,896 $ 682 $ 172
Portfolio expenses ....................................... (824) (17) (9)
--------------- --------------- ---------------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ......... 38,072 665 163
--------------- --------------- ---------------
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class .................................. 295 5 --
Institutional Class .................................... 94 -- --
PlanAhead Class ........................................ 202 2 1
Platinum Class ......................................... 233 30 23
Transfer agent fees:
Cash Management Class .................................. 18 4 --
Institutional Class .................................... 13 -- --
PlanAhead Class ........................................ 19 2 5
Platinum Class ......................................... 1 2 3
Professional fees ........................................ 19 10 9
Registration fees and expenses ........................... 56 41 28
Service fees - PlanAhead Class (Note 2) .................. 506 7 4
Distribution fees - Platinum Class (Note 2) .............. 90 12 9
Prospectus and shareholder reports ....................... 48 4 1
Other Expenses ........................................... -- 5 1
--------------- --------------- ---------------
TOTAL FUND EXPENSES .................................... 1,594 124 84
--------------- --------------- ---------------
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2) ......... 261 66 44
--------------- --------------- ---------------
NET FUND EXPENSES ...................................... 1,333 58 40
--------------- --------------- ---------------
NET INVESTMENT INCOME ...................................... 36,739 607 123
--------------- --------------- ---------------
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments ......................... 1 -- --
--------------- --------------- ---------------
NET GAIN ON INVESTMENTS ................................ 1 -- --
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 36,740 $ 607 $ 123
--------------- --------------- ---------------
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
12
AMERICAN BEACON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MONEY
MONEY MARKET MARKET MUNICIPAL MONEY MARKET
---------------------------- ---------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------- ----------------------------
2006 2005 2006 2005 2006 2005
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........... $ 36,739 $ 20,577 $ 607 $ 850 $ 123 $ 97
Net realized gain on
investments .................... 1 2 -- 1 -- --
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 36,740 20,579 607 851 123 97
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Cash Management Class ......... (21,235) (10,861) (304) (619) -- --
Institutional Class ........... (4,754) (1,545) -- -- -- --
PlanAhead Class ............... (9,290) (7,158) (114) (108) (35) (30)
Platinum Class ................ (1,460) (1,013) (189) (123) (88) (67)
Net Realized gain on investments
Cash Management Class ......... (1) (1) -- (1) -- --
Institutional Class ........... -- -- -- -- -- --
PlanAhead Class ............... -- (1) -- -- -- --
Platinum Class ................ -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (36,740) (20,579) (607) (851) (123) (97)
------------ ------------ ------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares 5,755,911 4,429,630 39,131 144,480 21,207 15,294
Reinvestment of dividends and
distributions 32,640 18,064 225 162 123 97
Cost of shares redeemed (5,091,891) (4,580,001) (58,084) (156,852) (20,695) (16,156)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS ................. 696,660 (132,307) (18,728) (12,210) 635 (765)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS ........................... 696,660 (132,307) (18,728) (12,210) 635 (765)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ............. 513,822 646,129 28,366 40,576 4,413 5,178
------------ ------------ ------------ ------------ ------------ ------------
END OF PERIOD ................... $ 1,210,482 $ 513,822 $ 9,638 $ 28,366 $ 5,048 $ 4,413
============ ============ ============ ============ ============ ============
See accompanying notes
See accompanying Financial Statements of the American Beacon Master Portfolios
13
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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:
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 (9.51%,
1.72% and 15.69% at December 31, 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:
<Table>
<Caption>
CLASS: OFFERED TO: SERVICE AND DISTRIBUTION FEES:
- --------------------- ----------------------------------------------------------- -----------------------------------
CASH MANAGEMENT CLASS Investors making an initial investment of $10 million for Administrative Service Fee -- 0.07%
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 million Administrative Service Fee -- 0.10%
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 institutions Administrative Service Fee -- 0.65%
(such as banks and broker-dealers) Distribution Fee -- 0.25%
</Table>
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.
14
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
INVESTMENT INCOME AND DIVIDENDS TO SHAREHOLDERS
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
generally accepted accounting principles.
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
VALUATION OF SHARES
The price per share is calculated separately for each class of each Fund on
each day on which shares are offered for sale. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
15
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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.
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.
16
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
REIMBURSEMENT AND WAIVER OF EXPENSES
The Manager contractually agreed to reimburse the following Funds for
distribution and other expenses through February 28, 2007 to the extent total
annual fund operating expenses exceed the following amounts:
<Table>
<Caption>
FUND CLASS EXPENSE CAP AMOUNT
- --------------------------------------------------- --------------- ----------- --------
Money Market Fund.................................. Cash Management 0.15% $208,332
Money Market Fund.................................. Platinum 0.99% 17,244
U.S. Government Money Market Fund.................. Cash Management 0.19% 29,476
U.S. Government Money Market Fund.................. PlanAhead 0.65% 10,124
U.S. Government Money Market Fund.................. Platinum 0.99% 26,078
Municipal Money Market Fund........................ PlanAhead 0.99% 10,189
Municipal Money Market Fund........................ Platinum 0.99% 33,686
</Table>
The Manager contractually agreed to reimburse the Institutional Class of
the Money Market Fund for other expenses through February 28, 2007 to the extent
total annual fund operating expenses exceed 0.20%. Beginning June 26, 2006 the
Manager voluntarily agreed to reimburse this class for other expenses to the
extent annualized operating expenses exceed 0.18%. The Manager reimbursed
expenses totaling $31,296 to the Institutional Class of the Money Market Fund
during the twelve months ended December 31, 2006.
The Manager voluntarily reimbursed the PlanAhead Class of the Money Market
Fund for other expenses totaling $3,719 during the twelve months ended December
31, 2006.
EXPENSE REIMBURSEMENT PLAN
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek recoupment of fees waived or expenses reimbursed for a period of up to
three years. However, recoupment will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow recoupment
without causing its expense ratio to exceed the previously agreed upon 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
- ----------- ------------ --------------- ------------
2007....... 140,252 38,411 27,596
2008....... 293,487 54,846 29,552
2009....... 260,591 65,678 43,875
</Table>
The Funds have not recorded a liability for this potential reimbursement
due to the current assessment that a reimbursement is unlikely.
3. FEDERAL INCOME 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 categorized in accordance with federal income tax regulations
which may treat certain transactions differently than U. S. generally accepted
accounting principles. Accordingly, the character of
17
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
distributions and composition of net assets for tax purposes may differ from
those reflected in the accompanying financial statements.
The tax character of distributions paid for the year ended December 31,
2006 and the year ended December 31, 2005 were as follows (in thousands):
<Table>
<Caption>
MONEY MARKET U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
----------------------------- ----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006 2005 2006 2005
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID FROM
ORDINARY INCOME:*
Cash Management Class ...... $ 21,235 $ 10,862 $ 304 $ 620 -- --
Institutional Class ........ 4,754 1,545 -- -- -- --
PlanAhead Class ............ 9,291 7,159 114 108 -- --
Platinum Class ............. 1,460 1,013 189 123 -- --
TAX EXEMPT INCOME:**
Cash Management Class ...... -- -- -- -- -- --
Institutional Class ........ -- -- -- -- -- --
PlanAhead Class ............ -- -- -- -- $ 35 $ 30
Platinum Class ............. -- -- -- -- 88 67
------------ ------------ ------------ ------------ ------------ ------------
TOTAL DISTRIBUTIONS PAID ..... $ 36,740 $ 20,579 $ 607 $ 851 $ 123 $ 97
============ ============ ============ ============ ============ ============
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
** Approximately 17% of interest earned was derived from investments in
certain private activity bonds for purposes of the federal alternative
minimum tax calculation.(unaudited)
As of December 31, 2006, the components of distributable earnings on a tax
basis were the same as book. The cost basis of investments for federal income
tax purposes was also the same as the book basis.
The Funds do not have capital loss carryforwards as of December 31, 2006.
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each class of
the Funds (in thousands). Each share is valued at $1.00:
YEAR ENDED DECEMBER 31, 2006
CASH
MANAGEMENT CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
---------------- -------------------- --------------- --------------
MONEY MARKET FUND
Shares sold ................................. 3,868,924 1,325,652 515,550 45,785
Reinvestment of dividends ................... 19,760 3,586 7,834 1,460
Shares redeemed ............................. (3,586,788) (861,256) (589,770) (54,077)
---------------- -------------------- --------------- --------------
Net increase (decrease) in shares outstanding 301,896 467,982 (66,386) (6,832)
================ ==================== =============== ==============
18
AMERICAN BEACON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
CASH
MANAGEMENT CLASS PLANAHEAD CLASS PLATINUM CLASS
---------------- ------------------- ----------------
U.S. GOVERNMENT MONEY MARKET FUND
Shares sold ...................................... 20,647 8,290 10,194
Reinvestment of dividends ........................ 0 36 189
Shares redeemed .................................. (39,597) (8,201) (10,286)
---------------- ------------------- ----------------
Net increase (decrease) in shares outstanding .... (18,950) 125 97
================ =================== ================
PLANAHEAD CLASS PLATINUM CLASS
---------------- -------------------
MUNICIPAL MONEY MARKET FUND
Shares sold ...................................... 3,458 17,749
Reinvestment of dividends ........................ 35 88
Shares redeemed .................................. (3,549) (17,146)
---------------- -------------------
Net increase (decrease) in shares outstanding .... (56) 691
================ ===================
YEAR ENDED DECEMBER 31, 2005
CASH
MANAGEMENT CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
---------------- ------------------- ---------------- ----------------
MONEY MARKET FUND
Shares sold ...................................... 3,192,463 215,369 962,664 59,134
Reinvestment of dividends ........................ 10,515 957 5,579 1,013
Shares redeemed .................................. (3,438) (214,050) (863,779) (64,617)
---------------- ------------------- ---------------- ----------------
Net increase (decrease) in shares outstanding .... (234,577) 2,276 104,464 (4,470)
================ =================== ================ ================
CASH
MANAGEMENT CLASS PLANAHEAD CLASS PLATINUM CLASS
---------------- ------------------- ----------------
U.S. GOVERNMENT MONEY MARKET FUND
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)
================ =================== ================
PLANAHEAD CLASS PLATINUM CLASS
---------------- -------------------
MUNICIPAL MONEY MARKET FUND
Shares sold ...................................... 4,267 11,027
Reinvestment of dividends ........................ 30 67
Shares redeemed .................................. (4,356) (11,800)
---------------- -------------------
Net (decrease) in shares outstanding ............. (59) (706)
================ ===================
19
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
CASH MANAGEMENT CLASS
----------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- ------
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS: -------- -------- -------- -------- ------
Net investment income(A) .......................... 0.05 0.03 0.01 0.01 0.02
Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- ------
Total income from investment operations ............. 0.05 0.03 0.01 0.01 0.02
-------- -------- ------- -------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.05) (0.03) (0.01) (0.01) (0.02)
Distributions from net realized gains on securities --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- ------
Total distributions ................................. (0.05) (0.03) (0.01) (0.01) (0.02)
--------- --------- --------- --------- -------
NET ASSET VALUE, END OF PERIOD ...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======
TOTAL RETURN ........................................ 5.05% 3.19% 1.30% 1.08% 1.73%
========= ========= ========= ========= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $501,905 $200,010 $434,587 $117,395 $6,641
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.15% 0.15% 0.15% 0.16% 0.19%
Expenses before waivers ........................... 0.20% 0.23% 0.23% 0.24% 0.22%
Net investment income, net of waivers ............. 5.04% 3.08% 1.34% 1.03% 1.73%
Net investment income (loss), before waivers ...... 4.99% 3.00% 1.26% 0.95% 1.70%
INSTITUTIONAL CLASS
----------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------
2006 2005 2004 2003 2002
-------- ------- ------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .......................... 0.05 0.03 0.01 0.01 0.02
Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B)
-------- ------- ------- -------- --------
Total income from investment operations ............. 0.05 0.03 0.01 0.01 0.02
-------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.05) (0.03) (0.01) (0.01) (0.02)
Distributions from net realized gains on securities --(B) --(B) --(B) --(B) --(B)
-------- ------- ------- -------- --------
Total distributions ................................. (0.05) (0.03) (0.01) (0.01) (0.02)
--------- -------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD ...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======== ========
TOTAL RETURN ........................................ 4.99% 3.06% 1.20% 0.97% 1.67%
========= ======== ======== ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $504,403 $36,421 $34,146 $159,092 $474,922
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.19% 0.28% 0.24% 0.27% 0.24%
Expenses before waivers............................ 0.23% 0.28% 0.24% 0.27% 0.24%
Net investment income, net of waivers ............. 5.06% 3.07% 1.05% 1.00% 1.68%
Net investment income (loss), before waivers ...... 5.02% 3.07% 1.05% 1.00% 1.68%
- ----------
A The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of the
American Beacon Master Money Market Portfolio.
B Amount is less than $.01 per share.
20
AMERICAN BEACON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PLANAHEAD CLASS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) ............................ 0.05 0.03 0.01 0.01 0.01
Net realized gain on investments .................... --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- --------
Total income from investment operations ............... 0.05 0.03 0.01 0.01 0.01
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.05) (0.03) (0.01) (0.01) (0.01)
Distributions from net realized gains on securities . --(B) --(B) --(B) --(B) --(B)
-------- -------- -------- -------- --------
Total distributions ................................... (0.05) (0.03) (0.01) (0.01) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
TOTAL RETURN .......................................... 4.69% 2.82% 0.93% 0.70% 1.37%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ............ $170,518 $236,903 $132,438 $126,972 $155,535
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ............................ 0.49% 0.51% 0.51% 0.54% 0.54%
Expenses before waivers ............................. 0.49% 0.51% 0.51% 0.54% 0.54%
Net investment income, net of waivers ............... 4.59% 2.83% 0.94% 0.71% 1.36%
Net investment income (loss), before waivers ........ 4.59% 2.83% 0.94% 0.71% 1.36%
PLATINUM CLASS
--------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) ............................ 0.04 0.02 --(B) --(B) 0.01
Net realized gain on investments .................... --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- --------
Total income from investment operations ............... 0.04 0.02 --(B) --(B) 0.01
------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.04) (0.02) --(B) --(B) (0.01)
Distributions from net realized gains on securities . --(B) --(B) --(B) --(B) --(B)
------- ------- ------- ------- --------
Total distributions ................................... (0.04) (0.02) --(B) --(B) (0.01)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ========
TOTAL RETURN .......................................... 4.17% 2.33% 0.46% 0.25% 0.98%
======= ======= ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ............ $33,656 $40,488 $44,958 $48,920 $913,240
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ............................ 0.99% 0.99% 0.99% 0.96% 0.93%
Expenses before waivers ............................. 1.04% 1.06% 1.06% 1.09% 0.94%
Net investment income, net of waivers ............... 4.08% 2.27% 0.43% 0.38% 0.97%
Net investment income (loss), before waivers ........ 4.03% 2.20% 0.36% 0.25% 0.96%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of the
American Beacon Master Money Market Portfolio.
(B) Amount is less than $.01 per share.
21
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
CASH MANAGEMENT CLASS
-----------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------
2006 2005 2004 2003 2002
------ ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .......................... 0.05 0.03 0.01 0.01 0.02
Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B)
------ ------- ------- ------- -------
Total income from investment operations .............. 0.05 0.03 0.01 0.01 0.02
------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.05) (0.03) (0.01) (0.01) (0.02)
Distributions from net realized gains on securities --(B) --(B) --(B) --(B) --(B)
------ ------- ------- ------- -------
Total distributions .................................. (0.05) (0.03) (0.01) (0.01) (0.02)
------ ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ======= =======
TOTAL RETURN ......................................... 4.97% 3.12% 1.22% 1.04% 1.67%
====== ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $3,568 $22,518 $28,591 $22,060 $38,310
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.19% 0.19% 0.19% 0.19% 0.19%
Expenses before waivers ........................... 0.64% 0.38% 0.29% 0.37% 0.23%
Net investment income, net of waivers ............. 4.60% 2.99% 1.21% 1.04% 1.69%
Net investment income (loss), before waivers ...... 4.16% 2.80% 1.11% 0.86% 1.65%
PLANAHEAD CLASS
-----------------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------- --------
NET ASSET VALUE, BEGINNING OF PERIOD ................. $1 .00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .......................... 0.04 0.03 --(B) 0.01(B) 0.01
Net realized gain on investments .................. --(B) --(B) --(B) --(B) --(B)
------ ------ ------ ------- --------
Total income from investment operations .............. 0.04 0.03 -- 0.01 0.01
------ ------ ------ ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.04) (0.03) --(B) (0.01) (0.01)
Distributions from net realized gains on securities --(B) --(B) --(B) --(B) --(B)
------ ------ ------ ------- --------
Total distributions .................................. (0.04) (0.03) -- (0.01) (0.01)
------ ------ ------ ------- --------
NET ASSET VALUE, END OF PERIOD ....................... $1 .00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======= ========
TOTAL RETURN ......................................... 4.51% 2.71% 0.85% 0.61% 1.30%
====== ====== ====== ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .......... $2,058 $1,933 $5,370 $26,785 $175,115
Ratios to average net assets (annualized):(A)
Expenses, net of waivers .......................... 0.63% 0.58% 0.56% 0.58% 0.55%
Expenses before waivers ........................... 1.02% 0.61% 0.57% 0.62% 0.55%
Net investment income, net of waivers ............. 4.39% 2.47% 0.68% 0.72% 1.25%
Net investment income (loss), before waivers ...... 4.00% 2.44% 0.67% 0.68% 1.25%
- ----------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of the
American Beacon Master U.S. Government Money Market Portfolio.
(B) Amount is less than $.01 per share.
22
AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PLATINUM CLASS
------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ --------
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) ........................ 0.04 0.02 -- --
Net realized gain on investments ................ --(B) --(B) --(B) --(B) --(B)
------ ------ ------ ------ --------
Total income from investment operations ........... 0.04 0.02 -- -- 0.01
------ ------ ------ ------ --------
LESS DISTRIBUTIONS:
Dividends from net investment income ............ (0.04) (0.02) -- (0.01)
Distributions from net realized gains on
securities ................................... --(B) --(B) --(B) --(B) --(B)
------ ------ ------ ------ --------
Total distributions ............................... (0.04) (0.02) -- -- (0.01)
------ ------ ------ ------ --------
NET ASSET VALUE, END OF PERIOD .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1 .00
====== ====== ====== ====== ========
TOTAL RETURN ...................................... 4.14% 2.30% 0.42% 0.24% 0.90%
====== ====== ====== ====== ========
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ........ $4,012 $3,915 $6,615 $6,752 $119,833
Ratios to average net assets (annualized):(A)
Expenses, net of waivers ........................ 0.99% 0.99% 0.98% 1.00% 0.95%
Expenses before waivers ......................... 1.55% 1.25% 1.15% 1.20% 0.98%
Net investment income, net of waivers ........... 4.03% 2.19% 0.40% 0.31% 0.88%
Net investment income (loss), before waivers .... 3.48% 1.93% 0.23% 0.11% 0.85%
</Table>
- ----------
A The per share amounts and ratios reflect income and expenses assuming
inclusion of each Fund's proportionate share of income and expenses of the
American Beacon U.S. Government Master Money Market Portfolio.
B Amount is less than $.01 per share.
23
AMERICAN BEACON MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
PLANAHEAD CLASS
----------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .................. 0.02 0.02 --(B) --(B) 0.01
Dividends from net investment income ...... (0.02) (0.02) --(B) --(B) (0.01)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
TOTAL RETURN ................................ 2.50% 1.49% 0.31% 0.32% 0.93%
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .... $1,591 $1,647 $1,706 $3,072 $7,346
Ratios to average net assets
(annualized):(A)
Expenses, net of waivers ................ 0.99% 0.98% 0.94% 0.81% 0.57%
Expenses before waivers ................. 1.70% 1.22% 1.04% 0.93% 0.57%
Net investment income, net of waivers ... 2.49% 1.52% 0.24% 0.36% 0.94%
Net investment income, before waivers ... 1.78% 1.28% 0.14% 0.24% 0.94%
PLATINUM CLASS
-----------------------------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ -------
NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(A) .................. 0.02 0.02 --(B) --(B) --(B)
Dividends from net investment income ...... (0.02) (0.02) --(B) --(B) --(B)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== =======
TOTAL RETURN ................................ 2.50% 1.49% 0.31% 0.20% 0.51%
====== ====== ====== ====== =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .. $3,457 $2,766 $3,472 $3,271 $71,132
Ratios to average net assets
(annualized):(A)
Expenses, net of waivers ................ 0.99% 0.99% 0.97% 1.01% 0.99%
Expenses before waivers ................. 1.95% 1.55% 1.58% 1.35% 1.01%
Net investment income, net of waivers ... 2.51% 1.51% 0.29% 0.21% 0.52%
Net investment income, before waivers ... 1.55% 0.95% (0.32)% (0.13)% 0.50%
- ----------
(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.
24
AMERICAN BEACON MASTER TRUST
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
American Beacon Master Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of American Beacon Master Trust, comprised of the
American Beacon Money Market Portfolio, the American Beacon U.S. Government
Money Market Portfolio, and the American Beacon Municipal Money Market
Portfolio, (collectively, the "Portfolios") as of December 31, 2006, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Portfolios' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Beacon Master Trust at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, TX
February 27, 2007
25
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
FUNDING AGREEMENTS - 1.18%
Metropolitan Life Insurance Co., 5.419%, Due 11/21/2007++ .................... $ 150,000 $ 150,000
------------
MEDIUM-TERM NOTES - 38.59%
Abbey National Treasury Services, PLC, 5.374%, Due 6/29/2007++ ............... 491,615 491,737
American Honda Finance Corp.,
5.514%, Due 1/16/2007++# .................................................. 25,000 25,002
5.34%, Due 1/26/2007++# ................................................... 50,000 50,000
5.505%, Due 2/20/2007++# .................................................. 10,000 10,002
5.328%, Due 7/10/2007++# .................................................. 33,040 33,042
5.404%, Due 7/23/2007++# .................................................. 10,000 10,005
5.39%, Due 8/23/2007++# ................................................... 20,000 20,007
5.48%, Due 8/23/2007++# ................................................... 5,500 5,505
5.385%, Due 9/19/2007++# .................................................. 10,000 10,004
5.484%, Due 10/22/2007++# ................................................. 10,000 10,011
ASIF Global Financing,
5.37%, Due 2/23/2007++# ................................................... 238,250 238,251
5.41%, Due 5/3/2007++# .................................................... 107,200 107,234
Citigroup Global Markets Holdings, Inc., 5.431%, Due 3/16/2007++ ............. 149,300 149,330
Citigroup, Inc.,
5.43%, Due 6/4/2007++ ..................................................... 208,830 208,901
5.431%, Due 11/1/2007++ ................................................... 103,500 103,594
Credit Suisse USA, Inc.,
5.874%, Due 2/15/2007++ ................................................... 32,604 32,624
6.063%, Due 3/28/2007++ ................................................... 10,000 10,018
5.47%, Due 4/5/2007++ ..................................................... 215,443 215,503
General Electric Capital Corp.,
5.443%, Due 3/9/2007++ .................................................... 37,500 37,509
5.425%, Due 6/22/2007++ ................................................... 225,904 226,009
5.475%, Due 10/17/2007++ .................................................. 180,000 180,000
5.43%, Due 1/3/2008++ ..................................................... 67,000 67,068
Goldman Sachs Group, Inc.,
5.464%, Due 3/30/2007++ ................................................... 64,000 64,019
5.476%, Due 5/11/2007++ ................................................... 70,820 70,846
5.497%, Due 7/2/2007++ .................................................... 64,350 64,399
HBOS Treasury Services PLC, 5.452%, Due 1/12/2007++# ......................... 20,000 20,001
HSBC Finance Corp.,
5.525%, Due 2/9/2007++ .................................................... 20,715 20,720
5.41%, Due 2/28/2007++ .................................................... 23,500 23,502
5.414%, Due 5/10/2007++ ................................................... 39,000 39,009
5.53%, Due 7/27/2007++ .................................................... 86,525 86,615
5.41%, Due 10/4/2007++ .................................................... 115,000 115,064
MBNA Europe Funding PLC, 5.45%, Due 9/7/2007++# .............................. 140,525 140,643
Merrill Lynch & Co, Inc.,
5.48%, Due 8/27/2007++ .................................................... 45,000 45,040
</Table>
See accompanying notes
26
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
5.499%, Due 10/19/2007++ .................................................. $ 83,000 $ 83,098
Merrill Lynch & Co., Inc.,
5.335%, Due 5/29/2007++ ................................................... 52,000 51,996
5.40%, Due 8/24/2007++ .................................................... 39,830 39,845
Morgan Stanley,
5.512%, Due 1/12/2007++ ................................................... 21,700 21,701
5.505%, Due 7/27/2007++ ................................................... 58,595 58,653
Royal Bank of Scotland PLC,
5.364%, Due 3/30/2007++# .................................................. 278,000 278,017
5.34%, Due 1/18/2008++# ................................................... 150,000 150,000
Toyota Motor Credit Corp.,
5.335%, Due 3/22/2007++ ................................................... 30,000 30,002
5.33%, Due 6/28/2007++ .................................................... 100,000 100,011
5.344%, Due 8/10/2007++ ................................................... 60,000 60,012
5.33%, Due 9/14/2007++ .................................................... 95,000 95,016
Wachovia Corp.,
5.428%, Due 2/6/2007++ .................................................... 153,925 153,938
5.454%, Due 7/20/2007++ ................................................... 179,152 179,266
Wells Fargo & Co.,
5.426%, Due 3/23/2007++ ................................................... 273,500 273,560
5.423%, Due 9/28/2007++ ................................................... 254,641 254,841
5.36%, Due 1/15/2008++# ................................................... 150,000 150,000
------------
TOTAL MEDIUM-TERM NOTES ...................................................... 4,911,170
------------
PROMISSORY NOTES - 2.36%
Goldman Sachs Group, Inc., 5.435%, Due 2/9/2007++# ........................... 300,000 300,000
------------
CERTIFICATES OF DEPOSIT AND BANK NOTES - 35.58%
Abbey National Treasury Services, PLC, 5.464%, Due 1/16/2007++ ............... 54,000 54,004
ABN Amro Bank NV, 5.436%, Due 5/11/2007++ .................................... 23,170 23,177
Allied Irish Banks PLC, 5.318%, Due 5/3/2007++ ............................... 50,000 49,993
Bank of Nova Scotia,
5.305%, Due 6/20/2007++ ................................................... 200,000 199,979
5.356%, Due 10/31/2007++ .................................................. 64,860 64,868
BB&T Corp.,
5.323%, Due 1/24/2007++ ................................................... 150,000 150,000
5.44%, Due 6/4/2007++ ..................................................... 91,380 91,421
5.324%, Due 8/10/2007++ ................................................... 50,000 49,997
BNP Paribas,
5.305%, Due 6/20/2007++ ................................................... 450,000 449,959
5.31%, Due 10/3/2007++ .................................................... 100,000 99,982
Branch Banking & Trust Co., 5.37%, Due 11/16/2007++ .......................... 100,000 100,038
Canadian Imperial Bank of Commerce, 5.432%, Due 4/2/2007++ ................... 39,000 39,010
Caylon,
5.344%, Due 8/10/2007++ ................................................... 342,000 341,993
5.30%, Due 9/13/2007++ .................................................... 185,700 185,666
</Table>
See accompanying notes
27
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
5.31%, Due 10/3/2007++ .................................................... $ 67,500 $ 67,490
Credit Suisse USA, Inc.,
5.336%, Due 6/12/2007++ ................................................... 150,000 150,000
5.356%, Due 8/13/2007++ ................................................... 125,000 125,003
HSBC Bank USA, 5.435%, Due 9/21/2007++ ....................................... 203,550 203,709
JP Morgan Chase Bank, NA, 5.422%, Due 1/12/2007++ ............................ 63,000 63,001
M&I Marshall & Ilsley Bank, 5.356%, Due 8/1/2007++ ........................... 50,000 50,000
National City Bank,
5.40%, Due 6/4/2007++ ..................................................... 38,000 38,009
5.32%, Due 10/4/2007++ .................................................... 135,000 134,984
Natixis S.A., 5.35%, Due 6/20/2007++ ......................................... 25,000 25,002
Royal Bank of Canada, 5.392%, Due 1/12/2007++ ................................ 10,000 10,000
SouthTrust Bank,
5.425%, Due 3/19/2007++ ................................................... 46,000 46,009
5.42%, Due 6/14/2007++ .................................................... 16,170 16,177
State Street Bank & Trust Co., 5.343%, Due 1/16/2007++ ....................... 59,500 59,500
SunTrust Banks, Inc., 5.433%, Due 5/17/2007++ ................................ 167,000 167,047
US Bank, NA,
5.337%, Due 1/25/2007++ ................................................... 233,000 233,001
5.361%, Due 3/16/2007++ ................................................... 50,000 50,004
5.383%, Due 9/10/2007++ ................................................... 250,000 250,130
5.402%, Due 10/1/2007++ ................................................... 110,750 110,808
Wachovia Bank, NA, 5.324%, Due 3/30/2007++ ................................... 200,000 199,999
Wachovia Corp., 5.353%, Due 9/28/2007++ ...................................... 50,000 50,010
World Savings Bank FSB,
5.429%, Due 6/1/2007++ .................................................... 178,460 178,517
5.374%, Due 10/19/2007++ .................................................. 400,000 400,133
------------
TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ................................. 4,528,620
------------
COMMERCIAL PAPER - 10.22%
Citigroup Funding, Inc., 5.26%, Due 2/7/2007 ................................. 150,000 149,189
FCAR Owner Trust, Series I, 5.27%, Due 3/15/2007 ............................. 100,000 98,931
Fountain Square Commercial Funding,
5.25%, Due 2/1/2007# ...................................................... 32,377 32,230
5.24%, Due 4/19/2007# ..................................................... 51,485 50,676
Long Lane Master Trust IV,
5.30%, Due 2/26/2007# ..................................................... 158,000 156,697
5.27%, Due 3/8/2007# ...................................................... 118,704 117,557
Park Avenue Receivables Co. LLC, 5.26%, Due 2/12/2007 ........................ 83,000 82,491
Scaldis Capital LLC, 5.30%, Due 1/25/2007# ................................... 55,262 55,067
Sheffield Receivables Corp., 5.24%, Due 3/28/2007# ........................... 30,000 29,624
Stanfield Victoria,
5.27%, Due 1/30/2007# ..................................................... 30,000 29,873
5.26%, Due 3/12/2007# ..................................................... 45,000 44,540
Three Rivers Funding Corp.,
5.34%, Due 1/4/2007# ...................................................... 75,929 75,895
</Table>
See accompanying notes
28
AMERICAN BEACON MASTER MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
5.33%, Due 1/16/2007# ..................................................... $ 42,224 $ 42,130
Yorktown Capital LLC,
5.305%, Due 2/1/2007 ...................................................... 240,000 238,904
5.285%, Due 2/15/2007 ..................................................... 98,273 97,624
------------
TOTAL COMMERCIAL PAPER ....................................................... 1,301,428
------------
TIME DEPOSITS - 9.11%
Deutsche Bank AG, 5.25%, Due 1/2/2007 ........................................ 110,000 110,000
ING Bank, NV, 5.26%, Due 1/2/2007 ............................................ 425,000 425,000
Societe Generale, 5.313%, Due 1/2/2007 ....................................... 625,000 625,000
------------
TOTAL TIME DEPOSITS .......................................................... 1,160,000
------------
REPURCHASE AGREEMENTS - 2.52%
Barclays Capital, Inc., 5.31%, Due 1/2/2007 (Collateral held at Bank of
New York, FHLMC 4.478% - 5.632%, Due 10/1/2024 - 3/1/2036; and
FNMA 3.517% - 7.376%, Due 1/1/2028 - 11/1/2036, Total Value $76,169) ...... 75,000 75,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at Bank of New York,
FNMA 5.0% - 6.5%, Due 3/1/2019 - 12/1/2036, Total Value $250,069) ......... 246,267 246,267
------------
TOTAL REPURCHASE AGREEMENTS .................................................. 321,267
------------
TOTAL INVESTMENTS - 99.56% (COST $12,672,485) .................................. $ 12,672,485
OTHER ASSETS, NET OF LIABILITIES - 0.44% ....................................... 55,684
------------
TOTAL NET ASSETS - 100.00% ..................................................... $ 12,728,169
============
</Table>
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.
# 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 $2,192,013 or 17.22% of net
assets. The Fund has no right to demand registration of these securities.
See accompanying notes
29
AMERICAN BEACON MASTER U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
U.S. AGENCY OBLIGATIONS - 5.14%
FEDERAL HOME LOAN BANK - 3.19%
5.23%, Due 4/4/2007 ++ .................................................................. $ 10,000 $ 9,999
3.875%, Due 6/8/2007 .................................................................... 5,000 4,970
5.21%, Due 6/8/2007 ++ .................................................................. 3,000 2,999
------------
17,968
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.63%
5.18%, Due 1/2/2007 # ................................................................... 9,210 9,209
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.32%
5.11%, Due 5/31/2007 # .................................................................. 566 554
5.105%, Due 6/1/2007 # .................................................................. 1,250 1,223
------------
1,777
------------
TOTAL U.S. AGENCY OBLIGATIONS 28,954
------------
REPURCHASE AGREEMENTS - 94.81%
Banc of America Securities, LLC, 5.313%, Due 1/2/2007 (Collateral held at Bank of New York,
FHLMC 5.0%, Due 5/1/2035, Total Value - $152,386) ....................................... 150,000 150,000
Barclays Capital, Inc., 5.31%, Due 1/2/2007 (Collateral held at Bank of
New York, FHLMC 4.442% - 7.329%, Due 1/1/2028 - 12/1/2036; and
FNMA 5.0% - 6.995%, Due 1/1/2028 - 11/1/2036, Total Value - $203,219) ................... 200,000 200,000
Goldman Sachs, 5.34%, Due 1/2/2007 (Collateral held at Bank of New York,
FNMA 5.0%, Due 2/1/2036, Total Value - $187,072) ........................................ 184,142 184,143
------------
TOTAL REPURCHASE AGREEMENTS 534,143
------------
TOTAL INVESTMENTS - 99.95% (COST $563,097) $ 563,097
OTHER ASSETS, NET OF LIABILITIES - 0.05% 299
------------
TOTAL NET ASSETS - 100.00% $ 563,396
============
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.
# Rates represent discount rate.
See accompanying notes
30
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
ALABAMA - 6.22%
Infirmary Health System Special Care Facilities Financial Authority of Mobile
Revenue Bonds, Series 2006A, 3.91%, Due 2/1/2040, LOC Bank of Nova Scotia . $ 1,000 $ 1,000
Mobile Industrial Development Board, Series 1999A (Holnam, Inc. Project),
Variable Rate Demand Dock and Wharf Revenue Refunding Bonds, 3.89%,
Due 6/1/2032, LOC Bayerische Landesbank ................................... 1,000 1,000
------------
TOTAL ALABAMA 2,000
------------
COLORADO - 7.08%
Colorado Educational and Cultural Facilities Variable Rate Demand Revenue
Bonds, Series A7, (National Jewish Federation Bond Program), 4.00%,
Due 7/1/2029, LOC Bank of America, NA ..................................... 975 975
University of Colorado Hospital System Revenue Bonds, Series 2004B, 3.90%,
Due 11/15/2035, LOC Citibank, NA .......................................... 1,300 1,300
------------
TOTAL COLORADO 2,275
------------
FLORIDA - 16.59%
Alachua County, Florida Housing Financial Authority, Multi-family Housing
Revenue Bonds, Series 2001, (University Cove Apartment Project), 3.95%,
Due 6/15/2034, LOC Federal National Mortgage Association .................. 1,830 1,830
Florida Gulf Coast University Financing Corp. Revenue Bonds, Series 2003,
4.03%, 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.), 3.98%, Due
11/15/2014, LOC Suntrust Bank ......................................... 900 900
University Athletic Association, Inc. Revenue Bonds, Series 2001 Bonds, 4.00%,
Due 10/1/2031, LOC Suntrust Bank .......................................... 1,605 1,605
------------
TOTAL FLORIDA 5,335
------------
ILLINOIS - 4.98%
Illinois Finance Authority Variable Rate Revenue Bonds, Series 2005B, 4.05%,
Due 5/15/2035, LOC JP Morgan Chase ........................................ 1,600 1,600
------------
INDIANA - 3.11%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds,
Series 1989, (ND-Tech Corporation Project), 4.02%, Due 7/1/2009,
LOC Comerica Bank ......................................................... 1,000 1,000
------------
KENTUCKY - 6.95%
Breckinridge County, Kentucky Lease Program Revenue Bonds, Series A, 4.00%,
Due 2/1/2032, LOC US Bank, NA ............................................. 1,136 1,136
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 2,236
------------
MARYLAND - 5.22%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997,
Issue I (The Grand), 3.94%, Due 6/1/2030, LOC Federal National
Mortgage Association ...................................................... 1,680 1,680
------------
MICHIGAN - 5.52%
Michigan State Housing Development Authority, Series 2000 (River Place
Plaza Apartments), Variable Rate Limited Obligation Multi-family Housing
Revenue Refunding Bonds, 3.95%, Due 6/1/2018, LOC Bank of New York ........ 1,775 1,775
------------
NEVADA - 3.11%
Nevada Housing Divison-Variable Rate Demand Multi-Unit Housing Revenue Bonds,
Series 2004, (Sundance Village Apartments), 3.95%, Due 10/1/2035,
LOC Citibank, NA .......................................................... 1,000 1,000
------------
See accompanying notes
31
AMERICAN BEACON MASTER MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
PAR
AMOUNT VALUE
------------ ------------
(DOLLARS IN THOUSANDS)
NEW YORK - 10.51%
Dutchess County Industrial Development Agency Variable Rate Demand Civic
Facility Revenue Bonds, Series 2002, 3.88%, Due 10/1/2032,
LOC Allied Irish Bank, PLC ................................................ $ 980 $ 980
New York City Housing Development Corporation, Multi-Family Mortgage
Revenue Bonds, Series 2002A, (First Avenue Development), 3.93%,
Due 10/15/2035, LOC Federal National Mortgage Association ................. 800 800
New York State Housing Finance Agency, 66 West 38th Street Housing Revenue
Bonds, Series 2000A, 3.91%, Due 5/15/2033, LOC Federal National Mortgage
Association ............................................................... 1,600 1,600
------------
TOTAL NEW YORK 3,380
------------
OHIO - 5.29%
Ohio Water Development Authority, Environmental Improvement Revenue Bonds,
Series 2000B, (Waste Management, Incorporated Project), 4.05%,
Due 7/1/2020, LOC Fleet National Bank ..................................... 1,700 1,700
------------
PENNSYLVANIA - 7.15%
Delaware County, Pennsylvania Pollution Control, Series 1999A, 4.00%,
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 - 3.73%
City of Midlothian, Texas Industrial Development Corporation, Environmental
Facilities Revenue Bonds, Series 1999, (Holnam Texas Limited Partnership
Project), 3.96%, Due 9/1/2031, LOC Bank One, NA ........................... 1,200 1,200
------------
UTAH - 3.58%
Morgan County, Utah Solid Waste Disposal Revenue Bonds, Series 1996,
(Holman, Inc. Project), 3.95%, Due 8/1/2031, LOC Wachovia Bank, NA ........ 1,150 1,150
------------
WASHINGTON - 3.11%
Washington State Housing Finance Commission Variable Rate Demand
Non-Profit Revenue Bonds, Series 2005, (Seattle Art Museum Project),
3.91%, Due 7/1/2033, LOC Allied Irish Bank, PLC ........................... 1,000 1,000
------------
WYOMING - 4.67%
Sweetwater County, Wyoming Pollution Control Revenue Refunding Bonds,
Series 1990A, (Pacificorp Project), 3.91%, Due 7/1/2015,
LOC Barclays Bank, PLC .................................................... 1,500 1,500
------------
SHARES
------------
SHORT TERM INVESTMENTS - 2.95%
BlackRock Provident MuniCash Fund ............................................ 106,013 106
Federated Municipal Obligations Fund ......................................... 843,108 843
------------
TOTAL SHORT TERM INVESTMENTS 949
------------
TOTAL INVESTMENTS - 99.77% (COST $32,080) $ 32,080
OTHER ASSETS, NET OF LIABILITIES - 0.23% 74
------------
TOTAL NET ASSETS - 100.00% $ 32,154
============
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.
See accompanying notes
32
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
------------ --------------- ---------------
ASSETS:
Investment in securities at value (cost - $12,351,218,
$28,954, and $32,080 respectively) ..................... $ 12,351,218 $ 28,954 $ 32,080
Repurchase agreement (cost - $321,267, $534,143, and $0
respectively) ............................................... 321,267 534,143 --
Dividends and interest receivable ...................... 57,056 389 93
Prepaid expenses ....................................... 7 -- --
------------ --------------- ---------------
TOTAL ASSETS ...................................... 12,729,548 563,486 32,173
------------ --------------- ---------------
LIABILITIES:
Management and investment advisory fees payable (Note 2) 1,140 48 4
Other Liabilities ...................................... 239 42 15
------------ --------------- ---------------
TOTAL LIABILITIES ................................. 1,379 90 19
------------ --------------- ---------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS .... $ 12,728,169 $ 563,396 $ 32,154
============ =============== ===============
See accompanying notes
33
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF OPERATIONS
DECEMBER 31, 2006 (IN THOUSANDS)
U.S. GOVERNMENT MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
------------ --------------- ---------------
INVESTMENT INCOME:
Interest Income ........................................ $ 542,409 $ 17,620 $ 1,102
------------ --------------- ---------------
TOTAL INVESTMENT INCOME ................................ 542,409 17,620 1,102
------------ --------------- ---------------
EXPENSES:
Management and investment advisory fees (note 2) 10,562 346 32
Custodian fees ......................................... 437 14 1
Professional fees ...................................... 86 23 21
Other expenses ......................................... 431 40 1
------------ --------------- ---------------
TOTAL EXPENSES .............................................. 11,516 423 55
------------ --------------- ---------------
NET INVESTMENT INCOME ....................................... 530,893 17,197 1,047
------------ --------------- ---------------
REALIZED GAIN ALLOCATED FROM PORTFOLIO
Net realized gain on investments ....................... 12 1 --
------------ --------------- ---------------
NET GAIN ON INVESTMENTS ..................................... 12 1 --
------------ --------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $ 530,905 $ 17,198 $ 1,047
============ =============== ===============
See accompanying notes
34
AMERICAN BEACON MASTER TRUST PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
U.S. GOVERNMENT MONEY
MONEY MARKET MARKET MUNICIPAL MONEY MARKET
----------------------------- ----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------- -----------------------------
2006 2005 2006 2005 2006 2005
------------- ------------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income ............. $ 530,893 $ 218,128 $ 17,197 $ 7,700 $ 1,047 $ 837
Net Realized Gain (Loss) on
Investments ....................... 12 18 1 6 -- --
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....... 530,905 218,146 17,198 7,706 1,047 837
------------- ------------- ------------- ------------- ------------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions ..................... 131,682,048 98,275,830 3,002,185 1,782,252 39,850 56,703
Withdrawals ....................... (126,270,825) (97,144,356) (2,695,546) (1,799,917) (39,239) (62,338)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS ............ 5,411,223 1,161,474 306,639 (17,665) 611 (5,635)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS .......................... 5,942,128 1,379,620 323,837 (9,929) 1,658 (4,798)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS:
Beginning of period ............... 6,786,041 5,406,421 239,560 249,519 30,496 35,294
------------- ------------- ------------- ------------- ------------- -------------
END OF PERIOD ..................... $ 12,728,169 $ 6,786,041 $ 563,396 $ 239,560 $ 32,154 $ 30,496
============= ============= ============= ============= ============= =============
See accompanying notes
35
AMERICAN BEACON MASTER TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
MONEY MARKET
--------------------------------
YEAR END DECEMBER 31, 2006
--------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Total return ............... 5.09% 3.25% 1.34% 1.13% 1.81%
Ratios to average net assets
(annualized):...............
Expenses .............. 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income . 5.03% 3.20% 1.30% 1.14% 1.81%
U.S. GOVERNMENT MONEY MARKET
--------------------------------
YEAR END DECEMBER 31, 2006
--------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Total return ............... 5.04% 3.19% 1.30% 1.11% 1.74%
Ratios to average net assets
(annualized):...............
Expenses .............. 0.12% 0.12% 0.11% 0.12% 0.12%
Net investment income . 4.97% 3.15% 1.30% 1.13% 1.71%
MUNICIPAL MONEY MARKET
--------------------------------
YEAR END DECEMBER 31, 2006
--------------------------------
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Total return ............... 3.34% 2.38% 1.18% 1.08% 1.39%
Ratios to average net assets
(annualized):...............
Expenses .............. 0.17% 0.11% 0.11% 0.12% 0.12%
Net investment income . 3.30% 2.35% 1.14% 1.05% 1.39%
36
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American Beacon Master Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no load, open-end management
investment company that was organized as a trust under the laws of the
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated as of
November 1, 2004. Prior to November 1, 2004, the Trust was organized as a trust
under the laws of the State of New York. Beneficial interests in the Trust are
divided into separate series, each having distinct investment objectives and
policies. These financial statements relate to the 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") 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 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 custodian bank. 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.
37
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance on how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing each Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, the
Manager is evaluating the implications of FIN 48 and its potential impact on the
financial statements. The Fund's net asset value per share will reflect FIN 48
adjustments no later than June 29, 2007, and any adjustments will be reflected
in the Fund's semi-annual report to shareholders.
In September 2006, the FASB issued Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The Manager is evaluating the impact of FAS 157;
however, it is not expected to have a material impact on the Funds' net assets
or results of operations.
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.
38
AMERICAN BEACON MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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 twelve months ended December 31, 2006, the Money Market
Portfolio earned $2,108 under the credit facility. This amount is included in
interest income on the financial statements.
39
AMERICAN BEACON FUNDS
TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2006
(UNAUDITED)
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The distributions to shareholders during the tax year ended December 31,
2006 include short-term capital gains as follows:
Money Market Fund $ 703
U.S. Government Money Market Fund 20
Municipal Money Market Fund --
We are required by Internal Revenue Code to advise you within 60 days of
the Funds' fiscal year end as to the federal tax status of dividends paid by the
Funds during its fiscal year ended December 31, 2006. For purposes of preparing
your annual federal income tax returns, you should report the amounts reflected
on you Form 1099-INT. Of the ordinary dividends paid, the percentage of income
exempt from federal income taxes is as follows:
Money Market Fund 0.0%
U.S. Government Money Market Fund 0.0%
Municipal Money Market Fund 100.0%
Of ordinary dividends paid to shareholders during the tax year ended
December 31, 2006, the percentage of income derived from U.S. Treasury
obligations is as follows:
Money Market Fund 0.0%
U.S. Government Money Market Fund 0.0%
Municipal Money Market Fund 0.0%
40
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS AND THE AMERICAN
BEACON MASTER TRUST
(UNAUDITED)
The Trustees and officers of the American Beacon Funds (the "Trust") are
listed below, together with their principal occupations during the past five
years. Unless otherwise indicated, the address of each person listed below is
4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee
oversees twenty-seven funds in the fund complex that includes the Trust, the
American Beacon Master Trust, the American Beacon Mileage Funds, and the
American Beacon Select Funds. The Trust's Statement of Additional Information
contains additional information about the Trustees and is available without
charge by calling 1-800-658-5811.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- ---------------------------------------- ------------------------------ ----------------------------------------------------
INTERESTED TRUSTEES TERM
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (58) Trustee and Chairman and CEO (2006-Present) and President
President since (1986-2006), American Beacon Advisors, Inc.;
1987 Chairman (1989-2003) and Director (1979-1989,
2003-Present), American Airlines Federal Credit
Union; Director, Crescent Real Estate Equities,
Inc.(1994-Present); Director, Pritchard, Hubble &
Herr, LLC (investment advisor) (2001-2006);
Director of Investment Committee, Southern
Methodist University Endowment Fund
(1996-Present); Member, Southern Methodist
University Cox School of Business Advisory Board
(1999-2002); Member, New York Stock Exchange
Pension Manager Committee (1997-1998, 2000-2002,
2006-Present); Chairman (2007-Present) and Vice
Chairman (2004-2006), Committee for the Investment
of Employee Benefits; Chairman, Committee for the
Investment of Employee Benefits Defined Benefit
Sub-Committee (2002-2004); Director, United Way of
Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American Beacon Mileage
Funds (1995-Present); Trustee, American Beacon
Select Funds (1999-Present); Trustee, American
Beacon Master Trust (1995-Present).
Alan D. Feld** (69) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
(law firm) (1960-Present); Director, Clear Channel
Communications (1984-Present); Trustee,
CenterPoint Properties (1994-Present); Trustee,
American Beacon Mileage Funds (1996-Present);
Trustee, American Beacon Select Funds
(1999-Present); Trustee, American Beacon Master
Trust (1996-Present).
NON-INTERESTED TRUSTEES TERM
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund
(62) servicing company) (1998-2003); Board Member,
Baylor University Medical Center Foundation
(1992-2004); President and CEO, Allmerica Trust
Company, NA (1996-1997); President and CEO,
Fidelity Investments Southwest Company
(1983-1995); Senior Vice President of Regional
Centers, Fidelity Investments (1988-1995);
Trustee, American Beacon Mileage Funds
(2004-Present); Trustee, American Beacon Select
Funds (2004-Present); Trustee, American Beacon
Master Trust (2004-Present).
41
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS AND THE AMERICAN
BEACON MASTER TRUST
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- ---------------------------------------- ------------------------------ ----------------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Brenda A. Cline (45) Trustee since 2004 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Trustee, Texas Christian
University (1998-Present); Trustee, W.I. Cook
Foundation, Inc. (d/b/a Cook Children's Health
Foundation) (2001-Present); Director, Christian
Church Foundation (1999-Present); Trustee,
American Beacon Mileage Funds (2004-Present);
Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
Richard A. Massman (63) Trustee since 2004 Senior Vice President and General Counsel, Hunt
Consolidated, Inc. (holding company engaged in
energy, real estate, farming, ranching and venture
capital activities) (1994-Present); Trustee,
American Beacon Mileage Funds (2004-Present);
Trustee, American Beacon Select Funds
(2004-Present); Trustee, American Beacon Master
Trust (2004-Present).
Stephen D. O'Sullivan Trustee since 1987 Consultant (1994-Present); Trustee, American
(71) Beacon Mileage Funds (1995-Present); Trustee,
American Beacon Select Funds (1999-Present);
Trustee, American Beacon Master Trust
(1995-Present).
R. Gerald Turner (60) Trustee since 2001 President, Southern Methodist University
225 Perkins Admin. Bldg. (1995-Present); Director, ChemFirst (1986-2002);
Southern Methodist Univ. Director, J.C. Penney Company, Inc.
Dallas, Texas 75275 (1996-Present); Director, California Federal
Preferred Capital Corp. (2001-2003); Director,
Kronus Worldwide Inc. (chemical manufacturing)
(2003-Present); Director, First Broadcasting
Investment Partners, LLC (2003-Present); Member,
United Way of Dallas Board of Directors; Member,
Salvation Army of Dallas Board of Directors;
Member, Methodist Hospital Advisory Board; Member,
Knight Commission on Intercollegiate Athletics;
Trustee, American Beacon Mileage Funds (2001-
Present); Trustee, American Beacon Select Funds
(2001-Present); Trustee, American Beacon Master
Trust (2001-Present).
Kneeland Youngblood (50) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court Chairman since private equity firm) (1998-Present); Director,
Suite 1740 2005 Burger King Corporation (2004-Present); Trustee,
Dallas, Texas 75201 City of Dallas, Texas Employee Retirement Fund
(2004-Present); Trustee, The Hockaday School
(1997-2005); Director, Starwood Hotels and Resorts
(2001-Present); Member, Council on Foreign
Relations (1995-Present); Director, Just For the
Kids (1995-2001); Director, L&B Realty Advisors
(1998-2000); Trustee, Teachers Retirement System
of Texas (1993-1999); Director, Starwood Financial
Trust (1998-2001); Trustee, St. Mark's School of
Texas (2002-Present); Trustee, American Beacon
Mileage Funds (1996-Present); Trustee, American
Beacon Select Funds (1999-Present); Trustee,
American Beacon Master Trust (1996-Present).
42
TRUSTEES AND OFFICERS OF THE AMERICAN BEACON FUNDS AND THE AMERICAN
BEACON MASTER TRUST
(UNAUDITED)
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- ---------------------------------------- ------------------------------ ----------------------------------------------------
OFFICERS
TERM
One Year
Rosemary K. Behan (47) VP, Secretary and Vice President, Legal and Compliance, American
Chief Legal Beacon Advisors, Inc. (2006-Present); Assistant
Officer since 2006 General Counsel, First Command Financial Planning,
Inc. (2004-2006); Enforcement Attorney (2002-2004)
and Branch Chief (2000-2002); Securities and
Exchange Commission.
Brian E. Brett (46) VP since 2004 Vice President, Director of Sales, American Beacon
Advisors, Inc. (2004-Present); Regional Vice
President, Neuberger Berman, LLC (investment
advisor) (1996-2004).
Michael W. Fields (52) VP since 1989 Vice President, Fixed Income Investments, American
Beacon Advisors, Inc. (1988-Present).
Rebecca L. Harris (40) Treasurer since Vice President, Finance, American Beacon
1995 Advisors, Inc. (1995-Present).
Christina E. Sears (35) Chief Compliance Chief Compliance Officer, American Beacon
Officer since 2004 Advisors, Inc. (2004-Present); Senior Compliance
and Asst. Analyst, American Beacon Advisors, Inc.
Secretary since (1998-2004).
1999
- ------
* The Board has adopted a retirement plan that requires Trustees to retire no
later than the last day of the calendar year in which they reach the age of
72, with the exception of Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust,
as defined by the 1940 Act. Mr. Quinn is Chairman of the Manager. Mr.
Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal
services within the past two years to one or more of the Trust's Investment
advisors.
43
(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 Dallas, Texas
</Table>
This report is prepared for shareholders of the American Beacon Funds and may be
distributed to others only if preceded or accompanied by a current prospectus.
- -------------------------------------------------------------------------------
American Airlines, Inc. is not responsible for investments made in the American
Beacon Funds. American Beacon Funds is a service mark of AMR Corporation.
PlanAhead Class is a registered service mark of American Beacon Advisors, Inc.
Platinum Class, American Beacon Money Market Fund, American Beacon U.S.
Government Money Market Fund, and American Beacon Municipal Money Market Fund
are service marks of American Beacon Advisors, Inc.
AR 02/06
539335
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal executive
and financial officers (the "Code"). The Trust did not amend the Code nor did
it grant any waivers to the provisions of the Code during the period covered by
the shareholder report presented in Item 1. The Code is filed herewith as
Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a member
of the Trust's Audit and Compliance Committee, is an "audit committee financial
expert" as defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$212,628 10/31/2005
$48,010 12/31/2005
$265,722 10/31/2006 Revised
$92,179 12/31/2006
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$26,460* 10/31/2005
$0 12/31/2005
$23,154* 10/31/2006
$0 12/31/2006
</Table>
<FN>
* Attestation services related to Interfund Lending Program
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$28,847* 10/31/2005
$10,695* 12/31/2005
$0 10/31/2006
$0 12/31/2006
</Table>
<FN>
* For review of 2003 and 2004 tax returns
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 10/31/2005
$0 12/31/2005
$0 10/31/2006
$0 12/31/2006
</Table>
(e)(1) Pursuant to its charter, the Trust's Audit and Compliance Committee
shall have the following duties and powers pertaining to pre-approval
of audit and non-audit services provided by the Trust's principal
accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trusts' financial
statements, and, in connection therewith, reviewing and evaluating
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trusts, an investment adviser to
any series of the Trusts or any entity controlling, controlled by,
or under common control with an investment adviser ("adviser
affiliate") that provides ongoing services to the Trusts, if the
engagement relates directly to the operations and financial
reporting of the Trusts;
- to consider whether the non-audit services provided by a Trust's
auditor to an investment adviser or any adviser affiliate that
provides ongoing services to a series of the Trusts, which services
were not pre-approved by the Committee, are compatible with
maintaining the auditor's independence;
- to review the arrangements for and scope of the annual audit and any
special audits; and
- to review and approving the fees proposed to be charged to the
Trusts by the auditors for each audit and non-audit service.
The Audit and Compliance Committee may delegate any portion of its authority,
including the authority to grant pre-approvals of audit and permitted
non-audit services, to a subcommittee of one or more members. Any decisions
of the subcommittee to grant pre-approvals shall be presented to the full
audit committee at its next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$55,307 $0 N/A 10/31/2005
$10,695 $0 N/A 12/31/2005
$23,154 $0 N/A 10/31/2006
$0 $0 N/A 12/31/2006
</Table>
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for each series of the Trust are included in the
shareholder report presented in Item 1. The shareholder report for the S&P
500 Index Fund, the Small Cap Index Fund and the International Equity Index
Fund presented in Item 1 includes a summary schedule of investments for the
Master International Index Series and the Master Small Cap Index Series, both
of which are series of the Master Quantitative Series Trust. A complete
schedule of investments for each of these two series follows.
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Advertising Agencies 14,100 24/7 Real Media, Inc. (a) $ 127,605
- - 0.5% 10,835 Advo, Inc. 353,221
25,400 aQuantive, Inc. (a) 626,364
14,600 Catalina Marketing Corp. 401,500
9,500 inVentiv Health, Inc. (a) 335,825
6,500 Marchex, Inc. Class B 86,970
14,200 Valassis Communications, Inc. (a) 205,900
31,880 ValueClick, Inc. (a) 753,324
-------------
2,890,709
- ---------------------------------------------------------------------------------------------------------------
Aerospace - 0.5% 4,600 Argon ST, Inc. (a) 99,084
15,268 Curtiss-Wright Corp. 566,137
7,926 Heico Corp. 307,767
5,500 K&F Industries Holdings, Inc. (a) 124,905
5,400 Ladish Co., Inc. (a) 200,232
3,200 MTC Technologies, Inc. (a) 75,360
11,613 Moog, Inc. Class A (a) 443,500
16,535 Orbital Sciences Corp. (a) 304,905
10,934 Teledyne Technologies, Inc. (a) 438,781
2,200 TransDigm Group, Inc. (a) 58,322
2,500 United Industrial Corp. 126,875
-------------
2,745,868
- ---------------------------------------------------------------------------------------------------------------
Agriculture, Fishing 1,200 Alico, Inc. (h) 60,756
& Ranching - 0.1% 3,600 The Andersons, Inc. 152,604
10,628 Delta & Pine Land Co. 429,903
-------------
643,263
- ---------------------------------------------------------------------------------------------------------------
Air Transport - 0.7% 10,968 AAR Corp. (a)(h) 320,156
17,300 ABX Air, Inc. (a) 119,889
28,820 AirTran Holdings, Inc. (a)(e) 338,347
12,599 Alaska Air Group, Inc. (a) 497,660
7,500 Atlas Air Worldwide Holdings, Inc. (a) 333,750
7,385 Bristow Group, Inc. (a) 266,525
9,995 EGL, Inc. (a) 297,651
13,000 ExpressJet Holdings, Inc. (a) 105,300
15,455 Frontier Airlines Holdings, Inc. (a)(e) 114,367
55,000 JetBlue Airways Corp. (a)(e) 781,000
11,456 Mesa Air Group, Inc. (a) 98,178
3,700 PHI, Inc. (a) 121,101
9,300 Republic Airways Holdings, Inc. (a) 156,054
21,600 Skywest, Inc. 551,016
-------------
4,100,994
- ---------------------------------------------------------------------------------------------------------------
Aluminum - 0.1% 8,302 Century Aluminum Co. (a) 370,684
- ---------------------------------------------------------------------------------------------------------------
Auto Parts: After 6,843 Aftermarket Technology Corp. (a) 145,619
Market - 0.1% 5,550 Commercial Vehicle Group, Inc. (a) 120,990
6,200 Keystone Automotive Industries, Inc. (a) 210,738
8,399 Superior Industries International, Inc. 161,849
-------------
639,196
- ---------------------------------------------------------------------------------------------------------------
Auto Parts: Original 16,400 American Axle & Manufacturing Holdings, Inc. 311,436
Equipment - 0.4% 22,300 ArvinMeritor, Inc. 406,529
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
4,700 Fuel Systems Solutions, Inc. (a) $ 103,776
21,400 Lear Corp. 631,942
3,600 Noble International Ltd. 72,180
13,700 Quantum Fuel Systems Technologies Worldwide, Inc. (a)(e) 21,920
2,173 Sauer-Danfoss, Inc. 70,079
14,300 Tenneco, Inc. (a) 353,496
42,600 Visteon Corp. (a) 361,248
-------------
2,332,606
- ---------------------------------------------------------------------------------------------------------------
Auto, Trucks & Parts 4,500 Accuride Corp. (a) 50,670
- - 0.2% 2,000 Miller Industries, Inc. (a) 48,000
11,594 Modine Manufacturing Co. 290,198
19,700 Navistar International Corp. (a) 658,571
9,845 Wabash National Corp. 148,660
-------------
1,196,099
- ---------------------------------------------------------------------------------------------------------------
Banks: New York City 10,900 Signature Bank (a) 337,682
- - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Banks: Outside New 3,784 1st Source Corp. 121,580
York City - 5.7% 5,521 Alabama National Bancorp. 379,458
8,218 Amcore Financial, Inc. 268,482
5,550 AmericanWest Bancorp 134,421
3,900 Ameris Bancorp 109,902
2,682 Arrow Financial Corp. 66,433
1,300 BancTrust Financial Group, Inc. 33,176
2,190 Bancfirst Corp. 118,260
2,715 The Bancorp, Inc. (a) 80,364
4,982 Bank of Granite Corp. 94,509
3,500 Bank of the Ozarks, Inc. 115,710
7,400 BankFinancial Corp. 131,794
3,113 Banner Corp. 138,030
13,233 Boston Private Financial Holdings, Inc. 373,303
18,150 CVB Financial Corp. 262,449
5,129 Cadence Financial Corp. 111,145
1,500 Camden National Corp. 69,180
3,021 Capital City Bank Group, Inc. 106,641
2,900 Capital Corp. of the West 93,061
3,400 Capitol Bancorp Ltd. 157,080
7,700 Cardinal Financial Corp. 78,925
7,625 Cascade Bancorp (e) 235,689
18,244 Cathay General Bancorp 629,600
18,200 Centennial Bank Holdings, Inc. (a) 172,172
5,700 Center Financial Corp. 136,629
900 Centerstate Banks of Florida, Inc. 18,810
11,148 Central Pacific Financial Corp. 432,096
7,748 Chemical Financial Corp. 258,008
14,582 Chittenden Corp. 447,522
15,600 Citizens Banking Corp. 413,400
6,093 City Holding Co. 249,143
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
3,299 CityBank $ 117,592
1,700 Clifton Savings Bancorp, Inc. 20,723
4,526 CoBiz, Inc. 99,753
1,700 Columbia Bancorp 44,965
6,341 Columbia Banking System, Inc. 222,696
2,100 Community Bancorp (a) 63,399
11,800 Community Bank System, Inc. 271,400
7,299 Community Banks, Inc. 202,620
4,723 Community Trust Bancorp, Inc. 196,146
12,104 Corus Bankshares, Inc. (e) 279,239
30,000 Doral Financial Corp. (e) 86,100
1,100 Enterprise Financial Services Corp. 35,838
1,800 FNB Corp. 74,790
1,685 Farmers Capital Bank Corp. 57,223
22,200 First BanCorp 211,566
2,836 First Bancorp 61,938
3,814 First Busey Corp. 87,913
11,923 First Charter Corp. 293,306
22,340 First Commonwealth Financial Corp. 300,026
9,011 First Community Bancorp, Inc. 471,005
2,994 First Community Bancshares, Inc. 118,443
10,787 First Financial Bancorp 179,172
5,853 First Financial Bankshares, Inc. 245,007
4,244 First Financial Corp. 150,450
5,846 First Merchants Corp. 158,953
17,700 First Midwest Bancorp, Inc. 684,636
2,600 First Regional Bancorp (a) 88,634
1,200 First South Bancorp, Inc. (e) 38,268
7,600 First State Bancorp. 188,100
24,600 FirstMerit Corp. 593,844
9,800 Franklin Bank Corp. (a) 201,292
14,866 Frontier Financial Corp. 434,533
2,200 GB&T Bancshares, Inc. 48,774
14,465 Glacier Bancorp, Inc. 353,512
18,100 Greater Bay Bancorp 476,573
2,800 Greene County Bancshares, Inc. 111,244
9,754 Hancock Holding Co. 515,401
15,604 Hanmi Financial Corp. 351,558
9,136 Harleysville National Corp. 176,416
3,100 Heartland Financial USA, Inc. 89,435
3,900 Heritage Commerce Corp. 103,896
4,745 Independent Bank Corp./MA 170,962
9,245 Independent Bank Corp./MI 233,806
5,874 Integra Bank Corp. 161,652
4,600 Interchange Financial Services Corp. 105,754
15,100 International Bancshares Corp. 466,741
2,500 Intervest Bancshares Corp. (a) 86,025
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
16,200 Investors Bancorp, Inc. (a) $ 254,826
6,648 Irwin Financial Corp. 150,444
4,196 Lakeland Bancorp, Inc. 62,520
3,800 Lakeland Financial Corp. 97,014
7,883 MB Financial, Inc. 296,480
3,277 MBT Financial Corp. 50,204
4,531 Macatawa Bank Corp. 96,329
5,319 MainSource Financial Group, Inc. 90,109
3,630 Mercantile Bank Corp. 136,851
1 Mercantile Bankshares Corp. 47
300 MetroCorp Bancshares, Inc. 6,312
7,050 Mid-State Bancshares 256,550
5,980 Midwest Banc Holdings, Inc. 142,025
10,213 NBT Bancorp, Inc. 260,534
9,100 Nara Bancorp, Inc. 190,372
14,190 National Penn Bancshares, Inc. 287,348
1,155 Northern Empire Bancshares (a) 34,119
21,295 Old National Bancorp 402,901
5,776 Old Second Bancorp, Inc. 169,237
2,741 Omega Financial Corp. 87,493
6,618 Oriental Financial Group 85,703
15,662 Pacific Capital Bancorp 525,930
3,815 Park National Corp. 377,685
3,310 Peoples Bancorp, Inc. 98,307
4,100 Pinnacle Financial Partners, Inc. (a) 136,038
6,600 Piper Jaffray Cos. (a) 429,990
5,650 Placer Sierra Bancshares 134,301
2,100 Preferred Bank 126,189
2,480 Premierwest Bancorp 39,432
6,796 PrivateBancorp, Inc. 282,917
9,700 Prosperity Bancshares, Inc. 334,747
12,024 Provident Bankshares Corp. 428,054
8,811 R-G Financial Corp. Class B 67,404
3,498 Renasant Corp. 107,144
27,959 Republic Bancorp, Inc. 376,328
2,433 Republic Bancorp, Inc. Class A 61,044
1,333 Royal Bancshares of Pennsylvania Class A 35,044
8,263 S&T Bancorp, Inc. 286,478
2,346 SCBT Financial Corp. 97,899
10,900 SVB Financial Group (a) 508,158
2,730 SY Bancorp, Inc. 76,440
4,614 Sandy Spring Bancorp, Inc. 176,163
1,403 Santander BanCorp 25,044
4,258 Seacoast Banking Corp. of Florida 105,598
2,800 Security Bank Corp. 63,896
1,300 Shore Bancshares, Inc. 39,143
300 Sierra Bancorp 8,802
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
4,100 Simmons First National Corp. Class A $ 129,355
1,000 Smithtown Bancorp, Inc. 27,120
5,123 Southside Bancshares, Inc. 131,815
6,200 Southwest Bancorp, Inc. 172,732
2,400 State National Bancshares, Inc. 92,376
25,914 Sterling Bancshares, Inc. 337,400
8,102 Sterling Financial Corp. 191,774
3,300 Suffolk Bancorp 125,829
4,829 Sun Bancorp, Inc. (a) 101,747
1,700 Superior Bancorp (a) 19,278
16,416 Susquehanna Bancshares, Inc. 441,262
900 Taylor Capital Group, Inc. 32,949
9,761 Texas Capital Bancshares, Inc. (a) 194,049
2,540 Tompkins Trustco, Inc. 115,443
3,600 Trico Bancshares 97,956
23,761 TrustCo Bank Corp. NY 264,222
15,527 Trustmark Corp. 507,888
33,900 UCBH Holdings, Inc. 595,284
9,652 UMB Financial Corp. 352,395
3,496 USB Holding Co., Inc. 84,254
20,180 Umpqua Holdings Corp. 593,897
4,200 Union Bankshares Corp. 128,478
12,900 United Bankshares, Inc. 498,585
10,200 United Community Banks, Inc. 329,664
500 United Security Bancshares 12,050
2,650 Univest Corp. of Pennsylvania 80,772
4,500 Vineyard National Bancorp 103,590
6,868 Virginia Commerce Bancorp (a) 136,536
3,300 Virginia Financial Group, Inc. 92,367
3,600 Washington Trust Bancorp, Inc. 100,404
6,963 WesBanco, Inc. 233,469
5,554 West Bancorp., Inc. 98,750
4,900 West Coast Bancorp 169,736
11,283 Westamerica Bancorp. 571,258
3,200 Western Alliance Bancorp (a) 111,264
7,300 Wilshire Bancorp, Inc. 138,481
8,900 Wintrust Financial Corp. 427,378
3,100 Yardville National Bancorp 116,932
-------------
31,832,623
- ---------------------------------------------------------------------------------------------------------------
Beverage: Brewers 4,500 Boston Beer Co., Inc. Class A (a) 161,910
(Wineries) - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Beverage: Soft Drinks 1,187 Coca-Cola Bottling Co. Consolidated 81,226
- - 0.1% 1,610 Farmer Bros. Co. 34,373
800 Green Mountain Coffee Roasters, Inc. (a) 39,384
9,800 Jones Soda Co. (a) 120,540
2,590 National Beverage Corp. 36,338
5,900 Peet's Coffee & Tea, Inc. (a) 154,816
-------------
466,677
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Biotechnology 11,700 ADVENTRX Pharmaceuticals, Inc. (a) $ 34,515
Research & Production 11,700 AVI BioPharma, Inc. (a) 37,206
- - 2.0% 7,700 Acadia Pharmaceuticals, Inc. (a) 67,683
3,300 Advanced Magnetics, Inc. (a) 197,076
8,087 Albany Molecular Research, Inc. (a) 85,399
9,680 Alexion Pharmaceuticals, Inc. (a) 390,975
9,700 Alnylam Pharmaceuticals, Inc. (a) 207,580
1,000 Altus Pharmaceuticals, Inc. (a) 18,850
11,300 American Oriental Bioengineering, Inc. (a) 131,871
23,900 Applera Corp. - Celera Genomics Group (a)(h) 334,361
14,200 Arena Pharmaceuticals, Inc. (a) 183,322
19,719 Ariad Pharmaceuticals, Inc. (a) 101,356
15,900 Array Biopharma, Inc. (a) 205,428
9,620 Arthrocare Corp. (a) 384,030
16,800 Bioenvision, Inc. (a) 77,952
19,524 Cell Genesys, Inc. (a)(e) 66,186
3,900 Coley Pharmaceutical Group, Inc. (a) 37,791
5,900 Combinatorx, Inc. (a) 51,094
3,600 Cotherix, Inc. (a) 48,564
19,067 Cubist Pharmaceuticals, Inc. (a) 345,303
11,600 Cypress Bioscience, Inc. (a) 89,668
5,200 Cytokinetics, Inc. (a) 38,896
6,524 Digene Corp. (a) 312,630
7,778 Diversa Corp. (a) 84,625
18,500 deCODE genetics, Inc. (a) 83,805
16,196 Encysive Pharmaceuticals, Inc. (a) 68,185
11,100 Enzon Pharmaceuticals, Inc. (a) 94,461
26,418 Exelixis, Inc. (a) 237,762
8,300 Genitope Corp. (a) 29,216
3,900 Genomic Health, Inc. (a) 72,540
32,400 Genta, Inc. (a)(e) 14,337
20,929 Geron Corp. (a)(e) 183,757
7,400 Hana Biosciences, Inc. (a) 47,138
41,100 Human Genome Sciences, Inc. (a) 511,284
23,000 ICOS Corp. (a) 777,170
5,700 Idenix Pharmaceuticals, Inc. (a)(e) 49,533
30,524 Incyte Corp. (a) 178,260
7,000 Integra LifeSciences Holdings Corp. (a) 298,130
10,414 InterMune, Inc. (a)(e) 320,230
4,700 Kendle International, Inc. (a) 147,815
4,900 Kensey Nash Corp. (a) 155,820
13,000 Keryx Biopharmaceuticals, Inc. (a) 172,900
19,605 Lexicon Genetics, Inc. (a) 70,774
7,050 MannKind Corp. (a)(e) 116,254
11,400 Martek Biosciences Corp. (a) 266,076
6,301 Maxygen, Inc. (a) 67,862
4,200 Metabasis Therapeutics, Inc. (a) 31,584
5,500 Momenta Pharmaceuticals, Inc. (a)(e) 86,515
55,400 Monogram Biosciences, Inc. (a) 98,612
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
12,300 Myriad Genetics, Inc. (a) $ 384,990
20,823 NPS Pharmaceuticals, Inc. (a) 94,328
19,054 Nabi Biopharmaceuticals (a) 129,186
9,000 Nastech Pharmaceutical Co., Inc. (a) 136,170
10,200 Neurocrine Biosciences, Inc. (a) 106,284
10,400 Northfield Laboratories, Inc. (a)(e) 42,328
16,400 Nuvelo, Inc. (a) 65,600
18,100 OSI Pharmaceuticals, Inc. (a) 633,138
6,000 PRA International, Inc. (a) 151,620
13,500 Panacos Pharmaceuticals, Inc. (a) 54,135
74,000 Peregrine Pharmaceuticals, Inc. (a)(e) 85,100
7,550 PharmaNet Development Group, Inc. (a) 166,629
8,600 Progenics Pharmaceuticals, Inc. (a) 221,364
7,870 Rigel Pharmaceuticals, Inc. (a) 93,417
13,900 Sangamo Biosciences, Inc. (a) 91,740
17,128 Savient Pharmaceuticals, Inc. (a) 192,005
9,800 Sirna Therapeutics, Inc. (a) 127,498
5,400 Solexa, Inc. (a) 71,010
7,745 Tanox, Inc. (a) 154,126
18,732 Telik, Inc. (a)(e) 82,983
5,638 Trimeris, Inc. (a) 71,659
21,700 Viropharma, Inc. (a) 317,688
11,900 Zymogenetics, Inc. (a) 185,283
-------------
11,370,662
- ---------------------------------------------------------------------------------------------------------------
Building Materials 2,700 Ameron International Corp. 206,199
- - 0.4% 2,900 BlueLinx Holdings, Inc. 30,160
8,200 Building Material Holding Corp. 202,458
6,312 LSI Industries, Inc. 125,293
7,268 NCI Building Systems, Inc. (a) 376,119
13,532 Simpson Manufacturing Co., Inc. (e) 428,288
6,945 Texas Industries, Inc. 446,077
3,809 Trex Co., Inc. (a)(e) 87,188
9,565 Watsco, Inc. 451,085
5,600 Zoltek Cos., Inc. (a)(e) 110,152
-------------
2,463,019
- ---------------------------------------------------------------------------------------------------------------
Building: Cement - 0.0% 13,800 US Concrete, Inc. (a) 98,256
- ---------------------------------------------------------------------------------------------------------------
Building: Heating & 1,700 Aaon, Inc. 44,676
Plumbing - 0.1% 7,900 Interline Brands, Inc. (a) 177,513
24,650 Jacuzzi Brands, Inc. (a) 306,399
-------------
528,588
- ---------------------------------------------------------------------------------------------------------------
Building: Miscellaneous 4,000 Builders FirstSource, Inc. (a) 71,320
- - 0.1% 11,600 Comfort Systems USA, Inc. 146,624
5,200 Drew Industries, Inc. (a) 135,252
5,700 Goodman Global, Inc. (a) 98,040
9,447 Griffon Corp. (a) 240,899
-------------
692,135
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Building: Roofing & 16,050 Beacon Roofing Supply, Inc. (a) $ 302,061
Wallboard - 0.1% 8,251 ElkCorp 339,034
-------------
641,095
- ---------------------------------------------------------------------------------------------------------------
Cable Television 150,200 Charter Communications, Inc. Class A (a)(e) 459,612
Services - 0.1% 4,898 Crown Media Holdings, Inc. Class A (a) 17,780
28,794 TiVo, Inc. (a)(e) 147,425
-------------
624,817
- ---------------------------------------------------------------------------------------------------------------
Casinos & Gambling 8,600 Ameristar Casinos, Inc. 264,364
- - 0.6% 11,491 Aztar Corp. (a) 625,340
16,500 Bally Technologies, Inc. (a) 308,220
3,800 Century Casinos, Inc. (a) 42,408
1,732 Churchill Downs, Inc. 74,026
6,505 Dover Downs Gaming & Entertainment, Inc. 86,972
6,475 Isle of Capri Casinos, Inc. (a) 172,105
5,800 Lakes Entertainment, Inc. (a) 62,582
9,900 MTR Gaming Group, Inc. (a) 120,978
12,674 Magna Entertainment Corp. Class A (a) 57,160
2,700 Monarch Casino & Resort, Inc. (a) 64,476
11,100 Multimedia Games, Inc. (a) 106,560
15,164 Pinnacle Entertainment, Inc. (a) 502,535
14,100 Progressive Gaming International Corp. (a) 127,887
2,100 Riviera Holdings Corp. (a) 50,736
10,600 Shuffle Master, Inc. (a)(e) 277,720
10,800 Trump Entertainment Resorts, Inc. (a) 196,992
8,212 WMS Industries, Inc. (a) 286,270
-------------
3,427,331
- ---------------------------------------------------------------------------------------------------------------
Chemicals - 1.2% 4,233 American Vanguard Corp. (e) 67,305
7,656 Arch Chemicals, Inc. 255,021
2,200 Balchem Corp. 56,496
16,500 CF Industries Holdings, Inc. 423,060
9,300 Cabot Microelectronics Corp. (a) 315,642
12,601 Calgon Carbon Corp. (a)(e) 78,126
8,485 Cambrex Corp. 192,779
6,600 China BAK Battery, Inc. (a) 43,032
14,100 EnerSys (a) 225,600
12,164 Energy Conversion Devices, Inc. (a) 413,333
10,337 Georgia Gulf Corp. 199,607
36,000 Hercules, Inc. (a) 695,160
3,800 Innospec, Inc. 176,890
8,367 MacDermid, Inc. 285,315
5,941 Medis Technologies Ltd. (a)(e) 103,552
2,434 NL Industries, Inc. 25,168
5,700 NewMarket Corp. 336,585
6,365 Nuco2, Inc. (a) 156,515
9,000 OM Group, Inc. (a) 407,520
9,400 Omnova Solutions, Inc. (a) 43,052
3,700 Pioneer Cos., Inc. (a) 106,042
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
29,367 PolyOne Corp. (a) $ 220,253
10,400 Rockwood Holdings, Inc. (a) 262,704
11,006 Schulman A, Inc. 244,884
9,500 Senomyx, Inc. (a) 123,405
3,355 Stepan Co. 106,253
9,400 Tronox, Inc. Class A 150,306
6,300 Tronox, Inc. Class B 99,477
15,900 UAP Holding Corp. 400,362
21,500 WR Grace & Co. (a) 425,700
-------------
6,639,144
- ---------------------------------------------------------------------------------------------------------------
Coal - 0.1% 16,400 Alpha Natural Resources, Inc. (a) 233,372
36,000 International Coal Group, Inc. (a) 196,200
6,600 James River Coal Co. (a) 61,248
1,100 Westmoreland Coal Co. (a) 21,637
-------------
512,457
- ---------------------------------------------------------------------------------------------------------------
Commercial Information 11,058 Arbitron, Inc. 480,360
Services - 0.2% 143,100 CMGI, Inc. (a) 191,754
10,661 infoUSA, Inc. 126,973
6,200 LECG Corp. (a) 114,576
8,574 ProQuest Co. (a) 89,598
-------------
1,003,261
- ---------------------------------------------------------------------------------------------------------------
Communications & Media 20,200 Entravision Communications Corp. Class A (a) 166,044
- - 0.1% 78,600 Gemstar-TV Guide International, Inc. (a) 315,186
-------------
481,230
- ---------------------------------------------------------------------------------------------------------------
Communications 135,800 3Com Corp. (a) 558,138
Technology - 2.4% 21,300 Adtran, Inc. 483,510
7,722 Anaren, Inc. (a) 137,143
10,972 Anixter International, Inc. (a) 595,780
17,000 Atheros Communications, Inc. (a) 362,440
43,900 Avanex Corp. (a)(e) 82,971
18,050 Avocent Corp. (a) 610,992
3,059 Bel Fuse, Inc. 106,423
6,488 Black Box Corp. 272,431
24,150 Broadwing Corp. (a) 377,223
87,000 Brocade Communications Systems, Inc. (a) 714,270
300 CPI International, Inc. (a) 4,500
15,200 CSG Systems International, Inc. (a) 406,296
4,300 Carrier Access Corp. (a) 28,208
7,000 Cbeyond Communications, Inc. (a) 214,130
4,500 Cogent Communications Group, Inc. (a) 72,990
18,388 CommScope, Inc. (a)(h) 560,466
6,900 Comtech Group, Inc. (a)(e) 125,511
8,525 Comtech Telecommunications Corp. (a) 324,547
8 CycleLogic, Inc. (a) 0
7,700 Digi International, Inc. (a) 106,183
13,900 Ditech Networks, Inc. (a) 96,188
3,400 EMS Technologies, Inc. (a) 68,102
9,813 Echelon Corp. (a) 78,504
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
46,100 Extreme Networks, Inc. (a) $ 193,159
72,300 Finisar Corp. (a)(e) 233,529
48,400 Foundry Networks, Inc. (a) 725,032
23,496 Harmonic, Inc. (a) 170,816
5,100 ID Systems, Inc. (a) 95,982
11,100 InPhonic, Inc. (a)(e) 123,099
7,177 Inter-Tel, Inc. 159,042
16,400 InterVoice, Inc. (a) 125,624
12,129 Ixia (a) 116,438
15,700 j2 Global Communications, Inc. (a)(e) 427,825
2,700 Loral Space & Communications Ltd. (a) 109,944
9,700 Netgear, Inc. (a) 254,625
7,900 Novatel Wireless, Inc. (a) 76,393
7,002 Oplink Communications, Inc. (a) 143,961
4,183 Optical Communication Products, Inc. (a) 6,860
18,300 Redback Networks, Inc. (a) 456,402
14,838 Secure Computing Corp. (a) 97,337
7,900 Sirenza Microdevices, Inc. (a) 62,094
80,000 Sonus Networks, Inc. (a) 527,200
7,410 Standard Microsystems Corp. (a) 207,332
28,200 Stratex Networks, Inc. (a) 136,206
58,400 Sycamore Networks, Inc. (a) 219,584
6,300 Syniverse Holdings, Inc. (a) 94,437
66,000 TIBCO Software, Inc. (a) 623,040
12,020 Talx Corp. 329,949
16,800 Tekelec (a) 249,144
8,930 Terremark Worldwide, Inc. (a) 60,010
2,540 Ulticom, Inc. (a) 24,359
37,300 UTstarcom, Inc. (a)(e) 326,375
7,001 Viasat, Inc. (a) 208,700
13,500 Vonage Holdings Corp. (a) 93,690
13,231 WebEx Communications, Inc. (a) 461,630
25,275 Zhone Technologies, Inc. (a)(e) 32,858
-------------
13,559,622
- ---------------------------------------------------------------------------------------------------------------
Computer Services 17,400 @Road, Inc. (a) 127,020
Software & Systems 2,300 Access Integrated Technologies, Inc. (a) 20,056
- - 4.0% 14,400 Actuate Corp. (a) 85,536
18,002 Agile Software Corp. (a) 110,712
9,400 Altiris, Inc. (a) 238,572
8,100 American Reprographics Co. (a) 269,811
5,900 Ansoft Corp. (a) 164,020
11,832 Ansys, Inc. (a) 514,574
23,680 Ariba, Inc. (a) 183,283
31,400 Art Technology Group, Inc. (a) 73,162
16,908 Aspen Technology, Inc. (a) 186,326
7,800 Audible, Inc. (a)(e) 61,854
59,000 BearingPoint, Inc. (a) 464,330
13,626 Blackbaud, Inc. 354,276
10,300 Blackboard, Inc. (a) 309,412
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
6,300 Blue Coat Systems, Inc. (a) $ 150,885
24,667 Borland Software Corp. (a) 134,188
9,900 Bottomline Technologies, Inc. (a) 113,355
9,400 CACI International, Inc. Class A (a) 531,100
6,900 COMSYS IT Partners, Inc. (a) 139,449
20,600 Chordiant Software, Inc. (a) 68,186
17,302 Ciber, Inc. (a) 117,308
10,200 Concur Technologies, Inc. (a) 163,608
6,500 Convera Corp. (a)(e) 29,835
9,300 Covansys Corp. (a) 213,435
2,100 DealerTrack Holdings, Inc. (a) 61,782
11,864 Dendrite International, Inc. (a) 127,063
12,500 Digital River, Inc. (a) 697,375
26,607 Digitas, Inc. (a) 356,800
7,045 EPIQ Systems, Inc. (a) 119,554
17,439 Electronics for Imaging, Inc. (a) 463,529
8,600 Emageon, Inc. (a) 132,096
17,400 Epicor Software Corp. (a) 235,074
10,000 Equinix, Inc. (a)(e) 756,200
5,900 eCollege.com, Inc. (a) 92,335
17,979 Gartner, Inc. Class A (a) 355,804
18,500 Hyperion Solutions Corp. (a) 664,890
8,200 Infocrossing, Inc. (a)(e) 133,660
26,700 Informatica Corp. (a) 326,007
2,400 Integral Systems, Inc. 55,608
12,400 Internet Capital Group, Inc. (a) 127,224
16,825 Interwoven, Inc. (a) 246,823
3,100 i2 Technologies, Inc. (a)(e) 70,742
4,100 iGate Corp. (a) 28,208
9,208 JDA Software Group, Inc. (a) 126,794
6,600 Jupitermedia Corp. (a) 52,272
9,300 Kanbay International, Inc. (a) 267,561
13,658 Keane, Inc. (a) 162,667
39,000 Lawson Software, Inc. (a) 288,210
16,500 Lionbridge Technologies, Inc. (a) 106,260
16,300 Macrovision Corp. (a) 460,638
9,100 Magma Design Automation, Inc. (a) 81,263
8,739 Manhattan Associates, Inc. (a) 262,869
4,800 Mantech International Corp. Class A (a) 176,784
6,700 Mapinfo Corp. (a) 87,435
25,700 Mentor Graphics Corp. (a) 463,371
7,856 Mercury Computer Systems, Inc. (a) 104,956
9,400 Merge Technologies, Inc. (a) 61,476
3,000 MicroStrategy, Inc. Class A (a) 342,030
13,798 Micros Systems, Inc. (a) 727,155
6,100 Ness Technologies, Inc. (a) 86,986
5,685 Netscout Systems, Inc. (a) 47,186
39,795 Nuance Communications, Inc. (a) 456,051
27,933 Openwave Systems, Inc. (a) 257,822
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
2,600 Opnet Technologies, Inc. (a) $ 37,570
25,300 Opsware, Inc. (a) 223,146
4,800 PDF Solutions, Inc. (a) 69,360
11,207 Packeteer, Inc. (a) 152,415
39,160 Parametric Technology Corp. (a) 705,663
1,300 Pegasystems, Inc. 12,831
15,508 Progress Software Corp. (a) 433,138
3,300 QAD, Inc. 27,687
24,600 Quest Software, Inc. (a) 360,390
37,900 RealNetworks, Inc. (a) 414,626
4,600 RightNow Technologies, Inc. (a) 79,212
12,080 SAVVIS, Inc. (a) 431,256
4,300 SI International, Inc. (a) 139,406
7,389 SPSS, Inc. (a) 222,187
12,100 SRA International, Inc. Class A (a) 323,554
9,961 SYKES Enterprises, Inc. (a) 175,712
2,200 SYNNEX Corp. (a) 48,268
8,299 SafeNet, Inc. (a) 198,678
25,792 Sapient Corp. (a) 141,598
10,000 Sigma Designs, Inc. (a) 254,500
8,200 Smith Micro Software, Inc. (a) 116,358
24,341 SonicWALL, Inc. (a) 204,951
28,000 Sybase, Inc. (a) 691,600
1,483 Syntel, Inc. 39,744
2,000 Taleo Corp. Class A (a) 27,340
11,885 Transaction Systems Architects, Inc. Class A (a) 387,094
16,608 Trizetto Group (a) 305,089
10,900 Tyler Technologies, Inc. (a) 153,254
8,000 Ultimate Software Group, Inc. (a) 186,080
15,900 VA Software Corp. (a) 79,977
7,900 VASCO Data Security International, Inc. (a) 93,299
4,200 Verint Systems, Inc. (a) 143,976
10,380 Vignette Corp. (a) 177,187
15,202 Websense, Inc. (a) 347,062
27,700 Wind River Systems, Inc. (a) 283,925
11,200 Witness Systems, Inc. (a) 196,336
22,320 webMethods, Inc. (a) 164,275
15,508 Zoran Corp. (a) 226,107
-------------
22,769,704
- ---------------------------------------------------------------------------------------------------------------
Computer Technology 36,100 Adaptec, Inc. (a) 168,226
- - 0.9% 9,700 Advanced Analogic Technologies, Inc. (a) 52,283
26,700 Emulex Corp. (a) 520,917
9,109 FalconStor Software, Inc. (a) 78,793
83,600 Gateway, Inc. (a) 168,036
10,017 Hutchinson Technology, Inc. (a) 236,101
11,100 Imation Corp. 515,373
16,009 Intermec, Inc. (a) 388,538
9,500 Komag, Inc. (a) 359,860
57,000 McData Corp. (a) 316,350
12,300 Mobility Electronics, Inc. (a) 41,205
5,900 Neoware Systems, Inc. (a) 77,939
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
28,888 Palm, Inc. (a) $ 407,032
27,000 Perot Systems Corp. Class A (a) 442,530
58,400 Quantum Corp (a) 135,488
9,800 Rackable Systems, Inc. (a) 303,506
11,400 Radiant Systems, Inc. (a) 119,016
5,742 Radisys Corp. (a) 95,719
31,800 Safeguard Scientifics, Inc. (a) 76,956
3,700 Stratasys, Inc. (a) 116,217
7,900 Synaptics, Inc. (a) 234,551
19,600 Trident Microsystems, Inc. (a) 356,328
-------------
5,210,964
- ---------------------------------------------------------------------------------------------------------------
Construction - 0.4% 5,251 Brookfield Homes Corp. (e) 197,175
9,936 EMCOR Group, Inc. (a) 564,862
11,871 Granite Construction, Inc. 597,349
6,000 Perini Corp. (a) 184,680
2,100 Sterling Construction Co., Inc. (a) 45,696
9,700 Washington Group International, Inc. (a) 579,963
-------------
2,169,725
- ---------------------------------------------------------------------------------------------------------------
Consumer Electronics 52,600 CNET Networks, Inc. (a) 478,134
- - 0.7% 92,800 Covad Communications Group, Inc. (a) 128,064
5,400 DTS, Inc. (a) 130,626
5,400 Directed Electronics, Inc. (a) 61,830
41,700 Earthlink, Inc. (a) 296,070
9,900 Infospace, Inc. (a) 203,049
8,790 Internap Network Services Corp. (a) 174,657
17,500 Ipass, Inc. (a) 102,900
8,000 LoJack Corp. (a) 136,640
11,274 Midway Games, Inc. (a)(e) 78,693
10,300 NIC, Inc. (a) 51,191
13,100 Netflix, Inc. (a)(e) 338,766
4,100 Parkervision, Inc. (a)(e) 45,715
8,200 Sohu.com, Inc. (a) 196,800
19,637 THQ, Inc. (a) 638,595
21,700 Take-Two Interactive Software, Inc. (a)(e) 385,392
20,350 United Online, Inc. 270,248
4,186 Universal Electronics, Inc. (a) 87,990
7,700 WebSideStory, Inc. (a) 97,482
-------------
3,902,842
- ---------------------------------------------------------------------------------------------------------------
Consumer Products - 0.6% 16,100 American Greetings Class A 384,307
8,200 Blyth, Inc. 170,150
2,091 CSS Industries, Inc. 73,959
2,000 Citi Trends, Inc. (a) 79,280
5,200 Mannatech, Inc. (e) 76,596
9,873 Matthews International Corp. Class A 388,503
12,263 Nautilus, Inc. (e) 171,682
7,900 Oakley, Inc. 158,474
16,876 Playtex Products, Inc. (a) 242,846
6,200 RC2 Corp. (a) 272,800
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
11,200 Spectrum Brands, Inc. (a)(e) $ 122,080
15,991 The Topps Co., Inc. 142,320
22,174 Tupperware Corp. 501,354
2,400 USANA Health Sciences, Inc. (a) 123,984
13,683 Yankee Candle Co., Inc. 469,053
-------------
3,377,388
- ---------------------------------------------------------------------------------------------------------------
Containers & Packaging: 11,700 AptarGroup, Inc. 690,768
Metals & Glass - 0.4% 6,075 Greif, Inc. 719,280
12,842 Mobile Mini, Inc. (a) 345,963
7,000 Silgan Holdings, Inc. 307,440
-------------
2,063,451
- ---------------------------------------------------------------------------------------------------------------
Containers & Packaging: 1,400 AEP Industries, Inc. (a) 74,634
Paper & Plastic - 0.1% 19,100 Graphic Packaging Corp. (a) 82,703
8,452 Myers Industries, Inc. 132,358
-------------
289,695
- ---------------------------------------------------------------------------------------------------------------
Copper - 0.1% 11,982 Mueller Industries, Inc. 379,829
- ---------------------------------------------------------------------------------------------------------------
Cosmetics - 0.1% 8,193 Elizabeth Arden, Inc. (a) 156,077
1,500 Inter Parfums, Inc. 28,785
18,226 Nu Skin Enterprises, Inc. Class A 332,260
1,500 Parlux Fragrances, Inc. (a)(e) 8,355
47,510 Revlon, Inc. Class A (a) 60,813
-------------
586,290
- ---------------------------------------------------------------------------------------------------------------
Diversified Financial 40,400 The BISYS Group, Inc. (a) 521,564
Services - 0.4% 900 Clayton Holdings, Inc. (a) 16,839
12,600 Euronet Worldwide, Inc. (a) 374,094
18,200 F.N.B. Corp. 332,514
6,300 Greenhill & Co., Inc. (e) 464,940
6,600 Huron Consulting Group, Inc. (a) 299,244
5,600 Rewards Network, Inc. (a) 38,920
12,900 USI Holdings Corp. (a) 198,144
-------------
2,246,259
- ---------------------------------------------------------------------------------------------------------------
Diversified Materials & 14,960 Acuity Brands, Inc. (h) 778,518
Processing - 0.6% 12,514 Barnes Group, Inc. 272,179
14,294 Brady Corp. 532,880
16,410 Clarcor, Inc. 554,822
29,562 Hexcel Corp. (a) 514,674
3,200 Koppers Holdings, Inc. 83,424
22,814 Olin Corp. 376,887
9,245 Tredegar Corp. 209,029
-------------
3,322,413
- ---------------------------------------------------------------------------------------------------------------
Drug & Grocery Store 432 Arden Group, Inc. Class A 53,486
Chains - 0.4% 18,307 Casey's General Stores, Inc. 431,130
5,831 Great Atlantic & Pacific Tea Co. 150,090
5,164 Ingles Markets, Inc. Class A 153,836
10,083 Longs Drug Stores Corp. 427,318
5,477 Nash Finch Co. 149,522
20,842 Pathmark Stores, Inc. (a) 232,388
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
11,969 Ruddick Corp. $ 332,140
4,329 Smart & Final, Inc. (a) 81,818
7,000 Spartan Stores, Inc. 146,510
4,100 Weis Markets, Inc. 164,451
10,929 Wild Oats Markets, Inc. (a) 157,159
-------------
2,479,848
- ---------------------------------------------------------------------------------------------------------------
Drugs & Pharmaceuticals 13,650 AVANIR Pharmaceuticals Class A (a)(e) 31,531
- - 1.9% 10,500 Adams Respiratory Therapeutics, Inc. (a) 428,505
15,100 Adolor Corp. (a) 113,552
9,900 Akorn, Inc. (a) 61,875
30,600 Alkermes, Inc. (a) 409,122
13,425 Alpharma, Inc. Class A 323,542
6,300 Anadys Pharmaceuticals, Inc. (a) 30,996
14,800 Atherogenics, Inc. (a)(e) 146,668
4,700 Auxilium Pharmaceuticals, Inc. (a) 69,043
6,100 Bentley Pharmaceuticals, Inc. (a) 62,037
9,500 BioCryst Pharmaceuticals, Inc. (a) 109,820
30,348 BioMarin Pharmaceuticals, Inc. (a) 497,404
5,000 Bradley Pharmaceuticals, Inc. (a) 102,900
16,800 CV Therapeutics, Inc. (a) 234,528
1,200 Caraco Pharmaceutical Laboratories Ltd. (a) 16,800
4,900 Chattem, Inc. (a) 245,392
28,500 Dendreon Corp. (a)(e) 118,845
18,300 Depomed, Inc. (a) 63,135
17,800 Durect Corp. (a)(e) 79,032
11,000 Emisphere Technologies, Inc. (a) 58,190
10,795 Enzo Biochem, Inc. (a)(e) 154,045
1,000 GTx, Inc. (a) 17,840
3,100 Hi-Tech Pharmacal Co., Inc. (a) 37,727
19,900 Indevus Pharmaceuticals, Inc. (a) 141,290
23,089 Isis Pharmaceuticals, Inc. (a) 256,750
12,900 KV Pharmaceutical Co. Class A (a) 306,762
27,800 MGI Pharma, Inc. (a) 511,798
38,700 Medarex, Inc. (a) 572,373
15,927 Medicines Co. (a) 505,204
17,000 Medicis Pharmaceutical Corp. Class A 597,210
28,200 Nektar Therapeutics (a)(e) 428,922
4,500 New River Pharmaceuticals, Inc. (a)(e) 246,195
26,200 Novavax, Inc. (a) 107,420
9,331 Noven Pharmaceuticals, Inc. (a) 237,474
15,100 Onyx Pharmaceuticals, Inc. (a) 159,758
14,500 Pain Therapeutics, Inc. (a) 129,050
10,100 Par Pharmaceutical Cos., Inc. (a) 225,937
6,500 Penwest Pharmaceuticals Co. (a) 108,030
28,315 Perrigo Co. 489,850
9,300 Pharmion Corp. (a) 239,382
4,900 Pozen, Inc. (a) 83,251
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
8,100 Quidel Corp. (a) $ 110,322
14,019 Regeneron Pharmaceuticals, Inc. (a) 281,361
6,600 Renovis, Inc. (a) 20,856
17,700 Salix Pharmaceuticals Ltd. (a) 215,409
12,600 Santarus, Inc. (a) 98,658
10,700 Sciele Pharma, Inc. (a) 256,800
3,500 Somaxon Pharmaceuticals, Inc. (a) 49,665
17,082 SuperGen, Inc. (a) 86,777
7,346 United Therapeutics Corp. (a)(e) 399,402
29,400 Valeant Pharmaceuticals International 506,856
4,300 Xenoport, Inc. (a) 105,565
-------------
10,890,856
- ---------------------------------------------------------------------------------------------------------------
Education Services - 9,404 Bright Horizons Family Solutions, Inc. (a) 363,559
0.4% 30,000 Corinthian Colleges, Inc. (a) 408,900
19,300 DeVry, Inc. 540,400
3,200 Educate, Inc. (a) 22,784
2,149 Renaissance Learning, Inc. 38,102
5,220 Strayer Education, Inc. 553,581
7,300 Universal Technical Institute, Inc. (a) 162,133
-------------
2,089,459
- ---------------------------------------------------------------------------------------------------------------
Electrical & Electronics 20,329 Benchmark Electronics, Inc. (a) 495,214
- - 0.2% 4,700 OSI Systems, Inc. (a) 98,371
15,398 Plexus Corp. (a) 367,704
13,700 TTM Technologies, Inc. (a) 155,221
7,507 Universal Display Corp. (a)(e) 112,680
-------------
1,229,190
- ---------------------------------------------------------------------------------------------------------------
Electrical Equipment & 6,881 AO Smith Corp. 258,450
Components - 0.8% 14,400 American Superconductor Corp. (a)(e) 141,264
10,171 Baldor Electric Co. 339,915
11,408 CTS Corp. 179,106
9,518 Cohu, Inc. 191,883
3,400 Color Kinetics, Inc. (a) 72,590
6,960 Franklin Electric Co., Inc. 357,674
15,990 General Cable Corp. (a) 698,923
7,816 Genlyte Group, Inc. (a) 610,508
8,460 Littelfuse, Inc. (a) 269,705
10,800 MKS Instruments, Inc. (a) 243,864
2,431 Powell Industries, Inc. (a) 76,747
22,200 Power-One, Inc. (a) 161,616
8,100 Sonic Solutions, Inc. (a) 132,030
19,700 Taser International, Inc. (a)(e) 149,720
12,561 Technitrol, Inc. 300,082
6,179 Triumph Group, Inc. 323,965
-------------
4,508,042
- ---------------------------------------------------------------------------------------------------------------
Electrical: Household 1,550 National Presto Industries, Inc. 92,799
Appliance - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Electronics - 0.6% 23,812 Aeroflex, Inc. (a) 279,077
11,863 Agilysys, Inc. 198,587
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
13,300 Avid Technology, Inc. (a) $ 495,558
11,998 Daktronics, Inc. (h) 442,126
21,800 Flir Systems, Inc. (a) 693,894
7,472 II-VI, Inc. (a) 208,768
21,700 Kopin Corp. (a) 77,469
49,366 MRV Communications, Inc. (a)(e) 174,756
11,780 Methode Electronics, Inc. 127,577
2,100 Multi-Fineline Electronix, Inc. (a) 42,609
6,749 Park Electrochemical Corp. 173,112
26,900 Semtech Corp. (a) 351,583
3,067 Supertex, Inc. (a) 120,380
-------------
3,385,496
- ---------------------------------------------------------------------------------------------------------------
Electronics: Instruments, 8,982 Itron, Inc. (a) 465,627
Gauges & Meters - 0.1% 3,200 Measurement Specialties, Inc. (a) 69,248
1,800 OYO Geospace Corp. (a) 104,562
5,300 Zygo Corp. (a) 87,185
-------------
726,622
- ---------------------------------------------------------------------------------------------------------------
Electronics: Medical 23,200 Affymetrix, Inc. (a) 534,992
Systems - 0.8% 3,972 Analogic Corp. 222,988
5,200 Aspect Medical Systems, Inc. (a) 97,812
6,587 Bruker BioSciences Corp. (a) 49,468
7,500 Candela Corp. (a) 92,775
5,370 Datascope Corp. 195,683
15,850 eResearch Technology, Inc. (a) 106,670
6,200 Greatbatch, Inc. (a) 166,904
8,272 Haemonetics Corp. (a) 372,405
11,100 HealthTronics, Inc. (a) 73,926
18,080 Hologic, Inc. (a) 854,822
13,300 Illumina, Inc. (a) 522,823
7,200 IntraLase Corp. (a) 161,136
9,351 Luminex Corp. (a) 118,758
8,000 Natus Medical, Inc. (a) 132,880
5,000 Neurometrix, Inc. (a)(e) 74,550
6,800 NxStage Medical, Inc. (a) 56,984
6,300 Quality Systems, Inc. 234,801
5,400 Sirona Dental Systems, Inc. 207,954
1,100 Visicu, Inc. (a) 12,320
2,161 Zoll Medical Corp. (a) 125,857
-------------
4,416,508
- ---------------------------------------------------------------------------------------------------------------
Electronics: 13,100 AMIS Holdings, Inc. (a) 138,467
Semi-Conductors/ 11,516 Actel Corp. (a)(h) 209,131
Components - 1.6% 32,400 Amkor Technology, Inc. (a)(h) 302,616
13,300 Anadigics, Inc. (a) 117,838
87,700 Applied Micro Circuits Corp. (a) 312,212
26,800 Bookham, Inc. (a)(e) 109,076
27,700 Cirrus Logic, Inc. (a)(h) 190,576
152,300 Conexant Systems, Inc. (a) 310,692
9,783 DSP Group, Inc. (a) 212,291
7,575 Diodes, Inc. (a) 268,761
10,327 Exar Corp. (a) 134,251
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
3,673 Excel Technology, Inc. (a) $ 93,992
7,920 First Solar, Inc. (a) 236,016
15,700 Formfactor, Inc. (a) 584,825
13,700 Genesis Microchip, Inc. (a) 138,918
3,600 Hittite Microwave Corp. (a) 116,352
5,993 IXYS Corp. (a) 53,338
5,200 Ikanos Communications, Inc. (a) 45,188
38,000 Lattice Semiconductor Corp. (a) 246,240
18,200 MIPS Technologies, Inc. (a) 151,060
22,000 Micrel, Inc. (a) 237,160
22,390 Microsemi Corp. (a) 439,964
16,800 Microtune, Inc. (a) 78,960
29,000 Mindspeed Technologies, Inc. (a)(e) 55,390
4,600 MoSys, Inc. (a) 42,550
4,800 Monolithic Power Systems, Inc. (a) 53,328
4,700 Netlogic Microsystems, Inc. (a) 101,943
600 Nextest Systems Corp. (a) 6,762
48,200 ON Semiconductor Corp. (a) 364,874
17,300 Omnivision Technologies, Inc. (a)(e) 236,145
7,400 PLX Technology, Inc. (a) 96,496
9,493 Pericom Semiconductor Corp. (a) 108,885
10,600 Portalplayer, Inc. (a) 142,570
59,600 RF Micro Devices, Inc. (a) 404,684
25,876 Silicon Image, Inc. (a) 329,143
28,658 Silicon Storage Technology, Inc. (a) 129,248
15,800 Sirf Technology Holdings, Inc. (a) 403,216
59,433 Skyworks Solutions, Inc. (a) 420,786
2,600 Sunpower Corp. Class A (a)(e) 96,642
14,600 Tessera Technologies, Inc. (a) 588,964
54,800 Transmeta Corp. (a) 60,828
38,300 Transwitch Corp. (a)(e) 53,620
52,636 TriQuint Semiconductor, Inc. (a) 236,862
2,100 Virage Logic Corp. (a) 19,509
4,500 Volterra Semiconductor Corp. (a) 67,500
-------------
8,747,869
- ---------------------------------------------------------------------------------------------------------------
Electronics: Technology 2,700 3D Systems Corp. (a)(e) 43,092
- - 0.4% 11,000 Acacia Research - Acacia Technologies (a) 147,180
3,400 American Science & Engineering, Inc. (a) 202,334
12,423 Checkpoint Systems, Inc. (a) 250,945
13,400 Cogent, Inc. (a) 147,534
11,580 Coherent, Inc. (a)(h) 365,581
4,952 Cubic Corp. 107,458
5,226 EDO Corp. 124,065
4,500 Eagle Test Systems, Inc. (a) 65,610
8,000 Essex Corp. (a) 191,280
4,600 Gerber Scientific, Inc. (a) 57,776
6,750 Herley Industries, Inc. (a) 109,283
5,650 Innovative Solutions & Support, Inc. (a) 96,219
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
6,000 Ionatron, Inc. (a)(e) $ 24,600
26,600 Kemet Corp. (a) 194,180
6,200 Maxwell Technologies, Inc. (a)(e) 86,490
7,900 Scansource, Inc. (a) 240,160
-------------
2,453,787
- ---------------------------------------------------------------------------------------------------------------
Energy Equipment - 0.0% 27,000 Capstone Turbine Corp. (a)(e) 33,210
4,100 Metretek Technologies, Inc. (a) 50,512
24,326 Plug Power, Inc. (a)(e) 94,628
-------------
178,350
- ---------------------------------------------------------------------------------------------------------------
Energy Miscellaneous - 3,300 Alon USA Energy, Inc. 86,823
0.6% 10,240 Aventine Renewable Energy Holdings, Inc. (a) 241,254
9,900 Crosstex Energy, Inc. 313,731
3,500 Dawson Geophysical Co. (a) 127,505
22,500 Evergreen Energy, Inc. (a)(e) 222,525
22,900 Evergreen Solar, Inc. (a)(e) 173,353
16,926 FuelCell Energy, Inc. (a)(e) 109,342
220 Markwest Hydrocarbon, Inc. 10,681
4,900 Matrix Service Co. (a) 78,890
1,700 Ormat Technologies, Inc. 62,594
6,000 Pacific Ethanol, Inc. (a)(e) 92,280
5,858 Penn Virginia Corp. 410,294
43,800 Rentech, Inc. (a)(e) 165,126
12,500 Syntroleum Corp. (a) 43,250
11,097 Veritas DGC, Inc. (a) 950,236
-------------
3,087,884
- ---------------------------------------------------------------------------------------------------------------
Engineering & 5,800 Clean Harbors, Inc. (a) 280,778
Contracting Services - 12,802 Dycom Industries, Inc. (a) 270,378
0.3% 2,200 ENGlobal Corp. (a) 14,146
7,700 Infrasource Services, Inc. (a) 167,629
2,800 Integrated Electrical Services, Inc. (a) 49,812
4,100 Layne Christensen Co. (a) 134,603
31,050 SAIC, Inc. (a) 552,380
-------------
1,469,726
- ---------------------------------------------------------------------------------------------------------------
Entertainment - 0.3% 5,900 Carmike Cinemas, Inc. 120,301
5,240 Dover Motorsports, Inc. 27,824
13,255 Gaylord Entertainment Co. (a) 675,077
22,000 Live Nation (a) 492,800
7,072 Lodgenet Entertainment Corp. (a) 177,012
4,555 Speedway Motorsports, Inc. 174,912
-------------
1,667,926
- ---------------------------------------------------------------------------------------------------------------
Fertilizers - 0.1% 30,200 Terra Industries, Inc. (a) 361,796
- ---------------------------------------------------------------------------------------------------------------
Finance Companies - 0.2% 6,542 Accredited Home Lenders Holding Co. (a) 178,466
4,800 Asta Funding, Inc. 146,112
2,069 Credit Acceptance Corp. (a) 68,960
12,100 International Securities Exchange, Inc. 566,159
3,500 MVC Capital, Inc. 46,760
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
2,300 United PanAm Financial Corp. (a) $ 31,648
6,900 World Acceptance Corp. (a) 323,955
-------------
1,362,060
- ---------------------------------------------------------------------------------------------------------------
Finance: Small Loan - 20,800 Advance America, Cash Advance Centers, Inc. 304,720
0.1% 5,300 Dollar Financial Corp. (a) 147,658
200 QC Holdings, Inc. 3,192
-------------
455,570
- ---------------------------------------------------------------------------------------------------------------
Financial Data 6,500 Advent Software, Inc. (a) 229,385
Processing Services & 750 Cass Information Systems, Inc. 27,135
Systems - 0.8% 7,989 CompuCredit Corp. (a) 318,042
9,700 Cybersource Corp. (a) 106,894
15,100 Deluxe Corp. 380,520
11,530 Digital Insight Corp. (a) 443,790
14,788 eFunds Corp. (a) 406,670
7,923 eSpeed, Inc. Class A (a) 69,168
3,300 Heartland Payment Systems, Inc. (e) 93,225
17,000 Hypercom Corp. (a) 107,950
28,600 Jack Henry & Associates, Inc. 612,040
7,882 John H. Harland Co. 395,676
9,649 Kronos, Inc. (a) 354,504
5,300 Online Resources Corp. (a) 54,113
7,900 Open Solutions, Inc. (a) 297,356
6,900 TNS, Inc. (a) 132,825
8,100 TradeStation Group, Inc. (a) 111,375
12,700 Wright Express Corp. (a) 395,859
-------------
4,536,527
- ---------------------------------------------------------------------------------------------------------------
Financial Information 4,100 Bankrate, Inc. (a)(e) 155,595
Services - 0.2% 13,400 INVESTools, Inc. (a) 184,786
10,600 Interactive Data Corp. 254,824
3,700 Morningstar, Inc. (a) 166,685
36,200 Move, Inc. (a) 199,462
25,622 S1 Corp. (a) 141,177
8,200 TheStreet.com, Inc. 72,980
400 Value Line, Inc. 18,180
-------------
1,193,689
- ---------------------------------------------------------------------------------------------------------------
Financial Miscellaneous 7,500 Advanta Corp. Class B 327,225
- - 0.7% 5,300 Asset Acceptance Capital Corp. (a) 89,146
8,819 Cash America International, Inc. 413,611
600 Enstar Group, Inc. (a) 57,540
4,900 Federal Agricultural Mortgage Corp. Class B 132,937
8,600 Financial Federal Corp. 252,926
10,800 First Cash Financial Services, Inc. (a) 279,396
9,600 Global Cash Access, Inc. (a) 155,808
9,200 Harris & Harris Group, Inc. (a)(e) 111,228
5,099 LandAmerica Financial Group, Inc. 321,798
7,400 Medallion Financial Corp. 91,538
6,100 Portfolio Recovery Associates, Inc. (a) 284,809
4,200 Sanders Morris Harris Group, Inc. 53,634
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
20,036 Sotheby's Holdings, Inc. Class A $ 621,517
8,316 Sterling Bancorp 163,825
6,822 Stewart Information Services Corp. 295,802
2,833 Stifel Financial Corp. (a) 111,139
3,076 Triad Guaranty, Inc. (a) 168,780
2,191 WSFS Financial Corp. 146,644
600 Wauwatosa Holdings, Inc. (a) 10,692
-------------
4,089,995
- ---------------------------------------------------------------------------------------------------------------
Foods - 0.9% 12,600 Chiquita Brands International, Inc. 201,222
6,900 Diamond Foods, Inc. 131,169
16,384 Flowers Foods, Inc. 442,204
11,057 Hain Celestial Group, Inc. (a) 345,089
4,300 J&J Snack Foods Corp. 178,020
9,600 Lance, Inc. 192,768
3,300 M&F Worldwide Corp. (a) 83,358
863 Maui Land & Pineapple Co., Inc. (a) 29,273
5,000 Medifast, Inc. (a) 62,900
17,600 NBTY, Inc. (a) 731,632
10,100 Performance Food Group Co. (a) 279,164
12,800 Pilgrim's Pride Corp. 376,704
3,000 Premium Standard Farms, Inc. 55,710
9,595 Ralcorp Holdings, Inc. (a) 488,290
6,550 Sanderson Farms, Inc. 198,400
112 Seaboard Corp. 197,680
14,657 Sensient Technologies Corp. 360,562
10,877 Tootsie Roll Industries, Inc. 355,678
9,500 TreeHouse Foods, Inc. (a) 296,400
-------------
5,006,223
- ---------------------------------------------------------------------------------------------------------------
Forest Products - 0.1% 3,209 Deltic Timber Corp. 178,998
6,334 Universal Forest Products, Inc. 295,291
-------------
474,289
- ---------------------------------------------------------------------------------------------------------------
Forms & Bulk Printing 9,100 Ennis, Inc. 222,586
Services - 0.1% 5,645 The Standard Register Co. 67,740
-------------
290,326
- ---------------------------------------------------------------------------------------------------------------
Funeral Parlors & 33,324 Stewart Enterprises, Inc. Class A 208,275
Cemeteries - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Glass - 0.0% 11,900 Apogee Enterprises, Inc. 229,789
- ---------------------------------------------------------------------------------------------------------------
Gold - 0.1% 97,100 Coeur d'Alene Mines Corp. (a) 480,645
5,300 Royal Gold, Inc. (e) 190,694
-------------
671,339
- ---------------------------------------------------------------------------------------------------------------
Health Care Facilities - 3,800 Capital Senior Living Corp. (a) 40,432
0.5% 8,800 Five Star Quality Care, Inc. (a) 98,120
7,300 Genesis HealthCare Corp. (a) 344,779
8,990 Kindred Healthcare, Inc. (a) 226,997
6,350 LCA-Vision, Inc. (e) 218,186
3,700 Medcath Corp. (a) 101,232
1,800 National Healthcare Corp. 99,360
17,400 Psychiatric Solutions, Inc. (a) 652,848
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
5,000 Radiation Therapy Services, Inc. (a) $ 157,600
5,800 Res-Care, Inc. (a) 105,270
10,200 Sun Healthcare Group, Inc. (a) 128,826
13,674 Sunrise Senior Living, Inc. (a) 420,065
15,950 United Surgical Partners International, Inc. (a) 452,183
-------------
3,045,898
- ---------------------------------------------------------------------------------------------------------------
Health Care Management 16,400 AMERIGROUP Corp. (a) 588,596
Services - 0.6% 14,141 Allscripts Healthcare Solutions, Inc. (a) 381,666
11,300 Amsurg Corp. (a) 259,900
12,400 Centene Corp. (a) 304,668
4,100 Computer Programs & Systems, Inc. 139,359
2,485 Corvel Corp. (a) 118,211
16,431 Eclipsys Corp. (a) 337,821
4,700 Healthspring, Inc. (a) 95,645
7,200 Horizon Health Corp. (a) 140,904
3,900 Molina Healthcare, Inc. (a) 126,789
7,700 Omnicell, Inc. (a) 143,451
12,237 Per-Se Technologies, Inc. (a) 339,944
10,800 Phase Forward, Inc. (a) 161,784
5,500 Vital Images, Inc. (a) 191,400
-------------
3,330,138
- ---------------------------------------------------------------------------------------------------------------
Health Care Services - 6,500 Adeza Biomedical Corp. (a) 96,915
0.5% 3,600 Alliance Imaging, Inc. (a) 23,940
5,866 Amedisys, Inc. (a) 192,815
13,400 Apria Healthcare Group, Inc. (a) 357,110
4,600 Bio-Reference Labs, Inc. (a) 103,454
10,912 Gentiva Health Services, Inc. (a) 207,983
11,025 Healthcare Services Group 319,284
11,700 Healthways, Inc. (a) 558,207
12,700 Hythiam, Inc. (a)(e) 117,348
2,000 LHC Group, Inc. (a) 57,020
7,900 Matria Healthcare, Inc. (a) 226,967
500 Nighthawk Radiology Holdings, Inc. (a) 12,750
11,000 Odyssey HealthCare, Inc. (a) 145,860
5,200 Symbion, Inc. (a) 96,252
5,300 VistaCare, Inc. Class A (a) 53,795
-------------
2,569,700
- ---------------------------------------------------------------------------------------------------------------
Homebuilding - 0.3% 17,000 Hovnanian Enterprises, Inc. Class A (a) 576,300
5,460 Levitt Corp. Class A 66,830
4,900 M/I Homes, Inc. 187,131
7,500 Meritage Homes Corp. (a) 357,900
700 Orleans Homebuilders, Inc. 13,160
6,062 Technical Olympic USA, Inc. 61,651
12,700 WCI Communities, Inc. (a)(e) 243,586
-------------
1,506,558
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Hotel/Motel - 0.1% 6,500 Lodgian, Inc. (a) $ 88,400
6,379 Marcus Corp. 163,175
7,900 Morgans Hotel Group Co. (a) 133,747
-------------
385,322
- ---------------------------------------------------------------------------------------------------------------
Household Furnishings - 4,900 American Woodmark Corp. (e) 205,065
0.4% 9,900 Ethan Allen Interiors, Inc. 357,489
14,100 Furniture Brands International, Inc. 228,843
8,836 Haverty Furniture Cos., Inc. 130,773
1,600 Hooker Furniture Corp. 25,056
17,200 La-Z-Boy, Inc. (e) 204,164
5,000 Lifetime Brands, Inc. 82,150
4,700 Sealy Corp. 69,325
17,900 Select Comfort Corp. (a) 311,281
4,800 Stanley Furniture Co., Inc. 102,960
15,800 Tempur-Pedic International, Inc. (a) 323,268
-------------
2,040,374
- ---------------------------------------------------------------------------------------------------------------
Identification Control & 9,912 Advanced Energy Industries, Inc. (a) 187,039
Filter Devices - 0.5% 15,341 Asyst Technologies, Inc. (a) 112,143
3,100 Badger Meter, Inc. 85,870
8,132 ESCO Technologies, Inc. (a) 369,518
7,600 Flanders Corp. (a) 75,240
2,219 The Gorman-Rupp Co. 82,027
22,228 L-1 Identity Solutions, Inc. (a)(h) 336,310
9,826 Mine Safety Appliances Co. 360,123
11,982 Paxar Corp. (a) 276,305
7,700 RAE Systems, Inc. (a) 24,640
3,912 Robbins & Myers, Inc. 179,639
9,727 Veeco Instruments, Inc. (a) 182,187
5,996 Vicor Corp. 66,616
8,436 Watts Water Technologies, Inc. Class A 346,804
10,517 X-Rite, Inc. 129,359
-------------
2,813,820
- ---------------------------------------------------------------------------------------------------------------
Industrial Products - 7,000 Smith & Wesson Holding Corp. (a) 72,380
0.0% 4,000 TAL International Group, Inc. 106,760
-------------
179,140
- ---------------------------------------------------------------------------------------------------------------
Insurance: Life - 0.4% 21,500 American Equity Investment Life Holding Co. 280,145
14,005 Delphi Financial Group Class A 566,642
2,780 Great American Financial Resources, Inc. 64,079
1,042 Kansas City Life Insurance Co. 51,912
662 National Western Life Insurance Co. Class A 152,353
35,700 The Phoenix Cos., Inc. 567,273
6,793 Presidential Life Corp. 149,106
11,300 Universal American Financial Corp. (a) 210,632
-------------
2,042,142
- ---------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line - 10,240 Alfa Corp. 192,614
0.4% 2,986 CNA Surety Corp. (a) 64,199
7,409 Crawford & Co. Class B 54,086
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
2,000 EMC Insurance Group, Inc. $ 68,240
3,225 FBL Financial Group, Inc. Class A 126,033
8,400 HealthExtras, Inc. (a) 202,440
11,006 Hilb Rogal & Hobbs Co. 463,573
16,668 Horace Mann Educators Corp. 336,694
1,240 Independence Holding Co. 27,069
11,100 Meadowbrook Insurance Group, Inc. (a) 109,779
2,297 Pico Holdings, Inc. (a) 79,867
13,255 Zenith National Insurance Corp. 621,792
-------------
2,346,386
- ---------------------------------------------------------------------------------------------------------------
Insurance: 10,100 21st Century Insurance Group 178,265
Property-Casualty - 1.2% 4,550 Affirmative Insurance Holdings, Inc. 74,028
4,756 American Physicians Capital, Inc. (a) 190,430
11,566 Argonaut Group, Inc. (a) 403,191
4,032 Baldwin & Lyons, Inc. Class B 102,977
4,500 Bristol West Holdings, Inc. 71,235
17,200 Commerce Group, Inc. 511,700
3,400 Darwin Professional Underwriters, Inc. (a) 79,730
4,700 Direct General Corp. 97,008
3,244 Donegal Group, Inc. Class A 63,550
4,500 FPIC Insurance Group, Inc. (a) 175,365
3,500 First Acceptance Corp. (a) 37,520
20,900 Fremont General Corp. 338,789
4,362 Harleysville Group, Inc. 151,885
6,600 Infinity Property & Casualty Corp. 319,374
1,500 James River Group, Inc. (a)(e) 48,480
2,858 The Midland Co. 119,893
500 NYMAGIC, Inc. 18,300
4,100 National Interstate Corp. 99,630
4,100 Navigators Group, Inc. (a) 197,538
2,500 Odyssey Re Holdings Corp. 93,250
21,515 Ohio Casualty Corp. 641,362
10,206 PMA Capital Corp. Class A (a) 94,099
10,523 ProAssurance Corp. (a) 525,308
6,754 RLI Corp. 381,061
1,900 SCPIE Holdings, Inc. (a) 49,666
5,500 Safety Insurance Group, Inc. 278,905
7,800 SeaBright Insurance Holdings, Inc. (a) 140,478
9,854 Selective Insurance Group 564,536
3,512 State Auto Financial Corp. 121,972
6,500 Tower Group, Inc. 201,955
8,100 United Fire & Casualty Co. 285,525
-------------
6,657,005
- ---------------------------------------------------------------------------------------------------------------
Investment Management 24,856 Apollo Investment Corp. 556,782
Companies - 0.6% 14,139 Ares Capital Corp. 270,196
8,800 Calamos Asset Management, Inc. Class A 236,104
500 Capital Southwest Corp. 63,120
2,500 Cohen & Steers, Inc. 100,425
2,796 GAMCO Investors, Inc. Class A 107,534
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
20,200 MCG Capital Corp. $ 410,464
8,723 NGP Capital Resources Co. 146,110
12,000 National Financial Partners Corp. 527,640
3,200 Technology Investment Capital Corp. 51,648
28,300 Waddell & Reed Financial, Inc. Class A 774,288
-------------
3,244,311
- ---------------------------------------------------------------------------------------------------------------
Jewelry, Watches & 16,000 Fossil, Inc. (a) 361,280
Gemstones - 0.1% 7,200 Movado Group, Inc. 208,800
-------------
570,080
- ---------------------------------------------------------------------------------------------------------------
Leisure Time - 0.3% 9,400 Bally Total Fitness Holding Corp. (a)(e) 23,030
24,000 Callaway Golf Co. 345,840
8,500 Great Wolf Resorts, Inc. (a) 118,660
12,800 K2, Inc. (a) 168,832
9,600 Life Time Fitness, Inc. (a) 465,696
19,900 Six Flags, Inc. (a)(e) 104,276
2,300 Steinway Musical Instruments, Inc. (a) 71,415
9,556 Vail Resorts, Inc. (a) 428,300
4,800 West Marine, Inc. (a) 82,896
-------------
1,808,945
- ---------------------------------------------------------------------------------------------------------------
Machinery & Engineering 14,190 Applied Industrial Technologies, Inc. 373,339
- - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Machinery: Agricultural 3,450 Gehl Co. (a) 94,978
- - 0.1% 5,013 Lindsay Manufacturing Co. 163,674
-------------
258,652
- ---------------------------------------------------------------------------------------------------------------
Machinery: Construction 7,600 ASV, Inc. (a)(e) 123,652
& Handling - 0.1% 5,417 Astec Industries, Inc. (a) 190,137
1,587 NACCO Industries, Inc. Class A 216,784
-------------
530,573
- ---------------------------------------------------------------------------------------------------------------
Machinery: Engines - 17,000 Briggs & Stratton Corp. 458,150
0.1% 4,500 Raser Techonologies, Inc. (a)(e) 27,540
-------------
485,690
- ---------------------------------------------------------------------------------------------------------------
Machinery: 8,300 Actuant Corp. Class A 395,495
Industrial/Specialty - 5,000 Columbus McKinnon Corp. (a) 105,100
0.4% 1,400 DXP Enterprises, Inc. (a) 49,056
6,700 EnPro Industries, Inc. (a) 222,507
3,970 Kadant, Inc. (a) 96,789
2,200 Middleby Corp. (a) 230,274
9,310 Nordson Corp. 463,917
7,328 Tecumseh Products Co. Class A (a) 123,843
5,174 Tennant Co. 150,046
9,279 Woodward Governor Co. 368,469
-------------
2,205,496
- ---------------------------------------------------------------------------------------------------------------
Machinery: Oil Well 2,800 Allis-Chalmers Energy, Inc. (a) 64,512
Equipment & Services - 2,800 Basic Energy Services, Inc. (a) 69,020
1.0% 7,502 CARBO Ceramics, Inc. 280,350
7,300 Complete Production Services, Inc. (a)(h) 154,760
6,376 Dril-Quip, Inc. (a) 249,684
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
5,917 Gulf Island Fabrication, Inc. $ 218,337
32,443 Hanover Compressor Co. (a) 612,848
7,140 Hornbeck Offshore Services, Inc. (a) 254,898
6,449 Hydril Co. (a) 484,900
22,346 Input/Output, Inc. (a) 304,576
5,500 Lufkin Industries, Inc. 319,440
5,800 NATCO Group, Inc. Class A (a) 184,904
28,320 Newpark Resources, Inc. (a) 204,187
15,700 Oil States International, Inc. (a) 506,011
34,281 Parker Drilling Co. (a) 280,076
10,200 RPC, Inc. 172,176
8,900 Sulphco, Inc. (a)(e) 42,008
2,100 Superior Well Services, Inc. (a)(e) 53,676
400 T-3 Energy Services, Inc. (a) 8,820
5,100 Trico Marine Services, Inc. (a) 195,381
1,900 Union Drilling, Inc. (a) 26,752
9,826 Universal Compression Holdings, Inc. (a) 610,293
9,957 W-H Energy Services, Inc. (a) 484,806
-------------
5,782,415
- ---------------------------------------------------------------------------------------------------------------
Machinery: Specialty - 10,300 Bucyrus International, Inc. 533,128
0.2% 4,000 Cascade Corp. 211,600
4,441 Semitool, Inc. (a) 59,110
4,300 TurboChef Technologies, Inc. (a)(e) 73,186
-------------
877,024
- ---------------------------------------------------------------------------------------------------------------
Manufactured Housing - 1,300 Cavco Industries, Inc. (a) 45,552
0.1% 24,127 Champion Enterprises, Inc. (a) 225,829
3,905 Palm Harbor Homes, Inc. (a)(e) 54,748
2,201 Skyline Corp. 88,524
-------------
414,653
- ---------------------------------------------------------------------------------------------------------------
Manufacturing - 0.1% 15,259 Federal Signal Corp. 244,754
3,931 Standex International Corp. 118,441
-------------
363,195
- ---------------------------------------------------------------------------------------------------------------
Medical & Dental 7,700 Abaxis, Inc. (a) 148,225
Instruments & Supplies - 5,600 Abiomed, Inc. (a) 78,960
2.2% 17,700 Align Technology, Inc. (a) 247,269
21,600 American Medical Systems Holdings, Inc. (a) 400,032
3,400 Angiodynamics, Inc. (a) 73,066
6,608 Arrow International, Inc. 233,791
5,800 Bio-Rad Laboratories, Inc. Class A (a) 478,616
5,149 Biosite, Inc. (a) 251,529
17,300 Cepheid, Inc. (a) 147,050
6,600 Cerus Corp. (a) 38,676
6,100 Conceptus, Inc. (a) 129,869
10,428 Conmed Corp. (a) 241,095
9,800 Conor Medsystems, Inc. (a) 307,034
8,169 Cyberonics, Inc. (a)(e) 168,608
7,100 DJO, Inc. (a) 304,022
7,500 DexCom, Inc. (a) 73,950
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
3,000 ev3, Inc. (a) $ 51,690
5,500 FoxHollow Technologies, Inc. (a) 118,690
7,600 I-Flow Corp. (a) 113,620
5,650 ICU Medical, Inc. (a) 229,842
7,700 IRIS International, Inc. (a) 97,405
21,543 Immucor, Inc. (a) 629,702
9,822 Invacare Corp. 241,130
8,640 Inverness Medical Innovations, Inc. (a) 334,368
14,600 Kyphon, Inc. (a) 589,840
2,678 Landauer, Inc. 140,515
10,200 Lifecell Corp. (a) 246,228
1,600 Medical Action Industries, Inc. (a) 51,584
13,044 Mentor Corp. 637,460
6,700 Meridian Bioscience, Inc. 164,351
11,110 Merit Medical Systems, Inc. (a) 175,982
6,937 Molecular Devices Corp. (a) 146,163
500 Northstar Neuroscience, Inc. (a) 7,190
12,800 NuVasive, Inc. (a) 295,680
17,059 OraSure Technologies, Inc. (a) 140,907
12,698 Owens & Minor, Inc. 397,066
23,473 PSS World Medical, Inc. (a) 458,428
5,300 Palomar Medical Technologies, Inc. (a)(e) 268,551
8,529 PolyMedica Corp. 344,657
6,315 SonoSite, Inc. (a) 195,323
12,200 Spectranetic Corp. (a) 137,738
10,200 Stereotaxis, Inc. (a) 105,264
21,400 Steris Corp. 538,638
6,183 SurModics, Inc. (a) 192,415
10,000 Symmetry Medical, Inc. (a) 138,300
24,100 ThermoGenesis Corp. (a) 103,148
17,547 Thoratec Corp. (a) 308,476
9,160 Ventana Medical Systems, Inc. (a) 394,155
9,700 Viasys Healthcare, Inc. (a) 269,854
1,524 Vital Signs, Inc. 76,078
9,876 West Pharmaceutical Services, Inc. 505,947
12,800 Wright Medical Group, Inc. (a) 297,984
600 Young Innovations, Inc. 19,980
-------------
12,486,141
- ---------------------------------------------------------------------------------------------------------------
Medical Services - 0.2% 4,600 Air Methods Corp. (a) 128,432
11,400 Magellan Health Services, Inc. (a) 492,708
11,371 Option Care, Inc. 162,037
9,297 Parexel International Corp. (a) 269,334
7,395 RehabCare Group, Inc. (a) 109,816
-------------
1,162,327
- ---------------------------------------------------------------------------------------------------------------
Metal Fabricating - 0.7% 1,500 Ampco-Pittsburgh Corp. 50,220
3,900 CIRCOR International, Inc. 143,481
300 Compx International, Inc. 6,048
3,200 Dynamic Materials Corp. 89,792
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
8,450 Encore Wire Corp. (e) $ 185,984
5,800 Insteel Industries, Inc. 103,182
10,426 Kaydon Corp. 414,329
4,600 LB Foster Co. Class A (a) 119,186
9,558 Lone Star Technologies, Inc. (a) 462,703
32,660 Mueller Water Products, Inc. Series A 485,654
5,765 NN, Inc. 71,659
12,010 Quanex Corp. 415,426
8,100 RBC Bearings, Inc. (a) 232,146
6,913 RTI International Metals, Inc. (a) 540,735
8,293 Ryerson, Inc. 208,071
7,500 Superior Essex, Inc. (a) 249,375
5,458 Valmont Industries, Inc. 302,864
-------------
4,080,855
- ---------------------------------------------------------------------------------------------------------------
Metals & Minerals 2,500 AM Castle & Co. 63,625
Miscellaneous - 0.5% 6,873 AMCOL International Corp. 190,657
7,211 Brush Engineered Materials, Inc. (a) 243,515
13,836 Cleveland-Cliffs, Inc. 670,216
9,100 Compass Minerals International, Inc. 287,196
31,244 GrafTech International Ltd. (a) 216,208
43,900 Hecla Mining Co. (a) 336,274
6,653 Minerals Technologies, Inc. 391,130
12,564 Stillwater Mining Co. (a) 156,924
-------------
2,555,745
- ---------------------------------------------------------------------------------------------------------------
Milling: Fruit & Grain 4,100 MGP Ingredients, Inc. 92,701
Processing - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Business & 2,600 Core-Mark Holdings Co., Inc. (a) 86,970
Consumer Discretionary -
0.0%
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Consumer 7,200 Reddy Ice Holdings, Inc. 185,904
Staples - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Materials 8,450 Ceradyne, Inc. (a) 477,425
& Commodities - 0.2% 11,779 Symyx Technologies Inc. (a) 254,309
6,789 WD-40 Co. 236,732
-------------
968,466
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Materials 8,938 Insituform Technologies, Inc. Class A (a) 231,137
& Processing - 0.2% 9,800 Metal Management, Inc. 370,930
5,255 Rogers Corp. (a) 310,833
27,459 USEC, Inc. (a) 349,278
1,900 Xerium Technologies, Inc. 18,601
-------------
1,280,779
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Producer 27,200 BE Aerospace, Inc. (a) 698,496
Durables - 0.1% 11,100 Blount International, Inc. (a) 149,406
-------------
847,902
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous Technology 6,500 IHS, Inc. Class A (a) 256,620
- - 0.1% 2,700 iRobot Corp. (a) 48,762
-------------
305,382
- ---------------------------------------------------------------------------------------------------------------
Multi-Sector Companies - 4,800 Compass Diversified Trust 82,320
0.3% 18,471 GenCorp, Inc. (a)(e) 258,963
4,200 GenTek Inc. (a) 145,278
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
7,594 Kaman Corp. Class A $ 170,030
8,099 Lancaster Colony Corp. 358,867
6,500 Raven Industries, Inc. 174,200
1,765 Sequa Corp. Class A (a) 203,081
-------------
1,392,739
- ---------------------------------------------------------------------------------------------------------------
Office Furniture & 14,300 ACCO Brands Corp. (a)(h) 378,521
Business Equipment - 22,200 Herman Miller, Inc. 807,192
0.3% 8,274 Kimball International, Inc. Class B 201,058
9,400 Knoll, Inc. 206,800
9,840 Presstek, Inc. (a) 62,582
-------------
1,656,153
- ---------------------------------------------------------------------------------------------------------------
Offshore Drilling - 0.1% 8,554 Atwood Oceanics, Inc. (a) 418,889
3,000 Bois d'Arc Energy, Inc. (a) 43,890
5,700 Hercules Offshore, Inc. (a) 164,730
-------------
627,509
- ---------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - 7,400 ATP Oil & Gas Corp. (a) 292,818
1.7% 2,800 Arena Resources, Inc. (a) 119,588
6,650 Atlas America, Inc. (a) 338,950
18,100 Aurora Oil & Gas Corp. (a) 58,101
13,002 Berry Petroleum Co. Class A 403,192
8,600 Bill Barrett Corp. (a) 234,006
19,300 Brigham Exploration Co. (a) 141,083
6,000 Bronco Drilling Co., Inc. (a) 103,140
5,600 Callon Petroleum Co. (a) 84,168
5,600 Carrizo Oil & Gas, Inc. (a) 162,512
2,400 Clayton Williams Energy, Inc. (a) 87,144
13,657 Comstock Resources, Inc. (a) 424,186
800 Delek US Holdings, Inc. 13,112
13,900 EXCO Resources, Inc. (a) 235,049
7,300 Edge Petroleum Corp. (a) 133,152
18,800 Encore Acquisition Co. (a) 461,164
14,300 Energy Partners Ltd. (a) 349,206
12,000 The Exploration Co. of Delaware, Inc. (a) 160,080
21,900 Gasco Energy, Inc. (a)(e) 53,655
5,700 GeoGlobal Resources, Inc. (a) 44,745
4,200 Goodrich Petroleum Corp. (a) 151,956
61,643 Grey Wolf, Inc. (a) 422,871
1,000 Gulfport Energy Corp. (a) 13,590
12,700 Harvest Natural Resources, Inc. (a) 135,001
8,983 Houston Exploration Co. (a) 465,140
23,200 Mariner Energy, Inc. (a) 454,720
9,900 McMoRan Exploration Co. (a)(e) 140,778
27,511 Meridian Resource Corp. (a) 85,009
12,800 Parallel Petroleum Corp. (a) 224,896
45,062 PetroHawk Energy Corp. (a) 518,213
6,300 Petroleum Development Corp. (a) 271,215
13,000 Petroquest Energy, Inc. (a) 165,620
12,300 Pioneer Drilling Co. (a) 163,344
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
8,900 Quest Resource Corp. (a) $ 89,890
4,949 Resource America, Inc. Class A 130,654
15,600 Rosetta Resources, Inc. (a) 291,252
8,578 Stone Energy Corp. (a) 303,232
9,217 Swift Energy Co. (a) 413,014
4,300 Toreador Resources Corp. (a) 110,811
20,000 Transmeridian Exploration, Inc. (a) 69,000
6,210 VeraSun Energy Corp. (a)(e) 122,648
16,400 Warren Resources, Inc. (a) 192,208
6,500 Western Refining, Inc. 165,490
11,710 Whiting Petroleum Corp. (a) 545,686
-------------
9,545,289
- ---------------------------------------------------------------------------------------------------------------
Oil: Integrated Domestic 19,500 Delta Petroleum Corp. (a)(e) 450,645
- - 0.2% 3,400 GMX Resources Inc. (a) 120,700
4,500 Giant Industries, Inc. (a) 337,275
-------------
908,620
- ---------------------------------------------------------------------------------------------------------------
Oil: Integrated 21,700 Vaalco Energy, Inc. (a) 146,475
International - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Paints & Coatings - 0.2% 16,576 Ferro Corp. 342,957
20,380 H.B. Fuller Co. 526,212
1,693 Kronos Worldwide, Inc. 55,124
-------------
924,293
- ---------------------------------------------------------------------------------------------------------------
Paper - 0.4% 9,726 Albany International Corp. Class A 320,083
16,800 Bowater, Inc. 378,000
7,698 Buckeye Technologies, Inc. (a) 92,222
9,974 Caraustar Industries, Inc. (a) 80,690
8,892 Chesapeake Corp. 151,342
8,600 Mercer International, Inc.-Sbi (a)(e) 102,082
4,700 Neenah Paper, Inc. 166,004
14,101 P.H. Glatfelter Co. 218,566
8,080 Rock-Tenn Co. Class A 219,049
14,242 Wausau Paper Corp. 213,488
-------------
1,941,526
- ---------------------------------------------------------------------------------------------------------------
Plastics - 0.1% 5,600 The Lamson & Sessions Co. (a) 135,856
4,300 PW Eagle, Inc. (e) 148,350
12,354 Spartech Corp. 323,922
-------------
608,128
- ---------------------------------------------------------------------------------------------------------------
Pollution Control & 5,600 American Ecology Corp. 103,656
Environmental Services - 4,300 Basin Water, Inc. (a)(e) 29,111
0.1% 19,000 Darling International, Inc. (a) 104,690
14,546 Headwaters, Inc. (a) 348,522
3,100 Team, Inc. (a) 107,973
-------------
693,952
- ---------------------------------------------------------------------------------------------------------------
Power Transmission 9,751 Regal-Beloit Corp. 512,025
Equipment - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Printing & Copying 12,882 Bowne & Co., Inc. 205,339
Services - 0.1% 16,900 Cenveo, Inc. (a) 358,280
6,900 Schawk, Inc. 134,826
-------------
698,445
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Production Technology 12,457 ATMI, Inc. (a)(h) $ 380,312
Equipment - 1.1% 37,800 Axcelis Technologies, Inc. (a) 220,374
23,678 Brooks Automation, Inc. (a) 340,963
14,556 Cognex Corp. 346,724
40,468 Credence Systems Corp. (a) 210,434
12,000 Cymer, Inc. (a)(h) 527,400
6,331 Dionex Corp. (a) 359,031
11,161 Electro Scientific Industries, Inc. (a) 224,783
16,700 Emcore Corp. (a)(e) 92,351
43,499 Entegris, Inc. (a) 470,659
7,690 Esterline Technologies Corp. (a) 309,369
9,255 FEI Co. (a) 244,054
8,000 Intevac, Inc. (a) 207,600
22,256 Kulicke & Soffa Industries, Inc. (a) 186,950
24,503 LTX Corp. (a) 137,217
6,200 MTS Systems Corp. 239,444
20,299 Mattson Technology, Inc. (a) 189,187
7,462 Photon Dynamics, Inc. (a) 87,231
11,979 Photronics, Inc. (a) 195,737
5,600 Rofin-Sinar Technologies, Inc. (a) 338,576
10,073 Rudolph Technologies, Inc. (a) 160,362
8,490 Ultratech, Inc. (a) 105,955
18,113 Varian Semiconductor Equipment Associates, Inc. (a) 824,504
-------------
6,399,217
- ---------------------------------------------------------------------------------------------------------------
Publishing: Miscellaneous 8,394 Banta Corp. 305,542
- - 0.4% 4,000 Consolidated Graphics, Inc. (a) 236,280
2,150 Courier Corp. 83,785
5,940 GateHouse Media, Inc. 110,246
7,982 Martha Stewart Living Omnimedia, Inc. Class A 174,806
9,907 Playboy Enterprises, Inc. Class B (a) 113,534
56,100 Primedia, Inc. (a) 94,809
2,800 Private Media Group, Inc. (a) 11,284
34,900 The Reader's Digest Association, Inc. Class A 582,830
11,960 Scholastic Corp. (a) 428,646
-------------
2,141,762
- ---------------------------------------------------------------------------------------------------------------
Publishing: Newspapers - 29,800 Belo Corp. Class A 547,426
0.3% 11,100 Journal Communications, Inc. Class A 139,971
14,033 Journal Register Co. 102,441
14,700 Lee Enterprises, Inc. 456,582
8,400 Media General, Inc. Class A 312,228
29,629 Sun-Times Media Group, Inc. 145,478
-------------
1,704,126
- ---------------------------------------------------------------------------------------------------------------
Radio & TV Broadcasters 15,700 CKX, Inc. (a) 184,161
- - 0.4% 11,700 Citadel Broadcasting Corp. 116,532
17,800 Cox Radio, Inc. Class A (a) 290,140
16,000 Cumulus Media, Inc. Class A (a) 166,240
12,000 Emmis Communications Corp. Class A 98,880
9,500 Entercom Communications Corp. 267,710
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
1,500 Fisher Communications, Inc. (a) $ 66,315
18,200 Gray Television, Inc. 133,406
11,000 Lin TV Corp. Class A (a) 109,450
4,200 Outdoor Channel Holdings, Inc. (a) 53,886
24,200 Radio One, Inc. Class D (a) 163,108
3,183 Salem Communications Corp. Class A 38,037
19,064 Sinclair Broadcast Group, Inc. Class A 200,172
14,884 Spanish Broadcasting System, Inc. Class A (a) 61,173
18,900 Westwood One, Inc. 133,434
9,396 World Wrestling Entertainment, Inc. 153,155
-------------
2,235,799
- ---------------------------------------------------------------------------------------------------------------
Railroad Equipment - 1,700 American Railcar Industries, Inc. 57,868
0.2% 4,700 Freightcar America, Inc. 260,615
4,500 Greenbrier Cos., Inc. 135,000
15,339 Westinghouse Air Brake Technologies Corp. 465,999
-------------
919,482
- ---------------------------------------------------------------------------------------------------------------
Railroads - 0.2% 11,181 Florida East Coast Industries, Inc. 666,388
11,475 Genesee & Wyoming, Inc. Class A (a) 301,104
12,302 RailAmerica, Inc. (a) 197,816
-------------
1,165,308
- ---------------------------------------------------------------------------------------------------------------
Real Estate - 0.1% 1,200 AMREP Corp. (e) 147,000
1,800 Avatar Holdings, Inc. (a)(e) 145,530
5,500 Bluegreen Corp. (a) 70,565
3,200 California Coastal Communities, Inc. (a) 68,640
1,800 Consolidated-Tomoka Land Co. 130,320
4,800 Housevalues, Inc. (a)(e) 27,024
5,200 Newkirk Realty Trust, Inc. 93,808
2,715 Tejon Ranch Co. (a) 151,606
-------------
834,493
- ---------------------------------------------------------------------------------------------------------------
Real Estate Investment 10,001 Acadia Realty Trust 250,225
Trusts (REITs) - 5.8% 9,800 Affordable Residential Communities Inc. (a) 114,170
3,800 Agree Realty Corp. 130,606
567 Alexander's, Inc. (a) 237,942
9,276 Alexandria Real Estate Equities, Inc. 931,310
7,250 American Campus Communities, Inc. 206,408
39,600 American Financial Realty Trust (h) 453,024
13,987 American Home Mortgage Investment Corp. (h) 491,223
22,200 Anthracite Capital, Inc. (h) 282,606
14,400 Anworth Mortgage Asset Corp. 136,944
5,500 Arbor Realty Trust, Inc. 165,495
19,000 Ashford Hospitality Trust, Inc. (h) 236,550
20,720 BioMed Realty Trust, Inc. 592,592
14,700 Capital Lease Funding, Inc. 170,520
2,700 Capital Trust, Inc. 134,838
7,300 Cedar Shopping Centers, Inc. 116,143
3,500 CentraCore Properties Trust 113,155
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
12,000 Corporate Office Properties Trust (h) $ 605,640
12,100 Cousins Properties, Inc. 426,767
24,200 Crescent Real Estate EQT Co. (h) 477,950
14,600 Deerfield Triarc Capital Corp. 247,178
19,300 DiamondRock Hospitality Co. 347,593
6,840 Digital Realty Trust, Inc. 234,133
7,027 Eastgroup Properties, Inc. 376,366
11,200 Education Realty Trust, Inc. 165,424
8,580 Entertainment Properties Trust 501,415
17,240 Equity Inns, Inc. 275,150
6,494 Equity Lifestyle Properties, Inc. 353,468
11,000 Equity One, Inc. 293,260
14,750 Extra Space Storage, Inc. 269,335
18,470 FelCor Lodging Trust, Inc. 403,385
20,000 Fieldstone Investment Corp. 87,600
15,100 First Industrial Realty Trust, Inc. 708,039
6,800 First Potomac Realty Trust 197,948
15,500 Franklin Street Properties Corp. 326,275
46,600 Friedman Billings Ramsey Group, Inc. Class A 372,800
12,590 GMH Communities Trust 127,789
5,200 Getty Realty Corp. 160,680
11,656 Glimcher Realty Trust 311,332
3,950 Gramercy Capital Corp. 122,016
15,000 Healthcare Realty Trust, Inc. 593,100
13,600 Hersha Hospitality Trust 154,224
17,300 Highland Hospitality Corp. 246,525
16,900 Highwoods Properties, Inc. 688,844
10,720 Home Properties, Inc. 635,374
17,000 HomeBanc Corp. 71,910
24,100 IMPAC Mortgage Holdings, Inc. 212,080
21,400 Inland Real Estate Corp. 400,608
13,692 Innkeepers USA Trust 212,226
14,800 Investors Real Estate Trust 151,848
6,000 JER Investors Trust, Inc. 124,020
25,000 KKR Financial Corp. 669,750
7,240 Kite Realty Group Trust 134,809
6,800 LTC Properties, Inc. 185,708
13,320 LaSalle Hotel Properties 610,722
21,332 Lexington Corporate Properties Trust 478,263
25,990 Longview Fibre Co. 570,481
17,200 Luminent Mortgage Capital, Inc. 167,012
25,100 MFA Mortgage Investments, Inc. 193,019
13,700 Maguire Properties, Inc. 548,000
16,200 Medical Properties Trust, Inc. 247,860
8,529 Mid-America Apartment Communities, Inc. 488,200
17,600 The Mills Corp. 352,000
9,250 MortgageIT Holdings, Inc. 136,438
7,429 National Health Investors, Inc. 245,157
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
17,775 National Retail Properties, Inc. $ 407,936
25,559 Nationwide Health Properties, Inc. 772,393
13,900 Newcastle Investment Corp. 435,348
13,400 NorthStar Realty Finance Corp. 222,038
10,400 Novastar Financial, Inc. (e) 277,160
18,400 Omega Healthcare Investors, Inc. 326,048
5,308 PS Business Parks, Inc. 375,329
3,804 Parkway Properties, Inc. 194,042
11,632 Pennsylvania Real Estate Investment Trust 458,068
13,386 Post Properties, Inc. 611,740
13,247 Potlatch Corp. 580,484
16,620 RAIT Investment Trust 573,058
7,000 Ramco-Gershenson Properties Trust 266,980
31,600 Realty Income Corp. 875,320
6,195 Redwood Trust, Inc. 359,806
12,500 Republic Property Trust (e) 144,250
3,422 Saul Centers, Inc. 188,860
20,214 Senior Housing Properties Trust 494,839
6,704 Sovran Self Storage, Inc. 384,005
33,300 Spirit Finance Corp. 415,251
24,900 Strategic Hotel Capital, Inc. 542,571
7,243 Sun Communities, Inc. 234,383
18,900 Sunstone Hotel Investors, Inc. 505,197
9,822 Tanger Factory Outlet Centers, Inc. 383,844
2,875 Tarragon Corp. 34,989
21,400 Trustreet Properties, Inc. 360,590
13,470 U-Store-It Trust 276,809
3,927 Universal Health Realty Income Trust 153,074
6,700 Urstadt Biddle Properties, Inc. Class A 127,903
15,065 Washington Real Estate Investment Trust 602,600
8,255 Winston Hotels, Inc. 109,379
2,300 Winthrop Realty Trust, Inc. 15,755
-------------
32,383,521
- ---------------------------------------------------------------------------------------------------------------
Recreational Vehicles & 5,643 Arctic Cat, Inc. 99,260
Boats - 0.2% 20,199 Fleetwood Enterprises, Inc. (a) 159,774
2,075 Marine Products Corp. 24,361
8,524 Monaco Coach Corp. 120,700
12,700 Polaris Industries, Inc. (e) 594,741
10,690 Winnebago Industries, Inc. (e) 351,808
-------------
1,350,644
- ---------------------------------------------------------------------------------------------------------------
Rental & Leasing 3,853 Electro Rent Corp. (a) 64,345
Services: Commercial - 4,800 H&E Equipment Services, Inc. (a) 118,896
0.1% 2,000 Interpool, Inc. 46,720
2,000 Marlin Business Services, Inc. (a) 48,060
6,210 McGrath RentCorp 190,212
11,200 Williams Scotsman International, Inc. (a) 219,744
-------------
687,977
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Rental & Leasing 13,493 Aaron Rents, Inc. $ 388,329
Services: Consumer - 3,400 Amerco, Inc. (a) 295,834
0.3% 7,795 Dollar Thrifty Automotive Group (a) 355,530
23,400 Rent-A-Center, Inc. (a) 690,534
-------------
1,730,227
- ---------------------------------------------------------------------------------------------------------------
Restaurants - 1.5% 11,100 AFC Enterprises, Inc. (a) 196,137
22,500 Applebee's International, Inc. 555,075
3,800 BJ's Restaurants, Inc. (a) 76,798
13,380 Bob Evans Farms, Inc. 457,864
3,225 Buffalo Wild Wings, Inc. (a) 171,570
9,000 CBRL Group, Inc. 402,840
10,550 CEC Entertainment, Inc. (a) 424,637
18,400 CKE Restaurants, Inc. 338,560
6,700 California Pizza Kitchen, Inc. (a) 223,177
8,200 Chipotle Mexican Grill, Inc. Class B (a) 426,400
7,200 Cosi, Inc. (a) 36,648
30,100 Denny's Corp. (a) 141,169
11,250 Domino's Pizza, Inc. 315,000
5,848 IHOP Corp. 308,190
11,218 Jack in the Box, Inc. (a) 684,747
17,400 Krispy Kreme Doughnuts, Inc. (a)(e) 193,140
5,496 Landry's Restaurants, Inc. 165,375
6,800 Luby's, Inc. (a) 74,052
2,400 McCormick & Schmick's Seafood Restaurants, Inc. (a) 57,696
600 Morton's Restaurant Group, Inc. (a) 9,990
10,184 O'Charleys, Inc. (a) 216,716
7,608 PF Chang's China Bistro, Inc. (a) 291,995
7,696 Papa John's International, Inc. (a) 223,261
12,777 Rare Hospitality International, Inc. (a) 420,747
6,300 Red Robin Gourmet Burgers, Inc. (a) 225,855
17,800 Ruby Tuesday, Inc. 488,432
7,800 Ruth's Chris Steak House, Inc. (a) 142,584
23,320 Sonic Corp. (a) 558,514
8,228 The Steak n Shake Co. (a) 144,813
15,000 Texas Roadhouse, Inc. Class A (a) 198,900
18,450 Triarc Cos. 369,000
-------------
8,539,882
- ---------------------------------------------------------------------------------------------------------------
Retail - 3.3% 7,924 1-800-FLOWERS.COM, Inc. Class A (a) 48,812
13,500 99 Cents Only Stores (a) 164,295
6,700 AC Moore Arts & Crafts, Inc. (a) 145,189
17,250 Aeropostale, Inc. (a) 532,508
5,050 America's Car Mart, Inc. (a) 59,893
2,500 Asbury Automotive Group, Inc. 58,900
9,000 Big 5 Sporting Goods Corp. 219,780
35,500 Big Lots, Inc. (a) 813,660
60,400 Blockbuster, Inc. Class A (a) 319,516
5,800 Blue Nile, Inc. (a)(e) 213,962
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
3,100 The Bon-Ton Stores, Inc. $ 107,415
6,600 Books-A-Million, Inc. 149,688
19,500 Borders Group, Inc. 435,825
9,018 Brown Shoe Co., Inc. 430,519
2,249 The Buckle, Inc. 114,362
3,800 Build-A-Bear Workshop, Inc. (a)(e) 106,476
6,700 bebe Stores, Inc. 132,593
13,934 CSK Auto Corp. (a) 238,968
8,500 Cabela's, Inc. Class A (a)(e) 205,105
3,850 Cache, Inc. (a) 97,174
12,400 Casual Male Retail Group, Inc. (a) 161,820
10,995 The Cato Corp. Class A 251,895
6,100 Central Garden and Pet Co. (a) 295,362
6,100 Charlotte Russe Holding, Inc. (a) 187,575
40,840 Charming Shoppes, Inc. (a) 552,565
7,385 The Children's Place Retail Stores, Inc. (a) 469,095
11,528 Christopher & Banks Corp. 215,112
1,500 Conn's, Inc. (a) 34,905
9,276 Cost Plus, Inc. (a) 95,543
500 DEB Shops, Inc. 13,200
16,790 Dress Barn, Inc. (a) 391,711
6,709 dELiA*s, Inc. (a) 70,377
18,700 drugstore.com, Inc. (a) 68,442
10,200 Ezcorp, Inc. (a) 165,750
3,900 FTD Group, Inc. (a) 69,771
15,635 Fred's, Inc. 188,245
11,300 GSI Commerce, Inc. (a) 211,875
7,500 Gaiam, Inc. (a) 102,600
7,338 Genesco, Inc. (a) 273,707
17,400 Global Imaging Systems, Inc. (a) 381,930
7,732 Group 1 Automotive, Inc. 399,899
7,939 Guitar Center, Inc. (a) 360,907
10,258 Gymboree Corp. (a) 391,445
15,581 HOT Topic, Inc. (a) 207,851
13,575 Hibbett Sporting Goods, Inc. (a) 414,445
18,098 Insight Enterprises, Inc. (a) 341,509
7,605 Jo-Ann Stores, Inc. (a) 187,083
5,133 Jos. A. Bank Clothiers, Inc. (a) 150,654
1,288 Lawson Products, Inc. 59,106
5,300 Lithia Motors, Inc. Class A 152,428
6,700 MarineMax, Inc. (a) 173,731
15,100 Men's Wearhouse, Inc. 577,726
4,900 New York & Co. (a) 64,092
4,800 Overstock.com, Inc. (a)(e) 75,840
15,510 PEP Boys-Manny, Moe & Jack 230,479
22,500 Pacific Sunwear of California, Inc. (a) 440,550
8,100 The Pantry, Inc. (a) 379,404
21,100 Payless Shoesource, Inc. (a) 692,502
8,200 PetMed Express, Inc. (a) 109,470
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
27,599 Pier 1 Imports, Inc. $ 164,214
9,316 Priceline.com, Inc. (a) 406,271
13,300 Restoration Hardware, Inc. (a) 113,183
6,700 Retail Ventures, Inc. (a) 127,568
8,800 Rush Enterprises, Inc. Class A (a) 148,896
3,747 Russ Berrie & Co., Inc. (a) 57,891
7,254 School Specialty, Inc. (a) 271,952
8,700 Sonic Automotive, Inc. 252,648
8,400 Stage Stores, Inc. 255,276
7,303 Stamps.com, Inc. (a) 115,022
7,824 Stein Mart, Inc. 103,746
7,300 Talbots, Inc. 175,930
10,390 Tuesday Morning Corp. 161,565
10,366 Tween Brands, Inc. (a) 413,914
13,980 United Natural Foods, Inc. (a) 502,162
9,856 ValueVision Media, Inc. Class A (a) 129,508
3,100 Volcom, Inc. (a) 91,667
18,300 The Wet Seal, Inc. Class A (a) 122,061
15,300 Zale Corp. (a) 431,613
4,000 Zumiez, Inc. (a) 118,160
-------------
18,368,488
- ---------------------------------------------------------------------------------------------------------------
Savings & Loan - 1.6% 6,237 Anchor Bancorp Wisconsin, Inc. 179,750
8,750 BFC Financial Corp. (a) 55,912
23,438 Bank Mutual Corp. 283,834
18,142 BankAtlantic Bancorp, Inc. Class A 250,541
9,073 BankUnited Financial Corp. Class A 253,681
2,600 Berkshire Hills Bancorp, Inc. 86,996
23,487 Brookline Bancorp, Inc. 309,324
500 Charter Financial Corp. 25,760
1,500 Citizens First Bancorp, Inc. 46,110
4,842 Coastal Financial Corp. 80,910
9,549 Dime Community Bancshares, Inc. 133,781
6,400 Downey Financial Corp. 464,512
9,522 Fidelity Bankshares, Inc. 377,738
3,826 First Financial Holdings, Inc. 149,903
5,800 First Indiana Corp. 147,088
39,653 First Niagara Financial Group, Inc. 589,244
3,100 First Place Financial Corp. 72,819
8,150 First Republic Bank 318,502
4,800 FirstFed Financial Corp. (a) 321,456
11,250 Flagstar Bancorp, Inc. 166,950
7,875 Flushing Financial Corp. 134,426
2,978 Great Southern Bancorp, Inc. 87,881
3,750 Horizon Financial Corp. 90,225
3,050 IBERIABANK Corp. 180,102
1,800 ITLA Capital Corp. 104,238
9,100 KNBT Bancorp, Inc. 152,243
6,600 Kearny Financial Corp. 105,996
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
10,960 MAF Bancorp, Inc. $ 489,802
300 NASB Financial, Inc. 12,369
20,811 Netbank, Inc. 96,563
34,900 NewAlliance Bancshares, Inc. 572,360
4,867 Northwest Bancorp, Inc. 133,648
3,296 OceanFirst Financial Corp. 75,577
13,965 Ocwen Financial Corp. (a) 221,485
8,211 PFF Bancorp, Inc. 283,362
14,228 Partners Trust Financial Group, Inc. 165,614
3,000 Pennfed Financial Services, Inc. 57,960
23,958 Provident Financial Services, Inc. 434,359
12,689 Provident New York Bancorp 190,081
3,200 Rockville Financial, Inc. 57,120
12,953 Sterling Financial Corp. 437,941
4,200 Texas United Bancshares, Inc. 144,228
5,800 TierOne Corp. 183,338
8,561 United Community Financial Corp. 104,787
34,533 W Holding Co., Inc. 205,817
400 Westfield Financial, Inc. 13,840
7,400 Willow Grove Bancorp, Inc. 110,408
-------------
9,160,581
- ---------------------------------------------------------------------------------------------------------------
Scientific Equipment & 12,835 Newport Corp. (a) 268,893
Suppliers - 0.1% 10,335 Varian, Inc. (a) 462,905
-------------
731,798
- ---------------------------------------------------------------------------------------------------------------
Securities Brokerage & 16,545 CharterMac 355,221
Services - 0.4% 4,600 GFI Group, Inc. (a) 286,396
4,200 Gladstone Investment Corp. 64,302
33,600 Knight Capital Group, Inc. Class A (a)(h) 644,112
16,800 LaBranche & Co., Inc. (a) 165,144
13,800 MarketAxess Holdings, Inc. (a) 187,266
6,600 optionsXpress Holdings, Inc. 149,754
3,900 Penson Worldwide, Inc. (a) 106,899
5,004 SWS Group, Inc. 178,643
3,800 Thomas Weisel Partners Group, Inc. (a) 80,180
-------------
2,217,917
- ---------------------------------------------------------------------------------------------------------------
Services: Commercial - 13,870 ABM Industries, Inc. (h) 314,988
2.9% 9,405 AMN Healthcare Services, Inc. (a) 259,014
7,261 Administaff, Inc. 310,553
7,000 The Advisory Board Co. (a) 374,780
5,700 Ambassadors Group, Inc. 172,995
1,100 Ambassadors International, Inc. 50,182
700 Barrett Business Services 16,394
24,253 CBIZ, Inc. (a) 169,043
5,601 CDI Corp. 139,465
4,700 CRA International, Inc. (a) 246,280
6,978 Casella Waste Systems, Inc. (a) 85,341
2,800 Central Parking Corp. 50,400
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
8,272 Chemed Corp. $ 305,899
5,300 Clark, Inc. 88,139
6,250 CoStar Group, Inc. (a) 334,750
6,600 Coinmach Service Corp. Class A 78,540
8,792 Coinstar, Inc. (a) 268,771
1,500 Cornell Cos., Inc. (a) 27,495
12,600 Cross Country Healthcare, Inc. (a) 274,932
9,800 Diamond Management & Technology Consultants, Inc. 121,912
5,700 DynCorp. International, Inc. (a) 90,459
7,704 Exponent, Inc. (a) 143,757
12,541 FTI Consulting, Inc. (a) 349,768
2,200 First Advantage Corp. Class A (a) 50,512
10,000 First Consulting Group, Inc. (a) 137,600
4,481 Forrester Research, Inc. (a) 121,480
6,777 G&K Services, Inc. Class A 263,558
7,350 The Geo Group, Inc. (a) 275,772
10,000 Gevity HR, Inc. 236,900
16,500 Harris Interactive, Inc. (a) 83,160
7,158 Heidrick & Struggles International, Inc. (a) 303,213
15,800 Home Solutions of America, Inc. (a)(e) 92,588
10,400 Hudson Highland Group, Inc. (a) 173,472
1,300 ICT Group, Inc. (a) 41,067
34,700 IKON Office Solutions, Inc. 568,039
10,700 Jackson Hewitt Tax Service, Inc. 363,479
6,768 Kelly Services, Inc. Class A 195,866
6,300 Kenexa Corp. (a) 209,538
11,700 Kforce, Inc. (a) 142,389
6,300 The Knot, Inc. (a) 165,312
12,968 Korn/Ferry International (a) 297,745
17,322 Labor Ready, Inc. (a) 317,512
11,200 Lightbridge, Inc. (a) 151,648
4,300 Liquidity Services, Inc. (a) 74,003
6,004 MAXIMUS, Inc. 184,803
32,705 MPS Group, Inc. (a) 463,757
4,942 Midas, Inc. (a) 113,666
5,100 Monro Muffler, Inc. 179,010
13,523 Navigant Consulting, Inc. (a) 267,214
15,200 Net 1 UEPS Technologies, Inc. (a) 449,312
4,117 Netratings, Inc. (a) 72,089
6,300 On Assignment, Inc. (a) 74,025
17,364 PHH Corp. (a) 501,299
8,200 People Support, Inc. (a) 172,610
7,500 Perficient, Inc. (a) 123,075
3,260 Pre-Paid Legal Services, Inc. (a)(e) 127,564
5,300 The Providence Service Corp. (a) 133,189
14,000 Regis Corp. 553,560
17,532 Resources Connection, Inc. (a) 558,219
9,402 Rollins, Inc. 207,878
13,800 Sirva, Inc. (a) 48,024
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
13,700 Sitel Corp. (a) $ 57,814
14,200 Source Interlink Cos., Inc. (a) 115,872
18,229 Spherion Corp. (a) 135,441
600 Standard Parking Corp. (a) 23,046
5,940 Startek, Inc. 80,428
28,900 Synagro Technologies, Inc. 127,738
10,389 TeleTech Holdings, Inc. (a) 248,089
19,131 Tetra Tech, Inc. (a) 346,080
1,700 Travelzoo, Inc. (a) 50,915
4,400 Unifirst Corp. 169,004
3,200 Vertrue, Inc. (a) 122,912
6,700 Viad Corp. 272,020
2,259 Volt Information Sciences, Inc. (a) 113,424
15,718 Waste Connections, Inc. (a) 653,083
700 Waste Industries USA, Inc. 21,364
6,533 Waste Services, Inc. (a) 64,350
13,415 Watson Wyatt Worldwide, Inc. 605,687
18,113 Wireless Facilities, Inc. (a) 51,622
9,400 World Fuel Services Corp. 417,924
-------------
16,444,817
- ---------------------------------------------------------------------------------------------------------------
Shipping - 0.2% 10,000 American Commercial Lines, Inc. (a)(h) 655,100
6,700 Gulfmark Offshore, Inc. (a) 250,647
4,300 Horizon Lines, Inc. Class A 115,928
2,100 Star Maritime Acquisition Corp. (a) 20,601
-------------
1,042,276
- ---------------------------------------------------------------------------------------------------------------
Shoes - 0.6% 2,300 CROCS, Inc. (a)(e) 99,360
6,200 DSW, Inc. Class A (a) 239,134
4,300 Deckers Outdoor Corp. (a) 257,785
13,566 The Finish Line, Inc. Class A 193,722
10,800 Iconix Brand Group, Inc. (a) 209,412
10,296 K-Swiss, Inc. Class A 316,499
3,192 Kenneth Cole Productions, Inc. Class A 76,576
4,100 Shoe Carnival, Inc. (a) 129,560
4,655 Skechers U.S.A., Inc. Class A (a) 155,058
7,768 Steven Madden Ltd. 272,579
11,635 Stride Rite Corp. 175,456
15,900 Timberland Co. Class A (a) 502,122
300 Weyco Group, Inc. 7,455
17,708 Wolverine World Wide, Inc. 505,032
-------------
3,139,750
- ---------------------------------------------------------------------------------------------------------------
Steel - 0.5% 34,827 AK Steel Holding Corp. (a)(h) 588,576
15,890 Chaparral Steel Co. 703,450
7,534 Gibraltar Industries, Inc. 177,124
3,500 Olympic Steel, Inc. 77,805
11,900 Oregon Steel Mills, Inc. (a) 742,679
6,750 Schnitzer Steel Industries, Inc. Class A 267,975
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
5,200 Steel Technologies, Inc. $ 91,260
3,600 Wheeling-Pittsburgh Corp. (a) 67,428
24,000 Worthington Industries, Inc. 425,280
-------------
3,141,577
- ---------------------------------------------------------------------------------------------------------------
Sugar - 0.0% 4,700 Imperial Sugar Co. New Shares (e) 113,787
- ---------------------------------------------------------------------------------------------------------------
Telecommunications 50,600 Andrew Corp. (a) 517,638
Equipment - 0.8% 33,900 Arris Group, Inc. (a) 424,089
5,285 Audiovox Corp. Class A (a) 74,466
13,461 Belden CDT, Inc. 526,190
17,934 C-COR, Inc. (a) 199,785
5,300 CalAmp Corp. (a) 44,732
18,100 Interdigital Communications Corp. (a) 607,255
11,900 Mastec, Inc. (a) 137,326
14,899 Plantronics, Inc. 315,859
27,400 Polycom, Inc. (a) 846,934
40,377 Powerwave Technologies, Inc. (a) 260,432
8,100 Radyne Corp. (a) 86,994
19,000 Symmetricom, Inc. (a) 169,480
-------------
4,211,180
- ---------------------------------------------------------------------------------------------------------------
Textile Products - 0.0% 15,121 Interface, Inc. Class A (a) 215,021
- ---------------------------------------------------------------------------------------------------------------
Textiles Apparel 17,500 Carter's, Inc. (a) 446,250
Manufacturers - 0.8% 2,500 Cherokee, Inc. 107,275
5,200 Columbia Sportswear Co. 289,640
6,485 Guess?, Inc. (a) 411,344
6,300 Hartmarx Corp. (a) 44,478
7,370 J. Crew Group, Inc. (a) 284,113
7,182 Kellwood Co. 233,559
4,500 Maidenform Brands, Inc. (a) 81,540
4,842 Oxford Industries, Inc. 240,405
3,700 Perry Ellis International, Inc. (a) 151,700
17,154 Phillips-Van Heusen Corp. 860,616
38,700 Quiksilver, Inc. (a) 609,525
5,600 True Religion Apparel, Inc. (a)(e) 85,736
6,200 Under Armour, Inc. Class A (a) 312,790
17,400 The Warnaco Group, Inc. (a) 441,612
-------------
4,600,583
- ---------------------------------------------------------------------------------------------------------------
Tires & Rubber - 0.1% 3,574 Bandag, Inc. 180,237
16,900 Cooper Tire & Rubber Co. 241,670
3,900 Titan International, Inc. 78,585
-------------
500,492
- ---------------------------------------------------------------------------------------------------------------
Tobacco - 0.2% 37,855 Alliance One International, Inc. (a)(h) 267,256
4,920 Schweitzer-Mauduit International, Inc. 128,166
7,456 Universal Corp. 365,419
13,033 Vector Group Ltd. (e) 231,336
-------------
992,177
- ---------------------------------------------------------------------------------------------------------------
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
Toys - 0.1% 10,730 Jakks Pacific, Inc. (a) $ 234,343
10,800 Leapfrog Enterprises, Inc. (a) 102,384
17,400 Marvel Entertainment, Inc. (a) 468,234
-------------
804,961
- ---------------------------------------------------------------------------------------------------------------
Transportation 9,100 Celadon Group, Inc. (a) 152,425
Miscellaneous - 0.2% 1,500 Dynamex, Inc. (a) 35,040
12,700 HUB Group, Inc. Class A (a) 349,885
11,700 Pacer International, Inc. 348,309
4,100 US Xpress Enterprises, Inc. Class A (a) 67,527
-------------
953,186
- ---------------------------------------------------------------------------------------------------------------
Truckers - 0.4% 7,541 Arkansas Best Corp. 271,476
11,532 Forward Air Corp. 333,621
19,173 Heartland Express, Inc. 287,978
17,662 Knight Transportation, Inc. 301,137
4,450 Marten Transport Ltd. (a) 81,569
9,425 Old Dominion Freight Line, Inc. (a) 226,860
1,100 PAM Transportation Services (a) 24,222
100 Patriot Transportation Holding, Inc. (a) 9,336
1,000 Quality Distribution, Inc. (a) 13,320
5,981 Saia, Inc. (a) 138,819
4,100 USA Truck, Inc. (a) 65,805
1,700 Universal Truckload Services, Inc. (a) 40,375
17,300 Werner Enterprises, Inc. 302,404
-------------
2,096,922
- ---------------------------------------------------------------------------------------------------------------
Utilities: Cable TV & 17,600 Mediacom Communications Corp. Class A (a) 141,504
Radio - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Utilities: Electrical - 9,166 Allete, Inc. 426,586
1.3% 15,175 Avista Corp. 384,079
12,000 Black Hills Corp. 443,280
4,989 CH Energy Group, Inc. 263,419
17,867 Cleco Corp. 450,784
30,040 Duquesne Light Holdings, Inc. 596,294
15,308 El Paso Electric Co. (a) 373,056
8,068 The Empire District Electric Co. 199,199
13,100 IDACORP, Inc. 506,315
4,000 ITC Holdings Corp. 159,600
6,145 MGE Energy, Inc. 224,784
11,300 NorthWestern Corp. 399,794
9,186 Otter Tail Corp. 286,236
21,400 PNM Resources, Inc. 665,540
4,100 Pike Electric Corp. (a) 66,953
10,500 Portland General Electric Co. 286,125
9,167 UIL Holdings Corp. 386,756
10,483 Unisource Energy Corp. 382,944
27,200 Westar Energy, Inc. 706,112
-------------
7,207,856
- ---------------------------------------------------------------------------------------------------------------
Utilities: Gas 5,322 Cascade Natural Gas Corp. 137,946
Distributors - 0.8% 2,200 EnergySouth, Inc. 88,220
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
6,048 The Laclede Group, Inc. $ 211,861
9,174 New Jersey Resources Corp. 445,673
13,800 Nicor, Inc. 645,840
8,699 Northwest Natural Gas Co. 369,186
13,100 Peoples Energy Corp. 583,867
25,100 Piedmont Natural Gas Co. (e) 671,425
9,232 South Jersey Industries, Inc. 308,441
12,790 Southwest Gas Corp. 490,752
17,500 WGL Holdings, Inc. 570,150
-------------
4,523,361
- ---------------------------------------------------------------------------------------------------------------
Utilities: Miscellaneous 118,500 Aquila, Inc. (a) 556,950
- - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Utilities: 17,000 Alaska Communications Systems Group, Inc. 258,230
Telecommunications - 400 Atlantic Tele-Network, Inc. 11,720
1.0% 5,155 CT Communications, Inc. 118,153
5,626 Centennial Communications Corp. (a) 40,451
86,400 Cincinnati Bell, Inc. (a) 394,848
8,333 Commonwealth Telephone Enterprises, Inc. 348,819
7,200 Consolidated Communications Holdings, Inc. 150,480
52,500 Dobson Communications Corp. Class A (a) 456,225
1,600 Eschelon Telecom, Inc. (a) 31,696
10,400 FairPoint Communications, Inc. 197,080
39,050 FiberTower Corp. (a)(e) 229,614
16,939 General Communication, Inc. Class A (a) 266,450
6,492 Golden Telecom, Inc. (f) 304,085
16,800 IDT Corp. Class B (a) 219,744
10,600 Iowa Telecommunications Services, Inc. 208,926
6,200 iPCS, Inc. (a) 343,232
6,900 NTELOS Holdings Corp. (a) 123,372
4,121 North Pittsburgh Systems, Inc. 99,481
28,300 Premiere Global Services, Inc. (a) 267,152
8,300 RCN Corp. (a) 250,245
1,700 Shenandoah Telecom Co. 79,917
4,600 SureWest Communications 126,684
47,100 Time Warner Telecom, Inc. Class A (a) 938,703
10,420 USA Mobility, Inc. 233,095
-------------
5,698,402
- ---------------------------------------------------------------------------------------------------------------
Utilities: Water - 0.1% 4,585 American States Water Co. 177,073
5,396 California Water Service Group 217,998
3,748 SJW Corp. 145,272
9,983 Southwest Water Co. 137,366
-------------
677,709
- ---------------------------------------------------------------------------------------------------------------
Wholesale & 11,625 Central European Distribution Corp. (a) 345,262
International Trade -
0.1%
- ---------------------------------------------------------------------------------------------------------------
Wholesalers - 0.2% 18,430 Brightpoint, Inc. (a) 247,883
13,800 LKQ Corp. (a) 317,262
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
Share
Industry Held Common Stocks Value
- ---------------------------------------------------------------------------------------------------------------
900 MWI Veterinary Supply, Inc. (a) $ 29,070
8,700 Prestige Brands Holdings, Inc. (a) 113,274
10,469 United Stationers, Inc. (a) 488,798
-------------
1,196,287
- ---------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $331,305,141) - 78.2% 439,097,192
- ---------------------------------------------------------------------------------------------------------------
Exchange-Traded Funds
- ---------------------------------------------------------------------------------------------------------------
169,590 iShares Russell 2000 Index Fund (e) 13,241,587
- ---------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $12,341,064) - 2.4% 13,241,587
- ---------------------------------------------------------------------------------------------------------------
Mutual Funds
- ---------------------------------------------------------------------------------------------------------------
Investment Management 4,400 Gladstone Capital Corp. (e) 104,984
Companies - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Total Mutual Funds
(Cost - $92,876) - 0.0% 104,984
- ---------------------------------------------------------------------------------------------------------------
Rights
- ---------------------------------------------------------------------------------------------------------------
Cosmetics - 0.0% 47,510 Revlon, Inc. (expires 1/19/2007) (a) 2,376
- ---------------------------------------------------------------------------------------------------------------
Real Estate Investment 9,800 Affordable Residential Communities (expires 1/23/2007) 8,656
Trusts (REITs) - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Total Rights (Cost - $0) - 0.0% 11,032
- ---------------------------------------------------------------------------------------------------------------
Beneficial
Interest Other Interests (b)
- ---------------------------------------------------------------------------------------------------------------
Oil: Crude Producers - $ 500 PetroCorp, Inc. (Escrow Shares) 0
0.0%
- ---------------------------------------------------------------------------------------------------------------
Total Other Interests
(Cost - $0) - 0.0% 0
- ---------------------------------------------------------------------------------------------------------------
Short-Term Securities
- ---------------------------------------------------------------------------------------------------------------
$108,812,950 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.26% (c)(g) 108,812,950
34,166,480 BlackRock Liquidity Series, LLC Money
Market Series, 5.29% (c)(d)(g) 34,166,480
- ---------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $142,979,430) - 25.5% 142,979,430
- ---------------------------------------------------------------------------------------------------------------
Total Investments (Cost - $486,718,511*) - 106.1% 595,434,225
Liabilities in Excess of Other Assets - (6.1%) (34,061,648)
-------------
Net Assets - 100.0% $ 561,372,577
=============
=============
* The cost and unrealized appreciation (depreciation) of investments, as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 491,852,083
=============
Gross unrealized appreciation $ 123,684,950
Gross unrealized depreciation (20,102,808)
-------------
Net unrealized appreciation $ 103,582,142
=============
(a) Non-income producing security.
(b) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
Master Small Cap Index Series
Schedule of Investments as of December 31, 2006
(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
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $108,171,275 $2,287,352
BlackRock Liquidity Series, LLC
Money Market Series $ 20,701,425 $ 417,774
--------------------------------------------------------------------------
(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 December 31, 2006.
(h) Security held as collateral in connection with open future contracts.
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 percentage of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2006, were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
274 Russell 2000 March
Index 2007 $109,431,543 ($530,243)
--------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
Small Cap Index Series (the "Series"), one of the portfolios constituting the
Quantitative Master Series Trust (the "Trust"), as of December 31, 2006, and for
the year then ended and have issued our report thereon dated February 26, 2007
which report and financial statements are included in Item 1 of this Certified
Shareholder Report on Form N-CSR. Our audit also included the Series' schedule
of investments in securities (the "Schedule") as of December 31, 2006 appearing
in Item 6 of this Form N-CSR. This Schedule is the responsibility of the Trust's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, the Schedule referred to above, when considered in relation to the
basic financial statements taken as a whole of the Series referred to above,
presents fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Australia - 4.9% Airlines - 0.0% 33,547 Qantas Airways Ltd. $ 138,227
--------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 41,945 Coca-Cola Amatil Ltd. 256,927
119,489 Foster's Group Ltd. 652,682
1,770 Lion Nathan Ltd. 11,401
------------
921,010
--------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 10,984 CSL Ltd. 566,770
--------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 13,704 Macquarie Bank Ltd. 853,802
686 Perpetual Trustees Australia Ltd. 42,350
------------
896,152
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 14,011 Orica Ltd. 268,747
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.2% 108,588 Australia & New Zealand Banking Group
Ltd. 2,417,981
70,309 Commonwealth Bank of Australia Ltd. 2,746,051
90,221 National Australia Bank Ltd. 2,877,113
109,563 Westpac Banking Corp. 2,096,353
------------
10,137,498
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 96,014 Brambles Ltd. 963,260
3,802 Downer EDI Ltd. 20,978
------------
984,238
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 7,102 Leighton Holdings Ltd. 113,352
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 19,485 Boral Ltd. 117,353
12,618 James Hardie Industries NV 95,715
58,059 Rinker Group Ltd. 827,208
------------
1,040,276
--------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 39,761 Amcor Ltd. 227,543
--------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 59,199 Pacific Brands Ltd. 121,962
--------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.1% 34,550 ABC Learning Centres Ltd. 229,084
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.2% 8,881 Australian Stock Exchange Ltd. 267,439
16,381 Babcock & Brown Ltd. 320,671
49,792 Challenger Financial Services Group
Ltd. 161,929
36,612 Suncorp-Metway Ltd. 588,106
------------
1,338,145
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 361,288 Telstra Corp. Ltd. 1,046,547
Services - 0.1%
--------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.0% 8,780 WorleyParsons Ltd. 147,480
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.2% 73,368 Coles Myer Ltd. $ 810,779
61,616 Woolworths Ltd. 1,162,410
------------
1,973,189
--------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 61,294 Futuris Corp. Ltd. 95,313
17,888 Goodman Fielder Ltd. 31,346
------------
126,659
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 6,833 Ansell Ltd. 60,678
1,341 Cochlear Ltd. 61,394
------------
122,072
--------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 37,257 Mayne Group Ltd. 111,753
6,047 Sonic Healthcare Ltd. 71,025
------------
182,778
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 14,866 Aristocrat Leisure Ltd. 186,577
22,614 TABCORP Holdings Ltd. 300,777
57,896 Tattersall's Ltd. 178,687
------------
666,041
--------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 16,432 Computershare Ltd. 115,438
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 65,377 CSR Ltd. 193,519
20,114 Wesfarmers Ltd. 596,020
------------
789,539
--------------------------------------------------------------------------------------------------------------
Insurance - 0.3% 97,833 AMP Ltd. 779,964
41,638 AXA Asia Pacific Holdings Ltd. 239,599
91,395 Insurance Australia Group Ltd. 458,104
41,004 QBE Insurance Group Ltd. 933,770
------------
2,411,437
--------------------------------------------------------------------------------------------------------------
Media - 0.1% 223 APN News & Media Ltd. 1,065
81,419 John Fairfax Holdings Ltd. 310,414
37,192 Macquarie Communications Infrastructure
Group 184,952
7,913 Publishing & Broadcasting Ltd. 133,354
------------
629,785
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 49,188 Alumina Ltd. 246,159
204,569 BHP Billiton Ltd. 4,085,341
49,777 BlueScope Steel Ltd. 338,691
28,055 Iluka Resources Ltd. 147,265
15,801 Newcrest Mining Ltd. 328,650
23,580 OneSteel Ltd. 87,108
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
21,889 Rio Tinto Ltd. $ 1,283,757
32,166 Zinifex Ltd. 477,081
------------
6,994,052
--------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.1% 28,965 AGL Energy Ltd. 369,930
20,992 Alinta Ltd. 195,857
------------
565,787
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 1,216 Harvey Norman Holdings Ltd. 3,647
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 10,809 Caltex Australia Ltd. 196,237
33,433 Origin Energy Ltd. 218,247
34,775 Paladin Resources Ltd. (c) 244,301
32,208 Santos Ltd. 250,928
29,771 Woodside Petroleum Ltd. 895,572
------------
1,805,285
--------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 5,919 PaperlinX Ltd. 18,362
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 55,979 Mayne Pharma Ltd. 179,841
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) 114,334 CFS Retail Property Trust 210,281
- 0.5% 32,383 Centro Properties Group/New 232,609
166,094 Commonwealth Property Office Fund 192,726
80,760 DB RREEF Trust 113,152
83,673 ING Industrial Fund 156,531
36,036 Investa Property Group 71,397
32,897 Macquarie Office Trust 39,989
96,340 Macquire Goodman Group 577,947
70,450 Mirvac Group 310,857
15,146 Multiplex Group 47,702
62,317 Stockland 407,291
91,484 Westfield Group 1,515,743
------------
3,876,225
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 123,927 General Property Trust 547,800
0.1% 17,727 Lend Lease Corp., Ltd. 258,026
------------
805,826
--------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 30,050 Toll Holdings Ltd. 433,362
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 1,897 Billabong International Ltd. 26,055
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 12,244 Macquarie Airports 34,793
178,390 Macquarie Infrastructure Group 487,208
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
52,081 Sydney Roads Group $ 54,265
31,193 Transurban Group 187,620
------------
763,886
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 40,666,297
- ----------------------------------------------------------------------------------------------------------------------------------
Austria - 0.6% Building Products - 0.0% 3,296 Wienerberger AG 195,789
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 10,982 Erste Bank der Oesterreichischen
Sparkassen AG 842,260
2,739 Raiffeisen International Bank Holding AG 417,638
------------
1,259,898
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 273 RHI AG (c) 13,946
--------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 509 Mayr-Melnhof Karton AG 95,410
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 19,829 Telekom Austria AG 531,356
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 3,166 Verbund - Oesterreichische
Elektrizitaetswirtschafts AG 168,926
--------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 563 Wiener Staedtische Allgemeine
Versicherung AG 39,537
--------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 1,053 Andritz AG 228,378
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 3,329 Boehler-Uddeholm AG 233,344
3,558 Voestalpine AG 200,879
------------
434,223
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.1% 13,419 OMV AG 761,511
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 20,281 IMMOFINANZ Immobilien Anlagen AG (c) 289,136
0.1% 21,261 Immoeast Immobilien Anlagen AG (c) 298,897
12,442 Meinl European Land Ltd. (c) 319,447
------------
907,480
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 1,050 Flughafen Wien AG 103,122
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Austria 4,739,576
- ----------------------------------------------------------------------------------------------------------------------------------
Belgium - 1.2% Beverages - 0.1% 12,022 InBev NV 792,527
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 3,255 Solvay SA 499,282
2,110 Umicore 359,303
------------
858,585
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3% 31,611 Dexia 865,855
13,388 KBC Bancassurance Holding 1,641,799
------------
2,507,654
--------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 204 D'ieteren SA 72,627
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.4% 70,133 Fortis 2,992,144
3,675 Groupe Bruxelles Lambert SA 441,699
211 Groupe Bruxelles Lambert SA Strip
VVPR (c) 6
------------
3,433,849
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 11,863 Belgacom SA $ 522,564
- 0.1%
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 927 Bekaert SA 115,883
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 493 Barco NV 44,904
0.0%
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 921 Colruyt SA 196,710
4,546 Delhaize Group 378,958
950 Delhaize Group (a) 79,116
------------
654,784
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 1,461 Omega Pharma SA 110,219
--------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 9,271 AGFA-Gevaert NV 236,930
--------------------------------------------------------------------------------------------------------------
Marine - 0.0% 1,598 Compagnie Maritime Belge SA (CMB) 68,789
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 1,612 Euronav SA 48,176
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 4,089 UCB SA 280,409
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 8 Cofinimmo 1,607
0.0%
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 957 Mobistar SA 81,671
0.0%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 9,831,178
- ----------------------------------------------------------------------------------------------------------------------------------
Bermuda - 0.0% Energy Equipment & Services - 0.0% 17,113 SeaDrill Ltd. (c) 288,867
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 19,785 Yue Yuen Industrial Holdings 62,827
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 351,694
- ----------------------------------------------------------------------------------------------------------------------------------
Cayman Islands - 0.0Communications Equipment - 0.0% 101,061 Foxconn International Holdings Ltd. (c) 330,664
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Cayman
Islands 330,664
- ----------------------------------------------------------------------------------------------------------------------------------
Denmark - 0.8% Beverages - 0.0% 962 Carlsberg A/S 95,539
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 2,117 Novozymes A/S Class B 182,138
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 35,651 Danske Bank A/S 1,584,124
2,625 Jyske Bank (c) 186,345
1,983 Sydbank A/S 94,783
------------
1,865,252
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 1,517 FLS Industries A/S Class B 96,410
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1% 13,024 Vestas Wind Systems A/S (c) 550,467
--------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 2,384 Danisco A/S 203,000
2,685 East Asiatic Co., Ltd. A/S 150,202
------------
353,202
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 571 Coloplast A/S Class B 51,654
17,800 GN Store Nord 263,118
1,430 William Demant Holding (c) 115,943
------------
430,715
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 436 Bang & Olufsen A/S Class B 56,190
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 1,651 Topdanmark A/S (c) $ 272,984
1,391 TrygVesta A/S 106,256
------------
379,240
--------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 720 NKT Holding A/S 63,667
--------------------------------------------------------------------------------------------------------------
Marine - 0.1% 61 AP Moller - Maersk A/S 574,494
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 900 D/S Torm A/S 58,951
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2% 3,119 H Lundbeck A/S 85,998
15,326 Novo-Nordisk A/S B 1,276,534
------------
1,362,532
--------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 1,755 DSV A/S 320,627
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 6,389,424
- ----------------------------------------------------------------------------------------------------------------------------------
Finland - 1.4% Auto Components - 0.0% 9,415 Nokian Renkaat Oyj 192,886
--------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 528 Asko Oyj 19,766
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.6% 249,391 Nokia Oyj 5,096,129
1,270 Nokia Oyj (a) 25,806
------------
5,121,935
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 7,673 YIT Oyj 212,196
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 47 OKO Bank 788
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 6,091 Elisa Corp. 166,838
- 0.0%
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 30,045 Fortum Oyj 855,086
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 2,135 Kesko Oyj Class B 112,788
--------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 5,675 TietoEnator Oyj 183,086
--------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 39,201 Sampo Oyj 1,049,431
--------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.0% 5,404 Amer Sports Corp. 118,987
--------------------------------------------------------------------------------------------------------------
Machinery - 0.2% 2,051 Cargotec Corp. Class B 113,982
6,756 KCI Konecranes Oyj 198,876
4,102 Kone Oyj Class B 232,513
9,656 Metso Oyj 487,421
2,330 Wartsila Oyj 125,520
------------
1,158,312
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 540 SanomaWSOY Oyj (Class B) 15,219
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 8,568 Outokumpu Oyj 335,459
6,996 Rautaruukki Oyj 278,436
------------
613,895
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 6,709 Neste Oil Oyj 203,958
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.2% 35,345 Stora Enso Oyj Class R $ 559,884
34,754 UPM-Kymmene Oyj 877,165
------------
1,437,049
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 1,802 Orion Oyj (c) 39,130
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 11,501,350
- ----------------------------------------------------------------------------------------------------------------------------------
France - 9.3% Aerospace & Defense - 0.2% 22,276 European Aeronautic Defense and Space
Co. 767,479
7,026 Safran SA 163,048
6,060 Thales SA 302,220
2,001 Zodiac SA 134,448
------------
1,367,195
--------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 9,767 Air France-KLM 411,154
--------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 9,847 Compagnie Generale des Etablissements
Michelin 942,390
6,537 Valeo SA 272,077
------------
1,214,467
--------------------------------------------------------------------------------------------------------------
Automobiles - 0.2% 10,853 Peugeot SA 719,188
10,314 Renault SA 1,238,960
------------
1,958,148
--------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 4,757 Pernod-Ricard 1,092,625
--------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 18,656 Cie de Saint-Gobain 1,567,493
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 7,239 Air Liquide 1,719,089
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.3% 50,675 BNP Paribas 5,528,729
33,652 Credit Agricole SA 1,415,290
23,828 Societe Generale 4,044,988
------------
10,989,007
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 1,788 Societe BIC SA 124,503
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.3% 145,352 Alcatel SA 2,091,396
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 15,172 Vinci SA 1,938,683
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 1,109 Imerys SA 98,669
9,635 Lafarge SA 1,433,390
------------
1,532,059
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 99,167 France Telecom SA 2,742,457
- 0.3%
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 6,646 Alstom (c) 900,989
14,709 Schneider Electric SA 1,632,931
------------
2,533,920
--------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.1% 7,636 Technip SA 524,153
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.3% 40,322 Carrefour SA $ 2,445,241
1,766 Casino Guichard Perrachon SA 164,116
------------
2,609,357
--------------------------------------------------------------------------------------------------------------
Food Products - 0.3% 14,273 Groupe Danone 2,162,947
--------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 9,825 Gaz de France 451,985
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 6,748 Cie Generale d'Optique Essilor
International SA 725,529
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.2% 13,575 Accor SA 1,051,881
4,916 Sodexho Alliance SA 308,438
------------
1,360,319
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 19,853 Thomson 388,123
--------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 4,426 Atos Origin (c) 262,504
7,442 Cap Gemini SA 467,120
------------
729,624
--------------------------------------------------------------------------------------------------------------
Insurance - 0.6% 102,693 AXA 4,157,606
1,664 CNP Assurances 185,829
83,103 SCOR 245,727
------------
4,589,162
--------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 2,729 Vallourec 793,609
--------------------------------------------------------------------------------------------------------------
Media - 0.5% 8,668 Lagardere S.C.A. 697,971
1,376 M6-Metropole Television 49,151
7,450 PagesJaunes Groupe SA 148,203
10,939 Publicis Groupe 461,357
9,292 Societe Television Francaise 1 344,793
67,408 Vivendi SA 2,634,745
------------
4,336,220
--------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.5% 59,035 Suez SA 3,057,149
18,844 Veolia Environnement 1,452,696
------------
4,509,845
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.1% 3,417 Pinault-Printemps-Redoute 510,599
--------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 1,763 Neopost SA 221,437
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.1% 132,168 Total SA 9,534,659
--------------------------------------------------------------------------------------------------------------
Personal Products - 0.2% 16,379 L'Oreal SA 1,641,035
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.7% 61,777 Sanofi-Aventis 5,704,311
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 492 Gecina SA $ 94,172
0.1% 1,410 Klepierre 266,161
2,783 Unibail 679,999
------------
1,040,332
--------------------------------------------------------------------------------------------------------------
Semiconductors & 42,974 STMicroelectronics NV 798,157
Semiconductor Equipment - 0.1%
--------------------------------------------------------------------------------------------------------------
Software - 0.1% 7,526 Business Objects SA (c) 295,357
2,635 Dassault Systemes SA 139,828
------------
435,185
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.3% 3,070 Hermes International 383,978
15,960 LVMH Moet Hennessy Louis Vuitton SA 1,684,380
------------
2,068,358
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 222 Societe Des Autoroutes Paris-Rhin-Rhone 17,730
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 14,000 Bouygues 898,713
0.1%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 77,333,585
- ----------------------------------------------------------------------------------------------------------------------------------
Germany - 6.8% Air Freight & Logistics - 0.2% 55,517 Deutsche Post AG 1,673,828
--------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 16,156 Deutsche Lufthansa AG 444,661
--------------------------------------------------------------------------------------------------------------
Auto Components - 0.1% 8,832 Continental AG 1,027,126
--------------------------------------------------------------------------------------------------------------
Automobiles - 0.6% 55,234 DaimlerChrysler AG 3,412,252
12,055 Volkswagen AG 1,366,780
------------
4,779,032
--------------------------------------------------------------------------------------------------------------
Capital Markets - 0.5% 30,533 Deutsche Bank AG Registered Shares 4,084,502
3,332 MLP AG 66,152
------------
4,150,654
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.7% 31,493 BASF AG 3,070,105
41,785 Bayer AG 2,242,727
7,630 Linde AG 788,230
------------
6,101,062
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 40,649 Commerzbank AG 1,548,048
3,876 Deutsche Postbank AG 327,302
------------
1,875,350
--------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 306 Wincor Nixdorf AG 47,608
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 2,216 Bilfinger Berger AG 162,408
2,359 Hochtief AG 171,892
------------
334,300
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.2% 7,524 Deutsche Boerse AG 1,384,722
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 168,503 Deutsche Telekom AG $ 3,078,452
- 0.4%
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 38,076 E.ON AG 5,168,444
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 1,790 Solarworld AG 112,473
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 11,438 Metro AG 729,417
--------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 131 Suedzucker AG 3,170
--------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1% 3,441 Celesio AG 184,598
3,316 Fresenius Medical Care AG 441,973
------------
626,571
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 16,780 TUI AG 335,356
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.6% 1,115 Rheinmetall AG 84,602
51,478 Siemens AG 5,106,009
860 Siemens AG (a) 84,753
------------
5,275,364
--------------------------------------------------------------------------------------------------------------
Insurance - 0.9% 25,428 Allianz AG Registered Shares 5,194,690
13,748 Muenchener Rueckversicherungs AG
Registered Shares 2,366,859
------------
7,561,549
--------------------------------------------------------------------------------------------------------------
Life Sciences Tools & Services - 0.0% 4,634 Qiagen NV (c) 71,081
--------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 1,793 Heidelberger Druckmaschn 84,922
8,673 MAN AG 783,781
------------
868,703
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 4,064 Premiere AG (c) 68,131
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2% 1,939 Salzgitter AG 253,525
24,315 ThyssenKrupp AG 1,145,538
------------
1,399,063
--------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.4% 27,622 RWE AG 3,044,600
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 1,662 KarstadtQuelle AG (c) 48,178
--------------------------------------------------------------------------------------------------------------
Personal Products - 0.0% 1,590 Beiersdorf AG 103,097
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1% 5,615 Altana AG 348,366
3,817 Merck KGaA 395,733
------------
744,099
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 3,100 IVG Immobilien AG 133,158
0.0%
--------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 50,844 Infineon Technologies AG (c) 716,803
Equipment - 0.1%
--------------------------------------------------------------------------------------------------------------
Software - 0.3% 51,656 SAP AG 2,745,258
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0% 1,073 Douglas Holding AG 55,481
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.2% 16,949 Adidas-Salomon AG $ 844,150
924 Puma AG Rudolf Dassler Sport 360,635
------------
1,204,785
--------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1% 9,779 Hypo Real Estate Holding AG 616,262
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 56,527,838
- ----------------------------------------------------------------------------------------------------------------------------------
Greece - 0.6% Beverages - 0.0% 5,270 Coca-Cola Hellenic Bottling Co. SA 205,916
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 29,457 Alpha Bank AE 890,456
11,335 EFG Eurobank Ergasias SA 410,577
25,296 National Bank of Greece SA 1,165,376
11,135 Piraeus Bank SA 358,942
------------
2,825,351
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 13,438 Intracom SA 91,177
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 722 Hellenic Technodomiki Tev SA 8,063
9,486 Technical Olympic SA 31,806
------------
39,869
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 2,652 Titan Cement Co. SA 144,581
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 4,962 Hellenic Exchanges SA 91,308
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 16,261 Hellenic Telecommunications
- 0.1% Organization SA 488,549
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 5,799 Public Power Corp. 146,975
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.1% 15,257 OPAP SA 589,697
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0% 4,010 Viohalco, Hellenic Copper and Aluminum
Industry SA 49,970
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 276 Hellenic Petroleum SA 3,804
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services 9,444 Cosmote Mobile Telecommunications SA 279,250
- 0.0%
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Greece 4,956,447
- ----------------------------------------------------------------------------------------------------------------------------------
Hong Kong - 1.5% Airlines - 0.0% 15,263 Cathay Pacific Airways Ltd. 37,636
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.2% 249,400 BOC Hong Kong Holdings Ltd. 676,541
69,539 Bank of East Asia Ltd. 393,813
37,453 Hang Seng Bank Ltd. 511,841
3,000 Wing Hang Bank Ltd. 35,290
------------
1,617,485
--------------------------------------------------------------------------------------------------------------
Distributors - 0.1% 135,990 Li & Fung Ltd. 423,095
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 87,348 Hong Kong Exchanges and Clearing Ltd. 960,140
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 78,195 PCCW Ltd. 47,551
- 0.0%
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 98,687 CLP Holdings Ltd. $ 729,530
1,500 Cheung Kong Infrastructure Holdings Ltd. 4,657
61,500 HongKong Electric Holdings 301,242
------------
1,035,429
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 87,328 Johnson Electric Holdings Ltd. 59,841
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 18,647 Kingboard Chemical Holdings Ltd. 73,238
0.0%
--------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 168,240 Hong Kong & China Gas 378,515
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 44,990 Shangri-La Asia Ltd. 115,970
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 62,560 Techtronic Industries Co. 81,072
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 150,176 Hutchison Whampoa Ltd. 1,526,222
56,773 Melco International Development 134,592
------------
1,660,814
--------------------------------------------------------------------------------------------------------------
Marine - 0.0% 3,557 Orient Overseas International Ltd. 22,636
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 1,000 Television Broadcasts Ltd. 6,107
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 164,414 The Link REIT 338,200
0.0%
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 80,835 Cheung Kong Holdings Ltd. 995,070
0.6% 230,000 Hang Lung Properties Ltd. 576,604
91,491 Henderson Land Development Co., Ltd. 511,662
2,791 Hysan Development Co. Ltd. 7,302
9,500 Kerry Properties Ltd. 44,396
185,484 New World Development Ltd. 373,434
20,000 Shun Tak Holdings Ltd. 30,598
52,421 Sino Land Co. 122,387
88,324 Sun Hung Kai Properties Ltd. 1,014,585
64,077 Swire Pacific Ltd. Class A 688,278
52,107 Wharf Holdings Ltd. 192,597
------------
4,556,913
--------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 38,500 MTR Corp. 96,816
--------------------------------------------------------------------------------------------------------------
Semiconductors & 5,004 ASM Pacific Technology 27,856
Semiconductor Equipment - 0.0% 388,000 Solomon Systech International Ltd. 60,358
------------
88,214
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 69,500 Esprit Holdings Ltd. 776,015
120,394 Giordano International Ltd. 65,782
------------
841,797
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 59,353 Texwinca Holdings Ltd. 41,129
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 18,349 Hopewell Holdings 64,401
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 45,647 Hutchison Telecommunications
0.0% International Ltd. (c) $ 115,023
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 12,662,022
- ----------------------------------------------------------------------------------------------------------------------------------
Ireland - 0.9% Airlines - 0.1% 27,680 Ryanair Holdings Plc (c) 381,100
--------------------------------------------------------------------------------------------------------------
Beverages - 0.0% 17,289 C&C Group Plc 306,959
--------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 3,971 Kingspan Group Plc 105,362
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 55,472 Allied Irish Banks Plc 1,647,574
55,372 Bank of Ireland 1,279,137
18,026 Depfa Bank Plc 322,424
------------
3,249,135
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.2% 35,471 CRH Plc 1,476,807
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 648 Fyffes Plc 1,523
--------------------------------------------------------------------------------------------------------------
Food Products - 0.1% 20,458 Greencore Group Plc 126,386
2,825 Iaws Group Plc 72,345
4,615 Kerry Group Plc 115,322
------------
314,053
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 264 Paddy Power Plc 5,248
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 54,122 Waterford Wedgewood Plc Restricted
Shares (e) 5,358
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 2,954 DCC Plc 100,410
--------------------------------------------------------------------------------------------------------------
Insurance - 0.1% 15,915 Irish Life & Permanent Plc 439,078
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 60,610 Independent News & Media Plc 240,824
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0% 21,926 Elan Corp. Plc (c) 311,141
--------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 7,512 Grafton Group Plc 125,440
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 7,062,438
- ----------------------------------------------------------------------------------------------------------------------------------
Italy - 3.7% Aerospace & Defense - 0.1% 17,512 Finmeccanica SpA 474,816
--------------------------------------------------------------------------------------------------------------
Automobiles - 0.1% 35,328 Fiat SpA 674,709
--------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 33,792 Mediobanca SpA 797,572
15,925 Mediolanum SpA 129,830
------------
927,402
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.4% 225,723 Banca Intesa SpA 1,743,092
43,593 Banca Intesa SpA (RNC) 318,222
52,548 Banca Monte dei Paschi di Siena SpA 340,308
30,908 Banca Popolare di Milano Scrl 535,989
24,515 Banche Popolari Unite Scrl 673,754
31,238 Banco Popolare di Verona e Novara Scrl 895,636
95,511 Capitalia SpA 903,985
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
77,907 Sanpaolo IMI SpA $ 1,809,997
457,392 UniCredito Italiano SpA 4,009,086
------------
11,230,069
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 5,058 Italcementi SpA 142,750
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 674,497 Telecom Italia SpA 2,038,939
- 0.4% 331,271 Telecom Italia SpA (RNC) 840,476
------------
2,879,415
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 269,409 Enel SpA 2,779,264
101,241 Terna SpA 343,462
------------
3,122,726
--------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.0% 63,411 Snam Rete Gas SpA 359,766
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 4,375 Autogrill SpA 80,437
1,947 Lottomatica SpA 80,908
------------
161,345
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 258,277 Pirelli & C SpA 257,476
--------------------------------------------------------------------------------------------------------------
Insurance - 0.4% 28,503 Alleanza Assicurazioni SpA 380,090
59,533 Assicurazioni Generali SpA 2,614,564
6,294 Fondiaria-Sai SpA 301,178
24,773 Unipol SpA (Preference Shares) 80,217
------------
3,376,049
--------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.0% 27,235 Tiscali SpA (c) 90,849
--------------------------------------------------------------------------------------------------------------
Media - 0.1% 4,823 Arnoldo Mondadori Editore SpA (c) 50,423
12,331 Gruppo Editoriale L'Espresso SpA 67,226
49,526 Mediaset SpA 587,735
158,897 Seat Pagine Gialle SpA 94,703
------------
800,087
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.6% 149,876 ENI SpA 5,041,041
4,487 ENI SpA (a)(f) 301,885
------------
5,342,926
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.0% 4,772 Benetton Group SpA 91,125
9,077 Bulgari SpA 128,807
5,417 Luxottica Group SpA 166,468
------------
386,400
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 20,529 Autostrade SpA $ 590,492
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 30,817,277
- ----------------------------------------------------------------------------------------------------------------------------------
Japan - 20.8% Air Freight & Logistics - 0.1% 28,000 Yamato Transport Co., Ltd. 430,570
--------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 10,000 All Nippon Airways Co., Ltd. 35,377
88,000 Japan Airlines Corp. 156,766
------------
192,143
--------------------------------------------------------------------------------------------------------------
Auto Components - 0.5% 14,300 Aisin Seiki Co., Ltd. 479,450
40,000 Bridgestone Corp. 892,399
30,400 Denso Corp. 1,205,731
9,000 NGK Spark Plug Co., Ltd. 169,405
1,000 NHK Spring Co., Ltd. 10,512
6,400 NOK Corp. 125,843
11,900 Stanley Electric Co., Ltd. 238,490
16,000 Sumitomo Rubber Industries, Ltd. 206,647
1,000 Toyoda Gosei Co., Ltd. 23,150
9,400 Toyota Industries Corp. 432,066
------------
3,783,693
--------------------------------------------------------------------------------------------------------------
Automobiles - 2.1% 100,700 Honda Motor Co., Ltd. 3,977,060
125,300 Nissan Motor Co., Ltd. 1,508,801
171,800 Toyota Motor Corp. 11,491,349
10,000 Yamaha Motor Co., Ltd. 314,273
------------
17,291,483
--------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 15,200 Asahi Breweries Ltd. 243,317
200 Coca-Cola West Holdings Co. Ltd. 4,630
6,200 ITO EN, Ltd. 189,639
40,000 Kirin Brewery Co., Ltd. 628,881
25,000 Sapporo Holdings Ltd. 142,431
12,000 Takara Holdings, Inc. 77,341
------------
1,286,239
--------------------------------------------------------------------------------------------------------------
Building Products - 0.2% 48,100 Asahi Glass Co., Ltd. 577,984
2,000 Central Glass Co., Ltd. 11,462
13,100 Daikin Industries Ltd. 455,729
10,900 JS Group Corp. 229,440
40,000 Nippon Sheet Glass Co., Ltd. 187,555
27,000 Sanwa Shutter Corp. 159,724
21,000 Toto Ltd. 210,344
------------
1,832,238
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 0.5% 75,000 Daiwa Securities Group, Inc. $ 841,351
1,000 Jafco Co., Ltd. 49,410
10,300 Matsui Securities Co., Ltd. 78,156
8,000 Mitsubishi UFJ Securities Co. 88,870
41,500 Nikko Cordial Corp. 476,009
119,100 Nomura Holdings, Inc. 2,246,792
159 SBI E*trade Securities Co. Ltd. 150,977
714 SBI Holdings, Inc. 240,590
7,300 Shinko Securities Co., Ltd. 28,340
------------
4,200,495
--------------------------------------------------------------------------------------------------------------
Chemicals - 1.0% 58,000 Asahi Kasei Corp. 379,665
3,000 Daicel Chemical Industries Ltd. 21,150
28,000 Dainippon Ink and Chemicals, Inc. 109,172
5,000 Denki Kagaku Kogyo Kabushiki Kaisha 20,797
2,800 Hitachi Chemical Co., Ltd. 77,173
13,000 JSR Corp. 336,456
13,000 Kaneka Corp. 118,415
2,000 Kansai Paint Co., Ltd. 15,831
22,500 Kuraray Co., Ltd. 265,451
56,500 Mitsubishi Chemical Holdings Corp. 356,077
17,000 Mitsubishi Gas Chemical Co., Inc. 177,850
46,000 Mitsubishi Rayon Co., Ltd. 309,231
34,000 Mitsui Chemicals, Inc. 261,703
16,000 Nippon Kayaku Co., Ltd. 127,726
5,000 Nippon Sanso Corp. 45,040
16,000 Nissan Chemical Industries Ltd. 198,983
13,710 Nitto Denko Corp. 686,623
23,900 Shin-Etsu Chemical Co., Ltd. 1,600,630
86,000 Showa Denko KK 329,532
13,000 Sumitomo Bakelite Co., Ltd. 89,795
75,000 Sumitomo Chemical Co., Ltd. 581,698
64,000 Teijin Ltd. 394,202
17,000 Tokuyama Corp. 258,846
91,700 Toray Industries, Inc. 687,336
35,000 Tosoh Corp. 154,699
70,000 Ube Industries Ltd. 201,168
15,000 Zeon Corp. 162,094
------------
7,967,343
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 2.2% 11,000 The 77 Bank Ltd. $ 69,787
29,000 The Bank of Fukuoka Ltd. 211,520
8,000 The Bank of Kyoto Ltd. 74,619
81,000 The Bank of Yokohama Ltd. 634,360
52,000 The Chiba Bank Ltd. 439,578
13,000 The Gunma Bank Ltd. 78,106
56,100 Hokuhoku Financial Group, Inc. 205,534
24,000 The Joyo Bank Ltd. 132,499
496 Mitsubishi UFJ Financial Group, Inc. 6,126,801
39,000 Mitsui Trust Holdings, Inc. 447,662
545 Mizuho Financial Group, Inc. 3,892,694
21,000 The Nishi-Nippon City Bank Ltd. 90,349
244 Resona Holdings, Inc. 666,359
10 Sapporo Hokuyo Holdings, Inc. 96,635
133,000 Shinsei Bank Ltd. 782,320
25,000 The Shizuoka Bank Ltd. 248,099
352 Sumitomo Mitsui Financial Group, Inc. 3,608,588
65,000 The Sumitomo Trust & Banking Co., Ltd. 681,652
6,000 Suruga Bank Ltd. 74,316
------------
18,561,478
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.2% 7,300 Arrk Corp. 109,986
31,000 Dai Nippon Printing Co., Ltd. 478,787
139 The Goodwill Group, Inc. 113,298
4,500 Kokuyo Co., Ltd. 71,127
4,500 Meitec Corp. 136,507
10,200 Park24 Co. Ltd. 130,709
14,000 Secom Co., Ltd. 725,852
24,000 Toppan Printing Co., Ltd. 264,997
------------
2,031,263
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 7,000 Uniden Corp. 47,822
--------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.4% 121,000 Fujitsu Ltd. 949,658
15,600 Mitsumi Electric Co., Ltd. 343,448
137,000 NEC Corp. 655,040
5,200 Seiko Epson Corp. 126,499
185,000 Toshiba Corp. 1,204,781
------------
3,279,426
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.2% 8,457 COMSYS Holdings Corp. 93,663
12,000 Chiyoda Corp. 234,948
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
14,000 JGC Corp. $ 240,578
69,800 Kajima Corp. 306,169
8,000 Kinden Corp. 64,737
38,000 Nishimatsu Construction Co., Ltd. 125,490
29,000 Obayashi Corp. 188,127
13,000 Okumura Corp. 64,342
18,000 Shimizu Corp. 89,996
82,000 Taisei Corp. 250,124
3,000 Toda Corp. 12,731
------------
1,670,905
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 32,000 Sumitomo Osaka Cement Co., Ltd. 104,601
71,000 Taiheiyo Cement Corp. 278,022
------------
382,623
--------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.3% 3,010 Acom Co., Ltd. 101,172
8,500 Aeon Credit Service Co., Ltd. 161,065
6,600 Aiful Corp. 185,791
12,100 Credit Saison Co., Ltd. 416,873
200 Hitachi Capital Corp. 3,815
5,000 ORIX Corp. 1,447,418
3,400 Promise Co., Ltd. 105,710
10 Shohkoh Fund & Co., Ltd. 1,554
8,010 Takefuji Corp. 317,021
------------
2,740,419
--------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 5,000 Toyo Seikan Kaisha Ltd. 82,812
--------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 1,000 Canon Marketing Japan Inc. 22,730
--------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.0% 1,900 Benesse Corp. 72,325
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 280 Nippon Telegraph & Telephone Corp. 1,378,766
- 0.2%
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.8% 42,200 Chubu Electric Power Co., Inc. 1,262,401
7,100 Hokkaido Electric Power Co., Inc. 181,371
45,900 The Kansai Electric Power Co., Inc. 1,238,091
18,700 Kyushu Electric Power Co., Inc. 493,408
21,200 Tohoku Electric Power Co., Inc. 529,978
79,200 The Tokyo Electric Power Co., Inc. 2,562,245
------------
6,267,494
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 15,800 Fuji Electric Holdings Co., Ltd. 85,635
19,000 Fujikura Ltd. 167,161
41,000 Furukawa Electric Co., Ltd. 257,703
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
12,873 Matsushita Electric Works Ltd. $ 149,169
104,000 Mitsubishi Electric Corp. 949,069
36,500 Sumitomo Electric Industries Ltd. 570,480
2,900 Ushio, Inc. 59,582
------------
2,238,799
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments 16,900 Alps Electric Co., Ltd. 183,336
- 0.9% 17,500 Citizen Watch Co., Ltd. 133,965
13,000 Dainippon Screen Manufacturing Co.,
Ltd. 116,777
1,300 Hirose Electric Co., Ltd. 147,582
183,000 Hitachi Ltd. 1,141,011
26,700 Hoya Corp. 1,041,032
6,600 Ibiden Co., Ltd. 332,759
1,800 Keyence Corp. 446,048
10,600 Kyocera Corp. 999,387
1,100 Mabuchi Motor Co., Ltd. 65,443
10,500 Murata Manufacturing Co., Ltd. 710,264
5,300 Nidec Corp. 409,731
10,000 Nippon Electric Glass Co. 210,075
31,000 Oki Electric Industry Co., Ltd. 69,031
9,700 Omron Corp. 275,501
8,600 TDK Corp. 683,635
11,000 Taiyo Yuden Co., Ltd. 194,109
5,000 Yaskawa Electric Corp. 57,855
7,300 Yokogawa Electric Corp. 115,752
------------
7,333,293
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.3% 33,500 Aeon Co., Ltd. 724,865
200 Circle K Sunkus Co., Ltd. 3,554
3,600 FamilyMart Co., Ltd. 98,013
2,200 Lawson, Inc. 78,753
3,000 Matsumotokiyoshi Co., Ltd. 66,678
49,300 Seven & I Holdings Co. Ltd. 1,532,793
4,000 UNY Co., Ltd. 52,099
------------
2,556,755
--------------------------------------------------------------------------------------------------------------
Food Products - 0.3% 44,000 Ajinomoto Co., Inc. 581,589
100 House Foods Corp. 1,649
16,600 Katokichi Co., Ltd. 134,468
17,000 Kikkoman Corp. 205,277
25,000 Meiji Dairies Corp. 196,840
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
26,000 Nichirei Corp. $ 3 145,725
3,000 Nippon Meat Packers, Inc. 32,772
11,000 Nisshin Seifun Group, Inc. 113,508
8,000 Nissin Food Products Co., Ltd. 296,458
12,500 QP Corp. 108,084
10,000 Toyo Suisan Kaisha, Ltd. 160,245
3,100 Yakult Honsha Co., Ltd. 89,089
6,000 Yamazaki Baking Co., Ltd. 58,182
------------
2,123,886
--------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 93,000 Osaka Gas Co., Ltd. 346,195
150,000 Tokyo Gas Co., Ltd. 797,866
------------
1,144,061
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 10,000 Olympus Corp. 314,273
12,000 Terumo Corp. 471,913
------------
786,186
--------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 300 Alfresa Holdings Corp. 18,125
6,300 Mediceo Paltac Holdings Co. Ltd. 119,377
1,900 Suzuken Co., Ltd. 71,526
------------
209,028
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,800 Oriental Land Co., Ltd. 94,231
39 ROUND ONE Corp. 115,357
------------
209,588
--------------------------------------------------------------------------------------------------------------
Household Durables - 1.0% 10,400 Casio Computer Co., Ltd. 235,956
3,100 Daito Trust Construction Co., Ltd. 142,229
27,000 Daiwa House Industry Co., Ltd. 469,644
26,500 HASEKO Corp. (c) 94,862
3,400 Makita Corp. 104,281
111,000 Matsushita Electric Industrial Co.,
Ltd. 2,215,243
25,600 Pioneer Corp. 351,501
118,000 Sanyo Electric Co., Ltd. (c) 149,725
19,000 Sekisui Chemical Co., Ltd. 151,515
38,000 Sekisui House Ltd. 553,372
64,000 Sharp Corp. 1,102,475
65,600 Sony Corp. 2,811,310
------------
8,382,113
--------------------------------------------------------------------------------------------------------------
Household Products - 0.1% 28,000 Kao Corp. 755,262
2,200 Uni-Charm Corp. 130,700
------------
885,962
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 3,000 CSK Holdings Corp. $ 128,062
700 Itochu Techno-Science Corp. 37,234
43 NET One Systems Co., Ltd. 56,729
55 NTT Data Corp. 275,451
1,300 Nomura Research Institute Ltd. 188,547
100 Obic Co., Ltd. 20,697
300 Otsuka Shokai Co., Ltd. 30,503
4,700 TIS, Inc. 111,176
------------
848,399
--------------------------------------------------------------------------------------------------------------
Independent Power Producers & Energy 11,400 Electric Power Development Co. 501,962
Traders - 0.1%
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 67,000 Hankyu Hanshin Holdings, Inc. 382,841
--------------------------------------------------------------------------------------------------------------
Insurance - 0.4% 39,300 Millea Holdings, Inc. 1,387,000
79,000 Mitsui Sumitomo Insurance Co., Ltd. 864,317
47,800 Sompo Japan Insurance, Inc. 584,421
12,550 T&D Holdings, Inc. 829,952
------------
3,665,690
--------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.0% 519 Rakuten, Inc. 241,608
--------------------------------------------------------------------------------------------------------------
Internet Software & Services - 0.1% 4 Access Co. Ltd. 18,453
179 eAccess Ltd. 101,078
156 Index Corp. 91,761
737 Yahoo! Japan Corp. 293,549
------------
504,841
--------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products - 0.3% 31,100 Fuji Photo Film Co., Ltd. 1,277,921
11,100 Namco Bandai Holdings, Inc. 162,762
21,000 Nikon Corp. 460,569
1,400 Sankyo Co., Ltd. (Gunma) 77,526
13,232 Sega Sammy Holdings, Inc. 356,915
3,200 Shimano, Inc. 92,769
6,400 Yamaha Corp. 135,524
------------
2,563,986
--------------------------------------------------------------------------------------------------------------
Machinery - 0.9% 18,000 Amada Co., Ltd. 190,731
9,100 Amano Corp. 114,242
9,500 Daifuku Co., Ltd. 150,796
39,000 Ebara Corp. 149,439
11,600 Fanuc Ltd. 1,142,406
5,000 Hino Motors Ltd. 25,713
8,400 Hitachi Construction Machinery Co., Ltd. 225,873
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
92,000 Ishikawajima-Harima Heavy Industries
Co., Ltd. $ 311,550
7,300 JTEKT Corp. 154,888
104,000 Kawasaki Heavy Industries Ltd. 390,639
58,000 Komatsu Ltd. 1,177,009
60,000 Kubota Corp. 555,607
2,800 Kurita Water Industries Ltd. 60,468
31,000 Minebea Co., Ltd. 216,730
187,200 Mitsubishi Heavy Industries Ltd. 851,016
46,000 Mitsui Engineering & Shipbuilding Co.,
Ltd. 149,590
22,000 NGK Insulators Ltd. 339,784
16,000 NSK Ltd. 157,708
15,000 NTN Corp. 134,490
15,000 OKUMA Corp. 173,942
700 OSG Corp. 11,470
2,500 SMC Corp. 354,607
30,000 Sumitomo Heavy Industries Ltd. 315,113
4,000 THK Co., Ltd. 103,189
28,000 The Japan Steel Works, Ltd. 218,814
------------
7,675,814
--------------------------------------------------------------------------------------------------------------
Marine - 0.2% 40,000 Kawasaki Kisen Kaisha Ltd. 312,928
69,000 Mitsui OSK Lines Ltd. 680,694
75,000 Nippon Yusen Kabushiki Kaisha 548,296
------------
1,541,918
--------------------------------------------------------------------------------------------------------------
Media - 0.1% 600 Asatsu-DK, Inc. 19,058
86 Dentsu, Inc. 252,208
58 Fuji Television Network, Inc. 132,566
500 Hakuhodo DY Holdings, Inc. 32,478
4,600 Toho Co., Ltd. 83,106
3,700 Tokyo Broadcasting System, Inc. 123,432
------------
642,848
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9% 26,000 DAIDO STEEL CO., LTD. 172,816
7,000 Dowa Mining Co., Ltd. 59,880
34,700 JFE Holdings, Inc. 1,787,412
140,000 Kobe Steel Ltd. 479,980
80,000 Mitsubishi Materials Corp. 300,492
42,000 Mitsui Mining & Smelting Co., Ltd. 210,344
1,800 Nippon Light Metal Co., Ltd. 4,613
419,000 Nippon Steel Corp. 2,408,269
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
39,000 Nisshin Steel Co., Ltd. $ 144,851
263,000 Sumitomo Metal Industries Ltd. 1,142,565
38,000 Sumitomo Metal Mining Co., Ltd. 487,593
1,600 Sumitomo Titanium Corp. 178,950
600 Toho Titanium Co. Ltd. 31,511
2,100 Tokyo Steel Manufacturing Co., Ltd. 32,928
------------
7,442,204
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.2% 8,000 Daimaru, Inc. 108,432
6,000 Hankyu Department Stores 50,015
9,700 Isetan Co., Ltd. 175,245
38,700 Marui Co., Ltd. 451,373
38,000 Mitsukoshi Ltd. 177,858
1,700 Ryohin Keikaku Co., Ltd. 130,137
22,000 Takashimaya Co., Ltd. 310,945
------------
1,404,005
--------------------------------------------------------------------------------------------------------------
Office Electronics - 0.6% 60,600 Canon, Inc. 3,411,789
34,500 Konica Minolta Holdings, Inc. 487,038
45,000 Ricoh Co., Ltd. 918,869
------------
4,817,696
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 40 Inpex Holdings, Inc. (c) 328,726
49,500 Nippon Mining Holdings, Inc. 356,052
86,000 Nippon Oil Corp. 575,236
11,400 Showa Shell Sekiyu KK 127,598
9,000 TonenGeneral Sekiyu KK 89,164
------------
1,476,776
--------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 37 Nippon Paper Group, Inc. 139,599
49,000 OJI Paper Co., Ltd. 260,224
------------
399,823
--------------------------------------------------------------------------------------------------------------
Personal Products - 0.1% 5,500 Aderans Co., Ltd. 136,570
17,000 Shiseido Co., Ltd. 368,556
------------
505,126
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.1% 37,500 Astellas Pharma, Inc. 1,704,760
21,000 Chugai Pharmaceutical Co., Ltd. 433,217
40,300 Daiichi Sankyo Co. Ltd. 1,259,745
16,600 Eisai Co., Ltd. 912,264
10,000 Kaken Pharmaceutical Co., Ltd. 78,064
11,000 Kyowa Hakko Kogyo Co., Ltd. 94,189
5,000 Santen Pharmaceutical Co., Ltd. 140,750
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
21,000 Shionogi & Co., Ltd. $ 412,924
6,000 Taisho Pharmaceutical Co., Ltd. 109,155
57,500 Takeda Pharmaceutical Co., Ltd. 3,947,523
13,000 Tanabe Seiyaku Co., Ltd. 169,867
------------
9,262,458
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 47 Japan Prime Realty Investment Corp. 170,615
0.1% 33 Japan Real Estate Investment Corp. 354,943
12 Japan Retail Fund Investment Corp. 97,811
35 Nippon Building Fund, Inc. 464,686
21 Nomura Real Estate Office Fund, Inc. 192,345
------------
1,280,400
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 122 KK DaVinci Advisors (c) 120,970
0.6% 5,800 Leopalace21 Corp. 185,202
72,000 Mitsubishi Estate Co., Ltd. 1,863,451
53,000 Mitsui Fudosan Co., Ltd. 1,293,769
20 NTT Urban Development Co. 38,654
25,000 Sumitomo Realty & Development Co., Ltd. 802,487
21,000 Tokyo Tatemono Co., Ltd. 233,990
24,000 Tokyu Land Corp. 226,276
------------
4,764,799
--------------------------------------------------------------------------------------------------------------
Road & Rail - 0.6% 97 Central Japan Railway Co. 1,002,563
241 East Japan Railway Co. 1,609,974
14,000 Keihin Electric Express Railway Co.,
Ltd. 96,466
19,000 Keio Electric Railway Co., Ltd. 122,936
33,000 Keisei Electric Railway Co., Ltd. 187,732
67,000 Kintetsu Corp. 195,362
35,000 Nippon Express Co., Ltd. 191,463
24,000 Odakyu Electric Railway Co., Ltd. 153,473
13,000 Seino Holdings Corp. 122,129
38,000 Tobu Railway Co., Ltd. 183,606
49,000 Tokyu Corp. 313,752
121 West Japan Railway Co. 517,533
------------
4,696,989
--------------------------------------------------------------------------------------------------------------
Semiconductors & 12,800 Advantest Corp. 733,549
Semiconductor Equipment - 0.4% 7,000 Elpida Memory, Inc. (c) 384,690
1,300 NEC Electronics Corp. (c) 38,015
5,800 Rohm Co., Ltd. 577,539
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
12,000 Sanken Electric Co., Ltd. $ 148,128
1,400 Shinko Electric Industries 36,587
3,700 Sumco Corp. 312,777
12,100 Tokyo Electron Ltd. 953,725
3,800 Tokyo Seimitsu Co. Ltd. 179,455
------------
3,364,465
--------------------------------------------------------------------------------------------------------------
Software - 0.3% 4,000 Fuji Soft, Inc. 94,786
3,600 Konami Corp. 108,903
6,800 Nintendo Co., Ltd. 1,765,640
900 Oracle Corp. Japan 41,670
5,000 Trend Micro, Inc. 146,632
------------
2,157,631
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 2,600 Aoyama Trading Co., Ltd. 77,997
3,900 Autobacs Seven Co., Ltd. 142,557
200 EDION Corp. 2,966
3,200 Fast Retailing Co., Ltd. 305,466
500 Nitori Co., Ltd. 21,722
5,800 Shimachu Co., Ltd. 168,144
600 Shimamura Co., Ltd. 68,921
680 USS Co., Ltd. 44,284
6,000 Yamada Denki Co., Ltd. 509,222
------------
1,341,279
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 13,000 Asics Corp. 163,203
22,000 Gunze Ltd. 110,550
1,000 Nisshinbo Industries, Inc. 10,361
7,000 Onward Kashiyama Co., Ltd. 89,349
11,000 Tokyo Style Co., Ltd. 118,961
4,000 Toyobo Co., Ltd. 12,067
11,000 Wacoal Holdings Corp. 149,464
------------
653,955
--------------------------------------------------------------------------------------------------------------
Tobacco - 0.2% 286 Japan Tobacco, Inc. 1,381,875
--------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.7% 1,300 Hitachi High-Technologies Corp. 38,671
79,000 Itochu Corp. 648,569
92,000 Marubeni Corp. 466,938
91,300 Mitsubishi Corp. 1,718,516
98,000 Mitsui & Co., Ltd. 1,465,821
56,800 Sojitz Corp. (c) 172,779
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
65,000 Sumitomo Corp. $ 972,774
9,000 Toyota Tsusho Corp. 241,250
------------
5,725,318
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 4,000 Kamigumi Co., Ltd. 32,738
7,000 Mitsubishi Logistics Corp. 108,642
------------
141,380
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 153 KDDI Corp. 1,037,528
0.4% 1,040 NTT DoCoMo, Inc. 1,642,956
52,000 Softbank Corp. 1,011,554
------------
3,692,038
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 172,470,062
- ----------------------------------------------------------------------------------------------------------------------------------
Luxembourg - 0.0% Personal Products - 0.0% 983 Oriflame Cosmetics SA 40,492
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Luxembourg 40,492
- ----------------------------------------------------------------------------------------------------------------------------------
Netherlands - 3.5% Air Freight & Logistics - 0.2% 32,180 TNT NV 1,383,967
--------------------------------------------------------------------------------------------------------------
Beverages - 0.1% 14,060 Heineken NV 668,711
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.2% 16,780 Akzo Nobel NV 1,023,568
11,212 Koninklijke DSM NV 553,977
------------
1,577,545
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 117,826 ABN AMRO Holding NV 3,787,292
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 2,045 Buhrmann NV 30,396
1,639 Randstad Holdings NV 113,370
14,040 Vedior NV 291,160
------------
434,926
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.7% 6,311 Euronext NV 745,607
110,603 ING Groep NV CVA 4,904,171
------------
5,649,778
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 118,171 Koninklijke KPN NV 1,680,023
- 0.2%
--------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.1% 1,755 Fugro NV 83,864
10,642 SBM Offshore NV 365,948
------------
449,812
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.1% 114,113 Koninklijke Ahold NV (c) 1,214,112
--------------------------------------------------------------------------------------------------------------
Food Products - 0.4% 9,232 Royal Numico NV 496,606
104,813 Unilever NV 2,864,008
------------
3,360,614
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.3% 72,702 Koninklijke Philips Electronics NV 2,741,860
--------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 3,472 Getronics NV 28,141
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.2% 87,144 Aegon NV $ 1,661,091
--------------------------------------------------------------------------------------------------------------
Media - 0.1% 46,585 Reed Elsevier NV 794,506
14,590 Wolters Kluwer NV 419,664
------------
1,214,170
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2% 40,365 Mittal Steel Co. NV 1,703,931
--------------------------------------------------------------------------------------------------------------
Office Electronics - 0.0% 283 OCE NV 4,629
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 1,615 Corio NV 131,963
0.1% 3,893 Rodamco Europe NV 518,005
514 Wereldhave NV 68,461
------------
718,429
--------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 32,419 ASML Holding NV (c) 806,249
Equipment - 0.1%
--------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 44,583 Hagemeyer NV (c) 225,990
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 29,311,270
- ----------------------------------------------------------------------------------------------------------------------------------
New Zealand - 0.0% Construction Materials - 0.0% 19,230 Fletcher Building Ltd. 149,710
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 107,247 Telecom Corp. of New Zealand Ltd. 367,225
- 0.0%
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0% 20,226 Contact Energy Ltd. 118,562
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 41,926 Fisher & Paykel Healthcare Corp. 125,836
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 1,792 Sky City Ltd. 6,489
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 27,665 Fisher & Paykel Appliances Holdings
Ltd. 74,847
--------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 5,372 Tower Ltd. (c) 8,364
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 241 Sky Network Television Ltd. 1,112
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0% 14,918 Warehouse Group Ltd. 75,675
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 999 Kiwi Income Property Trust 1,084
0.0%
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 58,991 Auckland International Airport Ltd. 91,021
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in New Zealand 1,019,925
- ----------------------------------------------------------------------------------------------------------------------------------
Norway - 0.9% Airlines - 0.0% 2,392 SAS AB (c) 39,706
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.0% 12,450 Yara International ASA 283,036
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1% 33,999 DnB NOR ASA 482,569
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.0% 19,529 Tomra Systems ASA 134,678
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 12,041 Tandberg ASA 181,526
4,857 Tandberg Television ASA (c) 60,915
------------
242,441
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 17,195 Telenor ASA $ 323,344
- 0.1% 8,600 Telenor ASA (a) 485,298
------------
808,642
--------------------------------------------------------------------------------------------------------------
Energy Equipment & Services - 0.2% 8,590 Acergy SA (c) 165,319
1,946 Aker Kvaerner ASA 242,813
16,804 Ocean RIG ASA (c) 123,702
13,236 Petroleum Geo-Services ASA 310,988
5,750 ProSafe ASA 81,613
8,780 TGS Nopec Geophysical Co. ASA (c) 181,649
------------
1,106,084
--------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 158,887 PAN Fish ASA (c) 145,249
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 9,805 Orkla ASA 555,101
--------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 19,838 Storebrand ASA 252,302
--------------------------------------------------------------------------------------------------------------
Marine - 0.0% 400 Stolt-Nielsen SA 12,253
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,218 Schibsted ASA 115,091
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.4% 82,261 DET Norske Oljeselskap 151,720
3,194 Frontline Ltd. 102,963
50,751 Norsk Hydro ASA 1,574,981
37,007 Statoil ASA 980,788
------------
2,810,452
--------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 4,797 Norske Skogindustrier ASA 82,704
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Norway 7,070,308
- ----------------------------------------------------------------------------------------------------------------------------------
Portugal - 0.3% Commercial Banks - 0.1% 23,822 Banco BPI SA 185,847
104,523 Banco Comercial Portugues SA Registered
Shares 386,330
9,325 Banco Espirito Santo SA Registered
Shares 167,654
------------
739,831
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.0% 13,841 Cimpor Cimentos de Portugal SA 114,923
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 52,568 Portugal Telecom SGPS SA Registered
- 0.1% Shares 682,818
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1% 131,784 Energias de Portugal SA 668,009
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 3,659 Jeronimo Martins 82,111
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0% 38,165 Sonae SGPS SA 76,073
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 3,893 PT Multimedia Servicos de
Telecomunicacoes e Multimedia SGPS SA 50,156
--------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.0% 2,587 Sonae Industria SGPS SA (c) 25,612
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 10,489 Brisa-Auto Estradas de Portugal SA
Private Shares $ 130,844
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Portugal 2,570,377
- ----------------------------------------------------------------------------------------------------------------------------------
Singapore - 0.9% Aerospace & Defense - 0.0% 52,213 Singapore Technologies Engineering Ltd. 104,852
--------------------------------------------------------------------------------------------------------------
Air Freight & Logistics - 0.0% 127,954 Singapore Post Ltd. 90,934
--------------------------------------------------------------------------------------------------------------
Airlines - 0.1% 24,582 Singapore Airlines Ltd. 280,479
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 75,605 DBS Group Holdings Ltd. 1,114,049
171,914 Oversea-Chinese Banking Corp. 863,073
77,572 United Overseas Bank Ltd. 981,188
------------
2,958,310
--------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 5,357 Creative Technology Ltd. 35,626
--------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 3,529 Jardine Cycle & Carriage Ltd. 34,053
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.1% 76,000 Singapore Exchange Ltd. 282,445
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 386,132 Singapore Telecommunications Ltd. 825,762
- 0.1%
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 5,000 Venture Corp. Ltd. 44,010
0.0%
--------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.0% 79,800 Parkway Holdings Ltd. 163,372
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1% 20,675 Fraser and Neave Ltd. 60,660
1,766 Haw Par Corp. Ltd. 8,175
41,914 Keppel Corp. Ltd. 480,969
23,590 SembCorp Industries Ltd. 59,062
------------
608,866
--------------------------------------------------------------------------------------------------------------
Machinery - 0.0% 74,427 SembCorp Marine Ltd. 164,989
--------------------------------------------------------------------------------------------------------------
Marine - 0.0% 92,002 Cosco Corp. (Singapore) Ltd. 137,966
1,200 Neptune Orient Lines Ltd. 1,635
------------
139,601
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 91,316 Singapore Press Holdings Ltd. 254,822
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 194 Singapore Petroleum Co. Ltd. 551
--------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) - 1,152 Ascendas Real Estate Investment Trust 2,005
0.0% 4,000 Capita Commercial Trust 6,833
7,000 CapitaMall Trust 13,281
141,000 Suntec Real Estate Investment Trust 167,315
------------
189,434
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 139,833 CapitaLand Ltd. 565,258
0.1% 42,535 City Developments Ltd. 352,205
4,182 Keppel Land Ltd. 18,814
7,457 UOL Group Ltd. 21,101
78,100 Wing Tai Holdings Ltd. 116,100
------------
1,073,478
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Road & Rail - 0.0% 95,816 ComfortDelgro Corp. Ltd. $ 100,579
--------------------------------------------------------------------------------------------------------------
Semiconductors & 83,122 Chartered Semiconductor Manufacturing
Semiconductor Equipment - 0.0% Ltd. (c) 77,787
35,000 STATS ChipPAC Ltd. (c) 26,699
------------
104,486
--------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.0% 1,100 Noble Group Ltd. 789
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Singapore 7,457,438
- ----------------------------------------------------------------------------------------------------------------------------------
Spain - 3.9% Airlines - 0.0% 29,434 Iberia Lineas Aereas de Espana 107,238
--------------------------------------------------------------------------------------------------------------
Biotechnology - 0.0% 13,970 Zeltia SA (c) 102,901
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 1.6% 226,568 Banco Bilbao Vizcaya Argentaria SA 5,455,218
57,281 Banco Popular Espanol SA 1,038,173
351,590 Banco Santander Central Hispano SA 6,562,580
------------
13,055,971
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.3% 15,679 ACS Actividades de Construccion y
Servicios, SA 883,968
1,216 Acciona SA 226,490
2,241 Fomento de Construcciones y Contratas
SA 228,375
4,825 Grupo Ferrovial SA 471,004
4,860 Sacyr Vallehermoso SA 288,694
------------
2,098,531
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 266,279 Telefonica SA 5,666,184
- 0.7% 1,124 Telefonica SA (a) 71,655
------------
5,737,839
--------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.6% 46,405 Endesa SA 2,194,827
48,106 Iberdrola SA 2,103,189
5,815 Union Fenosa SA 287,852
------------
4,585,868
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.0% 11,492 Gamesa Corp. Tecnologica SA 316,294
--------------------------------------------------------------------------------------------------------------
Food Products - 0.0% 1,312 Azucarera Ebro Agricolas, SA 33,252
--------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1% 8,680 Gas Natural SDG SA 343,625
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 7,075 NH Hoteles SA 140,183
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.0% 1,463 Fadesa Inmobiliara SA 67,883
--------------------------------------------------------------------------------------------------------------
IT Services - 0.0% 10,794 Indra Sistemas SA 265,166
--------------------------------------------------------------------------------------------------------------
Insurance - 0.0% 37,845 Corp. Mapfre SA 170,853
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Media - 0.0% 8,345 Antena 3 de Television SA $ 196,521
240 Promotora de Informaciones SA 4,185
666 Sogecable SA (c) 23,737
------------
224,443
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 12,905 Acerinox SA 392,661
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.2% 59,305 Repsol YPF SA 2,051,074
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1% 11,463 Inditex SA 617,524
--------------------------------------------------------------------------------------------------------------
Tobacco - 0.1% 20,793 Altadis SA 1,088,301
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.1% 10,657 Abertis Infraestructuras SA 316,524
18,185 Cintra Concesiones de Infraestructuras
de Transporte SA 304,864
------------
621,388
--------------------------------------------------------------------------------------------------------------
Water Utilities - 0.0% 32 Aguas De Barcelona 1,172
3,213 Sociedad General de Aguas de Barcelona
SA Class A 117,696
------------
118,868
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 32,139,863
- ----------------------------------------------------------------------------------------------------------------------------------
Sweden - 2.3% Airlines - 0.0% 1,617 SAS AB (c) 27,337
--------------------------------------------------------------------------------------------------------------
Building Products - 0.1% 20,377 Assa Abloy AB B 443,499
--------------------------------------------------------------------------------------------------------------
Capital Markets - 0.0% 6,838 D Carnegie AB 147,329
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.4% 111,951 Nordea Bank AB 1,725,229
28,753 Skandinaviska Enskilda Banken AB
Class A 913,500
32,212 Svenska Handelsbanken Class A 973,990
------------
3,612,719
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 23,048 Securitas AB 357,708
23,048 Securitas Systems AB (c) 93,257
------------
450,965
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.4% 821,376 Telefonaktiebolaget LM Ericsson 3,317,443
1,307 Telefonaktiebolaget LM Ericsson (a) 52,581
------------
3,370,024
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.1% 21,605 Skanska AB Class B 426,044
--------------------------------------------------------------------------------------------------------------
Diversified Consumer Services - 0.0% 23,048 Securitas Direct AB (c) 73,057
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 1,210 OMHEX AB 22,270
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 17,466 Tele2 AB 255,129
- 0.1% 85,201 TeliaSonera AB 700,057
------------
955,186
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0% 20 Axfood AB 827
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.0% 7,749 Elekta AB $ 163,278
5,920 Getinge AB Class B 132,738
------------
296,016
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.1% 20,368 Electrolux AB Series B 407,601
17,771 Husqvarna AB (c) 277,755
------------
685,356
--------------------------------------------------------------------------------------------------------------
Machinery - 0.6% 7,167 Alfa Laval AB 323,491
27,979 Atlas Copco AB 939,997
8,816 Atlas Copco AB Class B 285,885
28,900 SKF AB Class B 534,016
58,096 Sandvik AB 844,375
1 Scana AB Class A 72
7,505 Scania AB Class B 527,305
6,544 Trelleborg AB Class B 156,767
4,380 Volvo AB Class A 310,940
11,529 Volvo AB Class B 794,035
------------
4,716,883
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 16,001 Eniro AB 211,525
2,610 Modern Times Group AB 171,561
------------
383,086
--------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1% 19,122 Boliden AB 491,600
2,520 Hoganas AB 66,074
5,201 SSAB Svenskt Stal AB Series A 123,454
------------
681,128
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 0.0% 7,502 Lundin Petroleum AB (c) 87,119
--------------------------------------------------------------------------------------------------------------
Paper & Forest Products - 0.1% 6,721 Billerud AB 119,282
945 Holmen AB Class B 41,135
12,430 Svenska Cellulosa AB 649,103
------------
809,520
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development 2,369 Castellum AB 31,577
- 0.0% 1,218 Fabege AB 32,647
4,619 Kungsleden AB 70,844
6,033 Wihlborgs Fastigheter AB 125,799
------------
260,867
--------------------------------------------------------------------------------------------------------------
Software - 0.0% 37,000 Telelogic AB (c) 82,691
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 26,180 Hennes & Mauritz AB B Shares 1,323,159
785 Nobia AB 30,215
------------
1,353,374
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.0% 18,950 Swedish Match AB $ 354,312
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Sweden 19,239,609
- ----------------------------------------------------------------------------------------------------------------------------------
Switzerland - 6.7% Auto Components - 0.0% 81 Rieter Holding AG 42,378
--------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1% 401 Serono SA 360,028
--------------------------------------------------------------------------------------------------------------
Building Products - 0.0% 178 Geberit AG Registered Shares 274,341
--------------------------------------------------------------------------------------------------------------
Capital Markets - 1.5% 69,210 Credit Suisse Group 4,842,144
128,266 UBS AG 7,794,910
------------
12,637,054
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.3% 5,765 Ciba Specialty Chemicals AG Registered
Shares 383,466
9,641 Clariant AG 144,397
414 Givaudan 383,251
3,377 Lonza Group AG Registered Shares 291,833
6,888 Syngenta AG 1,281,502
------------
2,484,449
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.1% 9,114 Adecco SA Registered Shares 622,684
197 SGS SA 219,554
------------
842,238
--------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0% 8,415 Logitech International SA (c) 242,747
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 13,297 Holcim Ltd. 1,218,937
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 1,382 Swisscom AG 523,141
- 0.1%
--------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3% 122,869 ABB Ltd. 2,203,273
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 1,880 Kudelski SA 70,818
0.0%
--------------------------------------------------------------------------------------------------------------
Food Products - 1.1% 25,319 Nestle SA Registered Shares 8,997,232
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 1,726 Nobel Biocare Holding AG 510,293
2,121 Phonak Holding AG Registered Shares 168,844
147 Straumann Holding AG Registered Shares 35,589
2,100 Synthes, Inc. 250,414
------------
965,140
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.0% 52 Kuoni Reisen Holding AG Registered
Shares 27,824
--------------------------------------------------------------------------------------------------------------
Insurance - 0.5% 21,677 Swiss Reinsurance Registered Shares 1,843,034
9,200 Zurich Financial Services AG 2,476,487
------------
4,319,521
--------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 680 SIG Holding AG Registered Shares 227,132
1,602 Schindler Holding AG 100,774
212 Sulzer AG 241,316
------------
569,222
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Marine - 0.0% 2,295 Kuehne & Nagel International AG $ 166,969
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 2.0% 149,259 Novartis AG Registered Shares 8,605,207
44,819 Roche Holding AG 8,036,891
------------
16,642,098
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 1,750 PSP Swiss Property AG 100,533
0.0%
--------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor 1,096 Micronas Semiconductor Holding AG
Equipment - 0.1% Registered Shares 24,106
534 Unaxis Holding AG 264,042
------------
288,148
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.3% 31,889 Compagnie Financiere Richemont AG 1,858,120
2,074 The Swatch Group Ltd. Bearer Shares 458,288
1,347 The Swatch Group Ltd. Registered Shares 60,247
------------
2,376,655
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 55,352,746
- ----------------------------------------------------------------------------------------------------------------------------------
United Aerospace & Defense - 0.4% 207,048 BAE Systems Plc 1,725,974
Kingdom - 22.5% 42,037 Cobham Plc 159,471
21,337 Meggitt Plc 129,510
119,228 Rolls-Royce Group Plc 1,045,256
------------
3,060,211
--------------------------------------------------------------------------------------------------------------
Airlines - 0.0% 42,297 British Airways Plc (c) 436,858
--------------------------------------------------------------------------------------------------------------
Auto Components - 0.0% 26,489 GKN Plc 144,185
1,025 TI Automotive Ltd. A (c) 0
------------
144,185
--------------------------------------------------------------------------------------------------------------
Beverages - 0.6% 171,754 Diageo Plc 3,371,319
51,759 SABMiller Plc 1,190,782
52,913 Scottish & Newcastle Plc 579,657
------------
5,141,758
--------------------------------------------------------------------------------------------------------------
Capital Markets - 0.4% 32,856 3i Group Plc 649,426
49,741 Amvescap Plc 580,456
3,153 Close Brothers Group Plc 62,754
7,338 Collins Stewart Plc 36,494
18,743 ICAP Plc 175,602
14,255 Investec Plc 184,073
125,091 Man Group Plc 1,280,350
3,844 Schroders Plc 83,996
7,338 Tullett Prebon Plc 93,390
------------
3,146,541
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 60,300 Imperial Chemical Industries Plc $ 533,660
9,693 Johnson Matthey Plc 267,410
------------
801,070
--------------------------------------------------------------------------------------------------------------
Commercial Banks - 4.2% 416,115 Barclays Plc 5,947,643
223,922 HBOS Plc 4,963,086
697,941 HSBC Holdings Plc 12,722,634
365,971 Lloyds TSB Group Plc 4,095,166
194,197 Royal Bank of Scotland Group Plc 7,578,067
------------
35,306,596
--------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies - 0.3% 3,707 Aggreko Plc 31,610
32,898 Biffa Plc 197,750
29,504 Capita Group Plc 350,654
1,132 Davis Service Group Plc 11,171
4,493 De La Rue Plc 56,698
77,227 Experian Group Ltd. 906,498
47,349 Group 4 Securicor Plc 174,292
62,856 Hays Plc 195,990
3,299 Intertek Group Plc 53,839
9,332 Michael Page International Plc 82,635
177,456 Rentokil Initial Plc 575,908
15,590 Serco Group Plc 116,605
------------
2,753,650
--------------------------------------------------------------------------------------------------------------
Communications Equipment - 0.0% 1 Telent Plc 9
--------------------------------------------------------------------------------------------------------------
Construction & Engineering - 0.0% 29,608 Amec Plc 244,352
22,845 Balfour Beatty Plc 198,154
------------
442,506
--------------------------------------------------------------------------------------------------------------
Construction Materials - 0.1% 49,435 Hanson Plc 745,789
--------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.0% 8,195 Cattles Plc 70,481
12,919 Provident Financial Plc 177,446
------------
247,927
--------------------------------------------------------------------------------------------------------------
Containers & Packaging - 0.0% 41,107 Rexam Plc 422,958
--------------------------------------------------------------------------------------------------------------
Distributors - 0.0% 19,151 Inchcape Plc 189,736
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 0.0% 16,714 London Stock Exchange Group Plc 428,707
--------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services 534,108 BT Group Plc 3,153,008
- 0.4% 177,506 Cable & Wireless Plc 548,266
------------
3,701,274
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 48,478 Scottish & Southern Energy Plc $ 1,475,042
95,732 Scottish Power Plc 1,402,062
788 Scottish Power Plc (a) 46,043
------------
2,923,147
--------------------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments - 17,536 Electrocomponents Plc 100,688
0.0% 4,873 Premier Farnell Plc 18,844
------------
119,532
--------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.6% 47,054 Boots Group Plc 771,596
99,389 J Sainsbury Plc 796,408
466,946 Tesco Plc 3,698,229
------------
5,266,233
--------------------------------------------------------------------------------------------------------------
Food Products - 0.5% 134,855 Cadbury Schweppes Plc 1,442,998
35,538 Tate & Lyle Plc 534,743
70,596 Unilever Plc 1,973,863
------------
3,951,604
--------------------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.1% 3,701 SSL International Plc 26,794
66,638 Smith & Nephew Plc 695,437
------------
722,231
--------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure - 0.6% 12,185 Carnival Plc 617,445
130,207 Compass Group Plc 739,334
18,364 Enterprise Inns Plc 486,490
12,460 First Choice Holidays Plc 69,530
25,835 Intercontinental Hotels Group Plc 638,376
50,230 Ladbrokes Plc 411,346
31,362 Mitchells & Butlers Plc 436,291
132,999 PartyGaming Plc 82,680
12,013 Punch Taverns Plc 300,837
82,916 Rank Group Plc 379,488
16,441 Whitbread Plc 539,202
26,415 William Hill Plc 326,871
------------
5,027,890
--------------------------------------------------------------------------------------------------------------
Household Durables - 0.2% 18,920 Barratt Developments Plc 457,506
3,761 Bellway Plc 113,700
2,981 Berkeley Group Holdings Plc 99,867
2,804 Bovis Homes Group Plc 59,514
17,405 Persimmon Plc 520,041
47,202 Taylor Woodrow Plc 393,943
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
32,819 Wimpey George Plc $ 358,887
------------
2,003,458
--------------------------------------------------------------------------------------------------------------
Household Products - 0.2% 35,555 Reckitt Benckiser Plc 1,624,838
--------------------------------------------------------------------------------------------------------------
IT Services - 0.1% 117,472 LogicaCMG Plc 427,815
--------------------------------------------------------------------------------------------------------------
Independent Power Producers & 77,818 International Power Plc 581,658
Energy Traders - 0.1%
--------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.2% 17,160 Cookson Group Plc 211,002
39,451 Smiths Group Plc 765,878
72,384 Tomkins Plc 348,293
------------
1,325,173
--------------------------------------------------------------------------------------------------------------
Insurance - 1.1% 154,525 Aviva Plc 2,487,020
125,413 Friends Provident Plc 532,857
387,589 Legal & General Group Plc 1,195,255
295,614 Old Mutual Plc 1,008,571
163,934 Prudential Plc 2,245,254
33,686 Resolution Plc 423,111
41,367 Royal & Sun Alliance Insurance Group 123,519
143,513 Standard Life Plc (c) 831,045
------------
8,846,632
--------------------------------------------------------------------------------------------------------------
Internet & Catalog Retail - 0.1% 74,413 Home Retail Group 597,367
--------------------------------------------------------------------------------------------------------------
Machinery - 0.1% 4,694 Charter Plc (c) 83,176
10,160 FKI Plc 20,540
11,555 IMI Plc 114,706
36,802 Invensys Plc (c) 198,339
------------
416,761
--------------------------------------------------------------------------------------------------------------
Media - 0.8% 74,833 Aegis Group Plc 205,130
78,272 British Sky Broadcasting Plc 799,992
11,572 Daily Mail & General Trust 162,456
62,341 EMI Group Plc 323,466
7,829 Emap Plc 123,782
282,651 ITV Plc 589,398
43,313 Pearson Plc 654,279
84,322 Reed Elsevier Plc 925,391
86,174 Reuters Group Plc 751,257
10,641 Trinity Mirror Plc 97,820
14,647 United Business Media Plc 198,742
77,986 WPP Group Plc 1,054,360
54,986 Yell Group Plc 613,671
------------
6,499,744
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.5% 84,731 Anglo American Plc $ 4,132,613
162,463 BHP Billiton Plc 2,972,641
60,404 Corus Group Plc 627,422
62,276 Rio Tinto Plc Registered Shares 3,314,201
34,773 Xstrata Plc 1,736,165
------------
12,783,042
--------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.6% 232,352 Centrica Plc 1,612,766
181,780 National Grid Plc 2,623,145
58,970 United Utilities Plc 900,605
------------
5,136,516
--------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.3% 94,151 Marks & Spencer Group Plc 1,321,760
19,926 Next Plc 702,265
------------
2,024,025
--------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 3.6% 226,113 BG Group Plc 3,068,085
1,174,823 BP Plc 13,054,100
3,749 BP Plc (a)(f) 251,558
223,403 Royal Dutch Shell Plc 7,807,929
163,342 Royal Dutch Shell Plc Class B 5,724,790
------------
29,906,462
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.8% 99,175 AstraZeneca Plc 5,328,377
347,078 GlaxoSmithKline Plc 9,133,453
800 GlaxoSmithKline Plc (a) 42,208
------------
14,504,038
--------------------------------------------------------------------------------------------------------------
Real Estate Management & Development - 37,898 British Land Co. Plc 1,271,850
0.5% 6,639 Brixton Plc 74,874
2,361 Great Portland Estates Plc 32,059
20,408 Hammerson Plc 630,145
30,412 Land Securities Group Plc 1,383,257
12,636 Liberty International Plc 345,385
28,334 Slough Estates Plc 435,775
------------
4,173,345
--------------------------------------------------------------------------------------------------------------
Road & Rail - 0.1% 9,456 Arriva Plc 141,452
31,384 Firstgroup Plc 353,333
8,934 National Express Group Plc 197,666
30,764 Stagecoach Group Plc 92,160
------------
784,611
--------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & 106,517 ARM Holdings Plc $ 262,262
Semiconductor Equipment - 0.1% 12,703 CSR Plc (c) 161,670
------------
423,932
--------------------------------------------------------------------------------------------------------------
Software - 0.1% 21,202 Misys Plc 89,772
96,718 Sage Group Plc 513,198
------------
602,970
--------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2% 94,643 DSG International Plc 354,867
24,803 Galiform Plc 66,411
45,858 HMV Group Plc 128,623
45,703 Kesa Electricals Plc 303,580
161,844 Kingfisher Plc 755,777
76,918 Signet Group Plc 178,466
8,083 The Carphone Warehouse PLC 49,695
------------
1,837,419
--------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods - 0.1% 34,804 Burberry Group Plc 439,880
--------------------------------------------------------------------------------------------------------------
Tobacco - 0.6% 90,180 British American Tobacco Plc 2,523,197
49,599 Gallaher Group Plc 1,113,411
39,269 Imperial Tobacco Group Plc 1,545,448
------------
5,182,056
--------------------------------------------------------------------------------------------------------------
Trading Companies & Distributors - 0.2% 19,858 Bunzl Plc 244,371
4,402 Travis Perkins Plc 171,002
49,141 Wolseley Plc 1,186,358
------------
1,601,731
--------------------------------------------------------------------------------------------------------------
Transportation Infrastructure - 0.0% 42,037 BBA Aviation Plc 225,112
--------------------------------------------------------------------------------------------------------------
Water Utilities - 0.1% 16,392 Kelda Group Plc 297,202
17,252 Severn Trent Plc 496,553
------------
793,755
--------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 3,133,112 Vodafone Group Plc 8,680,425
1.1% 3,655 Vodafone Group Plc (a) 101,536
------------
8,781,961
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the
United Kingdom 186,504,713
- ----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost - $553,557,827) - 93.5% 776,346,593
- ----------------------------------------------------------------------------------------------------------------------------------
Master International Index Series of Quantitative Master Series Trust
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
Shares
Country Industry Held Common Stocks Value
- ----------------------------------------------------------------------------------------------------------------------------------
United States 284,277 iShares MSCI EAFE Index Fund (f) $ 20,826,133
- - 2.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Exchange-Traded Funds
(Cost - $17,644,632) - 2.5% 20,826,133
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- ----------------------------------------------------------------------------------------------------------------------------------
Germany - 0.3% Automobiles - 0.2% 560 Porsche AG 712,657
5,211 Volkswagen AG, 4.35% 388,994
------------
1,101,651
--------------------------------------------------------------------------------------------------------------
Chemicals - 0.1% 4,091 Henkel KGaA, 1.75% 602,026
--------------------------------------------------------------------------------------------------------------
Media - 0.0% 5,011 ProSieben SAT.1 Media AG, 2.24% 164,376
- ----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.0% 1,869 RWE AG, 3.50% 177,636
- ----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost - $1,109,749) - 0.3% 2,045,689
- ----------------------------------------------------------------------------------------------------------------------------------
Rights
- ----------------------------------------------------------------------------------------------------------------------------------
Japan - 0.0% Metals & Mining - 0.0% 7,000 Dowa Mining Co., Ltd. (e) 0
- ----------------------------------------------------------------------------------------------------------------------------------
Total Rights (Cost - $0) - 0.0% 0
- ----------------------------------------------------------------------------------------------------------------------------------
Beneficial
Interest Short-Term Securities
- ----------------------------------------------------------------------------------------------------------------------------------
USD 25,751,297 BlackRock Liquidity Series, LLC Cash
Sweep Series, 5.26% (b)(d) 25,751,297
- ----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost - $25,751,297) - 3.1% 25,751,297
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost - $598,063,505*) - 99.4% 824,969,712
Other Assets Less Liabilities - 0.6% 5,016,069
------------
Net Assets - 100.0% $829,985,781
============
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 607,157,326
=============
Gross unrealized appreciation $ 222,862,516
Gross unrealized depreciation (5,050,130)
-------------
Net unrealized appreciation $ 217,812,386
=============
(a) Depositary receipts.
Master International Index Series
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
(b) 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
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series $5,422,422 $ 735,993
--------------------------------------------------------------------------
(c) Non-income producing security.
(d) Represents the current yield as of December 31, 2006.
(e) The rights may be exercised until 1/29/2010.
(f) All or a portion of security held as collateral in connection with open
financial futures contracts.
o For Series compliance purposes, the Fund's industry classifications refer
to any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Series management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets. These
industry classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2006 were as
follows:
--------------------------------------------------------------------------------------------------------
Number of Expiration Unrealized
Contracts Issue Exchange Date Face Value Appreciation
--------------------------------------------------------------------------------------------------------
9 Hang Seng Index Future Hong Kong January 2007 $ 1,118,379 $ 39,728
117 OMX Stock Index Future Stockholm January 2007 $ 1,939,329 32,048
109 DJ Euro Stoxx 50 Eurex March 2007 $ 5,914,231 67,064
38 FTSE 100 Index Future LIFFE March 2007 $ 4,610,863 14,046
40 SPI 200 Index Future Sydney March 2007 $ 4,342,551 114,102
69 TOPIX Index Future Tokyo March 2007 $ 9,356,847 398,415
--------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation $ 665,403
============
o Forward foreign exchange contracts purchased as of December 31, 2006 were
as follows:
--------------------------------------------------------------------------------------------------------
Unrealized
Appreciation
Foreign Currency Purchased Settlement Date (Depreciation)
--------------------------------------------------------------------------------------------------------
AUD 3,898,000 February 2007 $ 45,845
CHF 6,125,200 February 2007 34,457
EUR 17,913,900 February 2007 334,063
GBP 7,351,400 February 2007 172,607
JPY 1,813,274,700 February 2007 (282,858)
SEK 10,242,400 February 2007 23,891
--------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange Contracts - Net
(USD Commitment - $62,708,033) $ 328,005
============
Master International Index Series
Schedule of Investments as of December 31, 2006 (in U.S. dollars)
o Forward foreign exchange contracts sold as of December 31, 2006 were as
follows:
--------------------------------------------------------------------------------------------------------
Unrealized
Appreciation
Foreign Currency Sold Settlement Date (Depreciation)
--------------------------------------------------------------------------------------------------------
AUD 2,921,000 February 2007 $ (38,340)
CHF 4,097,000 February 2007 14,226
EUR 11,734,000 February 2007 (110,785)
GBP 4,605,000 February 2007 (91,716)
JPY 1,204,800,000 February 2007 202,603
SEK 7,050,000 February 2007 (9,428)
--------------------------------------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign Exchange Contracts - Net
(USD Commitment - $41,398,627) $ (33,440)
============
o Currency Abbreviations:
AUD Australian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
JPY Japanese Yen
SEK Swedish Krona
USD U.S. Dollar
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON DETAILED SCHEDULE OF
INVESTMENTS
To the Investors and Board of Trustees of Quantitative Master Series Trust:
We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements of Master
International Index Series (the "Series"), one of the portfolios constituting
the Quantitative Master Series Trust (the "Trust"), as of December 31, 2006, and
for the year then ended and have issued our report thereon dated February 26,
2007 which report and financial statements are included in Item 1 of this
Certified Shareholder Report on Form N-CSR. Our audit also included the Series'
schedule of investments in securities (the "Schedule") as of December 31, 2006
appearing in Item 6 of this Form N-CSR. This Schedule is the responsibility of
the Trust's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the Schedule referred to above, when considered in
relation to the basic financial statements taken as a whole of the Series
referred to above, presents fairly, in all material respects, the information
set forth therein.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 2007
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon an evaluation within 90 days of the filing date of this
report, the principal executive and financial officers concluded that
the disclosure controls and procedures of the Trust are effective.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached hereto
as EX-99.CERT.
(a)(3) Not applicable.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American Beacon Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2007
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2007