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