N-CSR 1 ncsr1208bea.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-04984 AMERICAN BEACON FUNDS (Exact name of registrant as specified in charter) 4151 Amon Carter Boulevard, MD 2450 Fort Worth, Texas 76155 (Address of principal executive offices)-(Zip code) William F. Quinn, PRESIDENT 4151 Amon Carter Boulevard, MD 2450 Fort Worth, Texas 76155 (Name and address of agent for service) Registrant's telephone number, including area code: (817) 967-3509 Date of fiscal year end: December 31, 2008 Date of reporting period: December 31, 2008 ITEM 1. REPORTS TO STOCKHOLDERS. GUIDANCE l VISION l EXPERIENCE (AMERICAN BEACON FUNDS(SM) LOGO) Annual Report (GRAPHIC) December 31, 2008 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 President's Message ............................................... 1 Performance Overviews ............................................. 3 American Beacon Funds Statements of Assets and Liabilities ........................... 12 Statements of Operations ....................................... 13 Statements of Changes in Net Assets ............................ 14 Notes to Financial Statements .................................. 15 Financial Highlights ........................................... 21 State Street Equity 500 Index Portfolio Portfolio of Investments ....................................... 31 Statement of Assets and Liabilities ............................ 37 Statement of Operations ........................................ 38 Statements of Changes in Net Assets ............................ 39 Financial Highlights ........................................... 40 Notes to Financial Statements .................................. 41 Master Small Cap Index Series Summary Schedule of Investments ................................ 51 Statement of Assets and Liabilities ............................ 57 Statement of Operations ........................................ 58 Statements of Changes in Net Assets ............................ 59 Financial Highlights ........................................... 59 Notes to Financial Statements .................................. 60 Master International Index Series Summary Schedule of Investments ................................ 68 Statement of Assets and Liabilities ............................ 74 Statement of Operations ........................................ 75 Statements of Changes in Net Assets ............................ 76 Financial Highlights ........................................... 76 Notes to Financial Statements .................................. 77 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 each Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. American Beacon Funds December 31, 2008 (PHOTO OF WILLIAM F. QUINN) FELLOW SHAREHOLDERS, Enclosed is the Annual Report for the American Beacon S&P 500, Small Cap and International Equity Index Funds for the twelve months ended December 31, 2008. During the past twelve months, we experienced unprecedented market turmoil in all asset classes. Initially, the sub-prime mortgage crisis and rising oil and food prices contributed to an economic slowdown that culminated into a market-wide credit crisis and squeeze on liquidity. The situation reached crisis proportions in mid-September with the bankruptcy of Lehman Brothers, the resulting losses incurred by investors in money market funds, and the unprecedented government intervention in the financial system. The S&P 500 Index finished the year -37.00%, while the Russell 2000(R) Index and the MSCI EAFE Index finished -33.79% and -43.38%, respectively, for the period. The American Beacon S&P 500 Index Fund and American Beacon Small Cap Index Fund reported competitive returns of -37.08% and -33.58%, respectively, for the period. The American Beacon International Equity Index Fund reported returns of -41.85%, which was 1.53% better than the corresponding Index return. Please review the enclosed market overview, portfolio listings, and detailed financial data. As always, we welcome the opportunity to serve your financial needs. 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 1 DOMESTIC MARKET OVERVIEW DECEMBER 31, 2008 (UNAUDITED) Equity markets in 2008 will be reviewed and studied for years to come, but the memories of the year will not be cherished. The S&P 500 fell 37% during the year. It was the worst showing in U.S. equity markets since the 1930's. There were many headlines during the year and much of the news concerning the stock market was not good. The year started with an unauthorized futures position costing Societe Generale billions of dollars in losses. Stress in the debt markets created ripple effects into the stock market and the broad economy. In March, Bear Stearns was rescued from the brink of bankruptcy when the government arranged a takeover by JPMorgan Chase. As summer approached, commodity prices continued to skyrocket. Oil hovered near $140 per barrel at the end of June and inflation and recession fears were rampant in the market. Liquidity in fixed income and money markets was poor throughout the period, but the worst was yet to come. In early September, the markets began one of the wildest periods in history. In the span of a few weeks: Lehman Brothers went bankrupt; Merrill Lynch entered a hastily arranged merger with Bank of America; Fannie Mae and Freddie Mac were nationalized; Morgan Stanley and Goldman Sachs became bank holding companies; AIG received a huge government loan ($85 Billion at announcement, later ballooning well over $100 Billion;) and Washington Mutual, one of the country's largest banks, was taken over by the FDIC. During the same period, the money market effectively froze and the flight to quality was such a rush that T-Bills actually traded with negative yields. Governments across the globe responded with multiple policies to restore confidence in the markets. Capital was invested into banks, money market funds were temporarily guaranteed, FDIC insurance was increased, short-term debt facilities were created to increase liquidity and confidence, interest rates were slashed to historic lows, money supplies were dramatically increased, and fiscal stimulus plans were launched. In December equity markets improved off their lows and credit markets improved somewhat. Then markets ended the year with news of an alleged Ponzi scheme involving a very large hedge fund. While this news did not directly impact capital markets, it was another blow to already weary investors. All in all, 2008 will go down in history as a very challenging year, one that tested the stamina of even the most seasoned long-term investor. S&P is a trademark of the McGraw-Hill Companies, Inc. and has been licensed for use, "Standard and Poor's(R)", "S&P", "Standard & Poor's 500", "S&P 500" are all trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by State Street Bank and Trust Company. Russell 2000 Index is a registered trademark of Frank Russell Company. 2 PERFORMANCE OVERVIEW AMERICAN BEACON S&P 500 INDEX FUND+ DECEMBER 31, 2008 (UNAUDITED) For the twelve months ended December 31, 2008, the total return of the Institutional Class of the American Beacon S&P 500 Index Fund was -37.08%, slightly below the S&P 500 Index (the "Index") return of -37.00% and even with the Lipper S&P 500 Objective Funds Index return of -37.08%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 12/31/98 THROUGH 12/31/08 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS VALUE OF PERIODS ENDED 12/31/08 $10,000 --------------------------- 12/31/98- 1 YEAR 5 YEARS 10 YEARS 12/31/08 ------ ------- -------- --------- Institutional Class(1, 4) ...... -37.08% -2.30% -1.55% $8,550 PlanAhead Class(1, 2, 4) ... -37.35% -2.76% -1.97% $8,193 Lipper S&P 500 Objective Funds Index (3) ........ -37.08% -2.41% -1.64% $8,473 S&P 500 Index (3) ... -37.00% -2.19% -1.38% $8,700
(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.) 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. (4.) The total annual Fund operating expense ratios set forth in the most recent Fund prospectus for the Institutional and PlanAhead Class shares was 0.13% and 0.63%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. All ten sectors within the Index lost value during the year. Consumer Staples, historically known as a defensive sector, was the top performing sector, falling only 15.5%. The other "defensive" sectors, Health Care (down 22.8%) and Utilities (down 29.0%) managed to keep losses below 30%. The remaining seven sectors lost 30% or more. Given the year's headlines, it is no surprise that Financials took the biggest losses during the year. The sector fell 55.3%, as once mighty institutions took huge losses and a number of bankruptcies hit the sector. The Materials and Information Technology sectors, down 45.7% and 43.2%, respectively, also suffered mightily during the year. These sectors have historically been more sensitive to economic cycles, and the Materials sector was also hit by crashing commodity prices in the second half of the year. At the security level, there were some individual bright spots during the year. Discount retailers Family Dollar Stores and Wal-Mart rose 38.6% and 20.0%, respectively. These companies benefitted from a shift in consumer preferences toward low cost retailers. Amgen and Barr Pharmaceuticals, up 24.4% and 23.9%, respectively, fared well as the Health Care sector is less vulnerable to changes in economic conditions. Financial institutions took five of the bottom six spots on the return scale for the year. Lehman Brothers, Washington Mutual, Fannie Mae, Freddie Mac, and AIG posted some of the worst returns in 2008. Lehman Brothers and Washington Mutual went bankrupt and lost over 99% of their value. Fannie Mae and Freddie Mac were nationalized and lost 98%. AIG was rescued by a huge government package and lost over 97% of its equity value. There were many other companies posting significant losses on equity value as the pain was + 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+ DECEMBER 31, 2008 (UNAUDITED) widespread, but particularly acute in the Financial sector. The investment manager continues to utilize a replication strategy, owning all 500 names in the S&P 500 Index in approximately the same weightings as the Index. Therefore, the Fund is expected to continue to meet its objective of closely tracking, before expenses, the return of its benchmark, the S&P 500 Index. TOP TEN HOLDINGS
% OF EQUITIES* --------- Exxon Mobil Corp. 5.2% Procter & Gamble Co. 2.4% General Electric Co. 2.2% AT&T, Inc. 2.1% Johnson & Johnson 2.1% Chevron Corp. 1.9% Microsoft Corp. 1.9% Wal-Mart Stores, Inc. 1.6% Pfizer, Inc. 1.5% JPMorgan Chase and Company 1.5%
* Percent of the equities of State Street Equity 500 Index Portfolio EQUITY SECTOR ALLOCATION
% OF EQUITIES* --------- Information Technology 15.3% Health Care 14.8% Energy 13.3% Financials 13.3% Consumer Staples 12.8% Industrials 11.1% Consumer Discretionary 8.4% Utilities 4.2% Telecommunication Services 3.8% Materials 3.0%
* Percent of the equities 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, 2008 (UNAUDITED) For the twelve months ended December 31, 2008, the total return of the Institutional Class of the American Beacon Small Cap Index Fund was -33.58%. The Fund's performance exceeded the Russell 2000(R) Index (the "Index") return of -33.79% and also the Lipper Small-Cap Core Funds Index return of -35.59%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 7/31/00 THROUGH 12/31/08 (PERFORMANCE GRAPH)
ANNUALIZED TOTAL RETURNS PERIODS ENDED 12/31/08 -------------------------- VALUE OF SINCE $10,000 5 INCEPTION 7/31/00- 1 YEAR YEARS (7/31/00) 12/31/08 ------ ----- --------- -------- Institutional Class(1, 3) ........... -33.58% -1.04% 1.18% $11,036 Lipper Small-Cap Core Funds Index(2) ... -35.59% -1.02% 1.96% $11,774 Russell 2000 Index(2) .............. -33.79% -0.93% 1.29% $11,139
(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 Lipper Small-Cap Core Funds Index tracks the results of 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. (3.) The total annual Fund operating expense ratio set forth in the most recent prospectus for the Fund was 0.20%. The expense ratio above may vary from the expense ratio presented in other sections of this report that is based on expenses incurred during the period covered by this report. All ten sectors within the Index posted negative returns for the twelve months. From a sector perspective, losses were most prominent in Telecommunication Services, which was down 49.7%. The Energy and Consumer Discretionary sectors were also hit hard, declining 49.5% and 47.7%, respectively. At the top were the defensive Utilities and Consumer Staples sectors, which posted comparatively small losses of 11.3% and 17.9%, respectively. The highest individual stock returns in the Index were generated by Emergent BioSolutions, Inc., up 416.0%, Crawford & Co., up 250.4%, and Star Scientific, Inc., up 219.2%. By contrast, there were several stocks within the Index that essentially lost all of their value during the period, including VeraSun Energy Corp., LandAmerica Financial Group, Inc., and Downey Financial Corp. 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. 5 PERFORMANCE OVERVIEW AMERICAN BEACON SMALL CAP INDEX FUND(SM) DECEMBER 31, 2008 (UNAUDITED) TOP TEN HOLDINGS
% OF EQUITIES* --------- Ralcorp Holdings, Inc. 0.4% Myraid Genetics, Inc. 0.4% Alexion Pharmaceuticals, Inc. 0.4% Waste Connections, Inc. 0.3% Realty income Corp. 0.3% Piedmont Natural Gas Co. 0.3% OSI Pharmaceuticals, Inc. 0.3% Comstock Resources, Inc. 0.3% Westar Energy, Inc. 0.3% ITC Holdings, Corp. 0.3%
EQUITY SECTOR ALLOCATION
% OF EQUITIES* --------- Financials 23.4% Industrials 16.9% Information Technology 15.8% Health Care 15.3% Consumer Discretionary 11.0% Energy 4.4% Utilities 4.4% Consumer Staples 3.9% Materials 3.7% Telecommunication Services 1.2%
* Percent of equity portion of Master Small Cap Index Series 6 INTERNATIONAL MARKET OVERVIEW DECEMBER 31, 2008 (UNAUDITED) 2008 turned out to be a year investors would like to forget, but instead will vividly remember. For much of the first half of the year, equity markets held together as the hope of global decoupling (meaning that some markets could be insulated from the effects of the U.S.-centered economic and credit problems) kept investors from panicking. The seminal event appears to have been Lehman Brothers' bankruptcy declaration in September, which drove fear higher and confidence lower, while causing a massive decline in economic activity in the United States and around the world. In a stark reversal of prior years' trends, non-U.S. markets noticeably underperformed their U.S. counterparts for the 12-month period, with the MSCI EAFE Index losing 43.4% versus the 37.0% decline of the S&P 500 Index. Non-U.S. stocks started off the year stronger, but quickly lost ground as the credit crisis revealed itself to be global in nature and as the worldwide economy turned south. European stocks declined sharply in the second half of the year, and for 2008 as a whole, U.K. markets lost 31.0% and markets in Continental Europe were off more than 40%. In Japan, the Nikkei 225 fell 40.1%. In one of the headline stories of 2008, the decoupling theory was put to rest as emerging markets failed to hold up amid the global downturn. Key markets in China and Russia lost more than 60% and the MSCI Emerging Markets Index as a whole was down 53.3%. Amid all the economic and market gloom, one of the primary concerns that dominated sentiment earlier in the year - the escalation in commodity prices - dissipated. After peaking at $150 per barrel in July, oil prices collapsed to below $40, less than half of where they started the year. The U.S. dollar displayed mixed performance against most major global currencies during 2008, advancing 38.5% and 5.2% versus the British pound and euro, respectively, while declining 18.9% versus the yen. 7 PERFORMANCE OVERVIEW AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) DECEMBER 31, 2008 (UNAUDITED) For the twelve months ended December 31, 2008, the Institutional Class of the American Beacon International Equity Index Fund posted a total return of -41.85%, exceeding the MSCI EAFE Index (the "Index") return of -43.38% and the Lipper International Funds Index return of -43.63%. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 7/31/00 THROUGH 12/31/08 (PERFROMANCE GRAPH))
ANNUALIZED TOTAL RETURNS PERIODS ENDED 12/31/08 ---------------------------- VALUE OF SINCE $10,000 INCEPTION 7/31/00- 1 YEAR 5 YEARS (7/31/00) 12/31/08 ------ ------- --------- -------- Institutional Class(1, 3) ............ -41.85% 2.13% -0.71% $9,420 Lipper International Funds Index(2) .. -43.63% 2.15% -0.41% $9,663 MSCI EAFE Index(2) ................... -43.38% 1.66% -0.86% $9,294
* Not annualized (1.) Performance shown is historical and may not be indicative of future returns. Investment returns and principal value will vary, and shares may be worth more 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 results of 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. (3.) The total annual Fund operating expense ratio in the most recent prospectus for the Fund was 0.19%. The expense ratio above may vary from the expense ratio presented in other sections of this report that is based on expenses incurred during the period covered by this report. All ten sectors and 21 countries represented in the Index recorded negative returns for the twelve months. At the country level, Japan and Switzerland, down 29.2% and 30.5%, respectively, fared considerably better than other regions. The equity markets in Ireland, Austria, and Belgium, down 71.9%, 68.4% and 66.5%, respectively, posted the lowest returns. From a sector perspective, losses were most prominent in Financials, which lost 54.9% for the year amid unprecedented difficulties in the banking and credit systems. Materials and Consumer Discretionary were also hit hard, declining 52.5% and 45.2%, respectively. At the top was the defensive Health Care sector which posted a comparatively small loss of 18.7%. On an individual-stock basis, firms Acom Co. Ltd and Fast Retailing Co. Ltd. were the strongest performers, up 122.8% and 103.4%, respectively. By contrast, Financial companies Immoeast AB. (down 96.4%), Anglo Irish Bank Corp. (down 98.5%), and Babcock & Brown Ltd. (down 99.5%) were the most notable laggards within the Index. The Fund continues to pursue its objective of closely replicating, before expenses, the return of its benchmark, the MSCI EAFE Index. It does so by investing in a subset of the securities in the Index such that the characteristics of the portfolio closely track the characteristics of the Index. 8 PERFORMANCE OVERVIEW AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) DECEMBER 31, 2008 (UNAUDITED) TOP TEN HOLDINGS
% OF EQUITIES* --------- Nestle S.A. 1.9% BP plc 1.8% Novartis AG 1.5% Total S.A. 1.5% HSBC Holdings plc 1.5% Roche Holdings AG 1.4% Vodafone Group, plc 1.4% GlaxoSmithKline plc 1.3% Telefonica S.A. 1.2% Royal Dutch Shell plc 1.2%
EQUITY SECTOR ALLOCATION
% OF EQUITIES* EAFE --------- ----- Financials 22.6% 22.6% Industrials 11.5% 11.5% Consumer Staples 10.3% 10.3% Health Care 9.7% 9.8% Consumer Discretionary 9.6% 9.6% Energy 8.6% 8.5% Materials 7.9% 7.9% Utilities 7.7% 7.7% Telecommunication Services 7.0% 7.0% Information Technology 5.1% 5.1%
* Percent of equity portion of Master International Index Series COUNTRY ALLOCATION (PIE CHART)
% OF EQUITIES* EAFE --------- ----- JAPAN 25.3% 25.3% UNITED KINGDOM 19.9% 12.9% FRANCE 10.9% 10.9% GERMANY 8.8% 8.7% SWITZERLAND 8.3% 8.4% AUSTRALIA 6.0% 6.0% SPAIN 4.6% 4.5% ITALY 3.7% 3.7% NETHERLANDS 2.4% 2.4% HONG KONG 2.0% 2.0% SWEDEN 2.0% 2.0% FINLAND 1.4% 1.4% SINGAPORE 1.1% 1.1% DENMARK 0.8% 0.8% BELGIUM 0.7% 0.8% NORWAY 0.6% 0.6% GREECE 0.5% 0.5% AUSTRIA 0.3% 0.3% IRELAND 0.3% 0.3% PORTUGAL 0.3% 0.3% NEW ZEALAND 0.1% 0.1%
* Percent of equity portion of Master International Index Series 9 FUND EXPENSES DECEMBER 31, 2008 (UNAUDITED) FUND EXPENSE EXAMPLE As a shareholder of a 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 a particular Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2008 through December 31, 2008. ACTUAL EXPENSES The following table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid During Period" row to estimate the expenses you paid on your account during this period. Shareholders of the Institutional and PlanAhead Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. ACTUAL
S&P 500 SMALL CAP INTERNATIONAL INSTITUTIONAL CLASS INDEX INDEX EQUITY INDEX ------------------- --------- --------- ------------- Beginning Account Value 7/1/08 ...... $1,000.00 $1,000.00 $1,000.00 Ending Account Value 12/31/08 ....... $ 715.27 $ 732.56 $ 651.17 Expenses Paid During Period* 7/1/08 - 12/31/08 ......................... $ 0.56 $ 0.83 $ 0.79 Annualized Expense Ratio ............ 0.13% 0.19% 0.19%
S&P 500 PLANAHEAD CLASS INDEX --------------- --------- Beginning Account Value 7/1/08 ...... $1,000.00 Ending Account Value 12/31/08 ....... $ 713.80 Expenses Paid During Period* 7/1/08 - 12/31/08 ......................... $ 2.76 Annualized Expense Ratio ............ 0.64%
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The following table provides information about hypothetical account values and hypothetical expenses based on a Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in a particular Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the Institutional and PlanAhead Classes that invest in a Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by a Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Expenses Paid During Period" line of the table is 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
S&P 500 SMALL CAP INTERNATIONAL INSTITUTIONAL CLASS INDEX INDEX EQUITY INDEX ------------------- --------- --------- ------------- Beginning Account Value 7/1/08 ...... $1,000.00 $1,000.00 $1,000.00 Ending Account Value 12/31/08 ....... $1,024.48 $1,024.18 $1,024.18 Expenses Paid During Period* 7/1/08 - 12/31/08 ......................... $ 0.66 $ 0.97 $ 0.97 Annualized Expense Ratio ............ 0.13% 0.19% 0.19%
S&P 500 PLANAHEAD CLASS INDEX --------------- --------- Beginning Account Value 7/1/08 ...... $1,000.00 Ending Account Value 12/31/08 ....... $1,021.92 Expenses Paid During Period* 7/1/08 - 12/31/08 ......................... $ 3.25 Annualized Expense Ratio ............ 0.64%
---------- * 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 (366) to reflect the half-year period. 10 AMERICAN BEACON FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Trustees 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, 2008, 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, 2008, 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, 2008, 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, Texas February 27, 2009 11 AMERICAN BEACON FUNDS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
INTERNATIONAL S&P 500 SMALL CAP EQUITY INDEX INDEX FUND INDEX FUND FUND ----------- ---------- ------------- ASSETS: Investment in Portfolio, at value ......................... $ 236,359 $ 31,773 $ 184,586 Receivable for fund shares sold ........................... 1,198 20 1,315 Prepaid expenses .......................................... 7 -- 1 ----------- ---------- ----------- TOTAL ASSETS ........................................... 237,564 31,793 185,902 ----------- ---------- ----------- LIABILITIES: Payable for fund shares redeemed .......................... 7 201 1 Distribution fees payable (Note 2) ........................ 3 -- -- Administrative service and service fees payable (Note 2) .. 11 1 6 Other liabilities ......................................... 45 39 35 ----------- ---------- ----------- TOTAL LIABILITIES ...................................... 66 241 42 ----------- ---------- ----------- NET ASSETS ................................................ $ 237,498 $ 31,552 $ 185,860 =========== ========== =========== ANALYSIS OF NET ASSETS: Paid-in-capital ........................................... 320,116 47,304 280,932 Undistributed net investment income (expense) ............. 200 -- 199 Accumulated net realized gain (loss) ...................... (57,898) (2,005) (17,665) Unrealized net appreciation (depreciation) of investments and futures contracts .................................. (24,920) (13,747) (77,606) ----------- ---------- ----------- NET ASSETS ................................................... $ 237,498 $ 31,552 $ 185,860 =========== ========== =========== Shares outstanding (no par value): Institutional Class ....................................... 18,389,270 3,944,761 24,925,743 =========== ========== =========== PlanAhead Class ........................................... 1,070,885 -- -- =========== ========== =========== Net asset value, offering and redemption price per share: Institutional Class ....................................... $ 12 .21 $ 8.00 $ 7.46 =========== ========== =========== PlanAhead Class ........................................... $ 12 .06 $ -- $ -- =========== ========== ===========
See accompanying notes See accompanying Financial Statements of the respective Master Portfolios attached 12 AMERICAN BEACON FUNDS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2008 (IN THOUSANDS)
INTERNATIONAL S&P 500 SMALL CAP EQUITY INDEX INDEX FUND INDEX FUND FUND ---------- ---------- ------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO: Dividend income ........................................... $ 6,561 $ 544 $ 9,342 Interest income ........................................... 163 49 93 Securities lending income ................................. -- 105 -- Portfolio expenses ........................................ (128) (29) (266) Other income .............................................. -- -- 40 --------- -------- --------- NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ......... 6,596 669 9,209 --------- -------- --------- FUND EXPENSES: Administrative service fees (Note 2): Institutional Class .................................... 135 20 126 PlanAhead Class ........................................ 39 -- -- Sub-administrative service fees: Institutional Class .................................... -- 2 35 Transfer agent fees: Institutional Class .................................... 5 1 5 PlanAhead Class ........................................ 7 -- -- Custody and accounting fees ............................... 8 7 4 Professional fees ......................................... 18 14 17 Registration fees ......................................... 29 -- 1 Service fees - PlanAhead Class (Note 2) ................... 39 -- -- Printing .................................................. 23 2 6 Other expenses ............................................ 9 4 10 --------- -------- --------- TOTAL FUND EXPENSES .................................... 312 50 204 --------- -------- --------- NET INVESTMENT INCOME ........................................ 6,284 619 9,005 --------- -------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ALLOCATED FROM MASTER PORTFOLIO Net realized gain (loss) from: Investments ............................................ (190) (2,190) (10,620) Foreign currency transactions .......................... -- -- (796) Futures contracts ...................................... (3,158) (773) (2,634) Change in net unrealized appreciation or depreciation of: Investments ............................................ (128,008) (14,546) (126,068) Foreign currency transactions .......................... -- -- 171 Futures contracts ...................................... 180 356 151 --------- -------- --------- NET LOSS ON INVESTMENTS ................................ (131,176) (17,153) (139,796) --------- -------- --------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $(124,892) $(16,534) $(130,791) ========= ======== =========
See accompanying notes See accompanying Financial Statements of the respective Master Portfolios attached 13 AMERICAN BEACON FUNDS STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
INTERNATIONAL EQUITY S&P 500 INDEX FUND SMALL CAP INDEX FUND INDEX FUND --------------------- -------------------- --------------------- Year Ended Year Ended Year Ended December 31, December 31, December 31, --------------------- -------------------- --------------------- 2008 2007 2008 2007 2008 2007 --------- --------- -------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ........... $ 6,284 $ 4,980 $ 619 $ 1,122 $ 9,005 $ 9,526 Net realized gain (loss) on investments, foreign currency, and futures contracts .................... (3,348) 16,526 (2,963) 2,722 (14,050) 6,420 Change in net unrealized appreciation or depreciation of investments and futures contracts .................... (127,828) (8,818) (14,190) (2,345) (125,746) 19,978 --------- --------- -------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........... (124,892) 12,688 (16,534) 1,499 (130,791) 35,924 --------- --------- -------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class .......... (5,882) (4,560) (601) (1,094) (7,110) (10,259) PlanAhead Class .............. (267) (286) -- -- -- -- Net realized gain on investments: Institutional Class .......... -- -- (2,145) (2,872) -- (3,968) PlanAhead Class .............. -- -- -- -- -- -- Tax return of capital: Institutional Class .......... -- -- (456) (215) -- (252) --------- --------- -------- --------- --------- --------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS .............. (6,149) (4,846) (3,202) (4,181) (7,110) (14,479) --------- --------- -------- --------- --------- --------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ... 104,131 171,408 11,693 11,780 227,499 369,147 Reinvestment of dividends and distributions ................ 6,122 4,810 3,202 4,181 7,110 14,473 Cost of shares redeemed ......... (31,890) (132,948) (15,932) (112,832) (178,141) (299,885) --------- --------- -------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ........ 78,363 43,270 (1,037) (96,871) 56,468 83,735 --------- --------- -------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS .......................... (52,678) 51,112 (20,773) (99,553) (81,433) 105,180 --------- --------- -------- --------- --------- --------- NET ASSETS: Beginning of period ............. 290,176 239,064 52,325 151,878 267,293 162,113 --------- --------- -------- --------- --------- --------- END OF PERIOD * ................. $ 237,498 $ 290,176 $ 31,552 $ 52,325 $ 185,860 $ 267,293 ========= ========= ======== ========= ========= ========= *Includes undistributed net investment income (loss) of ..... $ 200 $ 158 $ -- $ -- $ 199 $ (418) ========= ========= ======== ========= ========= =========
See accompanying notes See accompanying Financial Statements of the respective Master Portfolios attached 14 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, (the "Act") 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. Effective September 12, 2008, American Beacon Advisors, Inc. (the "Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which is indirectly owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P., two private equity firms. Prior to September 12, the Manager was a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. which retained a minority interest in the parent company of Lighthouse Holdings, Inc. 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.
% OF PORTFOLIO HELD BY FUND AT AMERICAN BEACON: PORTFOLIOS: DECEMBER 31, 2008 ---------------- --------------------------------------- ----------------- S&P 500 Index Fund State Street Equity 500 Index Portfolio 15.5% Small Cap Index Fund Master Small Cap Index Series 9.2% International Equity Index Fund Master International Index Series 26.1%
The financial statements of the Portfolios are included elsewhere in this report and should be read in conjunction with the Funds' financial statements. 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 amongst the classes:
CLASS: OFFERED TO: ------ -------------------------------------------------------------- INSTITUTIONAL CLASS Investors making an initial investment of $2 million PLANAHEAD CLASS General public and investors investing through an intermediary
Administrative service fees and service fees vary amongst the classes as described more fully in footnote 2. Investment income, net capital gains (losses) and all expenses incurred by the S&P 500 Index Fund are allocated based on the relative net assets of each class, except for service fees and certain other fees and expenses related solely to one class of shares. Valuation of Investments Valuation of securities by each Portfolio is discussed in the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. 15 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 The Portfolios adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Portfolios' fiscal year. 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. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3 - Prices determined using significant unobservable inputs. Unobservable inputs reflect the Portfolio's own assumptions about the factors market participants would use in pricing an investment and would be based on the best information available. The summary of inputs used to value the Portfolios' net assets as of December 31, 2008 is discussed in the Portfolios' Notes to Financial Statements, which are included elsewhere in this report. Investment Income Each Fund records its share of net investment income and realized and unrealized gains and losses from the security transactions of its corresponding Portfolio each day. All net investment income and realized and unrealized gains (losses) of each Portfolio are allocated pro rata among the investors in that Portfolio at the time of such determination. 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 investments 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimated. 16 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Other Under the Trust's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Trust. In the normal course of business, the Trust enters into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Trust's maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Trust has had no prior claims or losses pursuant to any such agreement. 2. FEES AND TRANSACTIONS WITH AFFILIATES Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which 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 the 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 Plans The Manager and the Trust entered into a Service Plan that obligates the Manager to oversee additional shareholder servicing of the PlanAhead Class of S&P 500 Index Fund. As compensation for performing the duties required under the Service Plan, the Manager receives 0.25% of the average daily net assets of the PlanAhead Class of the S&P 500 Index Fund. 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 of each is to be reduced by the total expense ratio of its corresponding Portfolio, net of any fee waivers. 3. FEDERAL INCOME AND EXCISE TAXES It is the policy 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 or excise tax provision is required. For FASB Interpretation No. 48, "Accounting for Uncertainties in Income Taxes" ("FIN 48") purposes, there are no unrecognized tax benefits as of December 31, 2008 included in the accompanying financial statements. Each of the tax years in the four year period ended December 31, 2008, remains subject to examination by the Internal Revenue Service. If applicable, the Funds recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statement of Operations. For the year ended December 31, 2008, the Funds recognized $0 in interest and penalties. Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. generally accepted accounting principles. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. 17 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 The International Equity Index Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. The tax character of distributions paid during the years ended December 31, 2008 and December 31, 2007 were as follows (in thousands):
S&P 500 INDEX SMALL CAP INDEX INTERNATIONAL EQUITY INDEX --------------------------- --------------------------- ---------------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2008 2007 2008 2007 2008 2007 ------------ ------------ ------------ ------------ ------------ ------------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME:* Institutional Class ........ $ 5,882 $ 4,560 $ 646 $ 1,510 $ 7,110 $11,655 PlanAhead Class ............ 267 286 -- -- -- -- LONG-TERM CAPITAL GAIN: Institutional Class ........ -- -- 2,100 2,456 -- 2,572 PlanAhead Class ............ -- -- -- -- -- -- RETURN OF CAPITAL Institutional Class ........ -- -- 456 215 -- 252 ------- ------- ------- ------- ------- ------- TOTAL TAXABLE DISTRIBUTIONS ... $ 6,149 $ 4,846 $ 3,202 $ 4,181 $ 7,110 $14,479 ======= ======= ======= ======= ======= =======
* For tax purposes, short-term capital gains are considered ordinary income distributions. As of December 31, 2008, the components of distributable earnings on a tax basis we as follows (in thousands):
S&P 500 SMALL CAP INT'L EQUITY INDEX FUND INDEX FUND INDEX FUND ---------- ---------- ------------ Cost basis of investments for federal income tax purposes $ 277,291 $ 47,038 $ 266,221 Unrealized appreciation .............................. 230,374 4,278 17,377 Unrealized depreciation .............................. (271,306) (19,543) (99,012) --------- --------- ---------- Net unrealized depreciation .......................... (40,932) (15,264) (81,635) Undistributed ordinary income ........................ 136 -- 462 Capital and other accumulated losses ................. (41,683) (267) (13,797) Other temporary differences .......................... (139) (220) (102) --------- --------- ---------- Distributable earnings .................................. $ (82,618) $ (15,751) $ (95,072) ========= ========= =========
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 on 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. Accordingly, the following amounts represent current year permanent differences derived from reclassifications of income from real estate investment securities, futures, foreign currency, sales of 18 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 investments in passive foreign investment companies, dividend reclassifications and partnership transactions that have been reclassified as of December 31, 2008 (in thousands):
S&P 500 SMALL CAP INT'L EQUITY INDEX FUND INDEX FUND INDEX FUND ---------- ---------- ------------ Paid-in-capital .............................................. $ 26,235 $(4,344) $ 3,316 Undistributed net investment income .......................... (93) (18) (1,278) Accumulated net realized gain/(loss) ......................... (26,141) 4,362 (2,038) Unrealized appreciation (depreciation) of investments, futures contracts, and foreign currency ........................... (1) -- --
At December 31, 2008 capital loss carry forward positions for federal income tax purposes were as follows (in thousands):
FUND 2010 2011 2012 2013 2014 2015 2016 TOTAL ---- ------- ------- ------- ------- ------- ---- ------- ------- S&P 500 Index ............... $7,852 $635 $1,060 $2,311 $286 $-- $11,180 $23,324 International Equity Index .. -- -- -- -- -- -- $ 9,746 $ 9,746
Net capital and foreign currency losses incurred after October 31, 2008 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, 2008 (in thousands), the S&P 500 Index Fund deferred $18,359 of capital losses, the Small Cap Index Fund deferred $267 of capital losses and the International Equity Index Fund deferred $4,051 of capital losses to January 1, 2009. 4. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares for each Class of the Funds (shares and dollars in thousands): Year ended December 31, 2008
INSTITUTIONAL CLASS PLANAHEAD CLASS ------------------- ----------------- S&P 500 INDEX FUND SHARES AMOUNT SHARES AMOUNT ------------------ ------- --------- ------ -------- Shares sold .......................... 5,952 $ 97,796 427 $ 6,335 Reinvestment of dividends ............ 385 5,882 16 240 Shares redeemed ...................... (1,640) (27,201) (312) (4,689) ------ -------- ---- ------- Net increase in shares outstanding ... 4,697 $ 76,477 131 $ 1,886 ====== ======== ==== =======
INSTITUTIONAL CLASS ------------------- SMALL CAP INDEX FUND SHARES AMOUNT -------------------- ------- -------- Shares sold .................................. 1,023 $11,693 Reinvestment of dividends .................... 428 3,202 Shares redeemed .............................. (1,378) (15,932) ------- ------- Net increase (decrease) in shares outstanding ............................... 73 $(1,037) ======= =======
INSTITUTIONAL CLASS ------------------- INTERNATIONAL EQUITY INDEX FUND SHARES AMOUNT ------------------------------- ------- -------- Shares sold .................................. 19,770 $227,499 Reinvestment of dividends .................... 1,003 7,110 Shares redeemed .............................. (15,836) (178,141) ------- -------- Net increase in shares outstanding ........... 4,937 $ 56,468 ======= ========
19 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Year ended December 31, 2007
INSTITUTIONAL CLASS PLANAHEAD CLASS -------------------- ---------------- S&P 500 INDEX FUND SHARES AMOUNT SHARES AMOUNT ------------------ ------- --------- ------ ------- Shares sold .................................. 8,415 $ 164,624 347 $ 6,784 Reinvestment of dividends .................... 227 4,560 13 250 Shares redeemed .............................. (6,573) (127,653) (266) (5,295) ------ --------- ----- ------- Net increase in shares outstanding ........... 2,069 $ 41,531 94 $ 1,739 ====== ========= ===== =======
INSTITUTIONAL CLASS -------------------- SMALL CAP INDEX FUND SHARES AMOUNT -------------------- ------- --------- Shares sold .................................. 788 $ 11,780 Reinvestment of dividends .................... 302 4,181 Shares redeemed .............................. (7,415) (112,832) ------ --------- Net (decrease) in shares outstanding ......... (6,325) $ (96,871) ====== =========
INSTITUTIONAL CLASS -------------------- INTERNATIONAL EQUITY INDEX FUND SHARES AMOUNT ------------------------------- ------- --------- Shares sold .................................. 27,066 $ 369,147 Reinvestment of dividends .................... 1,093 14,473 Shares redeemed .............................. (20,878) (299,885) ------- --------- Net increase in shares outstanding ........... 7,281 $ 83,735 ======= =========
20 AMERICAN BEACON S&P 500 INDEX FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Institutional Class Year Ended December 31, --------------------------------------------------------- 2008 2007 2006 2005 2004 -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 19.85 $ 19.19 $ 16.90 $ 16.43 $ 15.10 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income:(A) ................... 0.35 0.39 0.33(C) 0.29 0.29 Net gain (loss) on investments, foreign currency and futures transactions (both realized and unrealized) ................. (7.64) 0.65 2.30 0.47 1.32 -------- -------- -------- -------- -------- Total income (loss) from investment operations .................................. (7.29) 1.04 2.63 0.76 1.61 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income ........ (0.35) (0.38) (0.34) (0.29) (0.28) Tax return of capital ....................... -- -- -- 0.00(B) -- -------- -------- -------- -------- -------- Total distributions ............................ (0.35) (0.38) (0.34) (0.29) (0.28) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ................. $ 12.21 $ 19.85 $ 19.19 $ 16.90 $ 16.43 ======== ======== ======== ======== ======== TOTAL RETURN ................................... (37.08)% 5.39% 15.69% 4.74% 10.76% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .... $224,583 $271,746 $223,008 $225,857 $244,668 Ratios to average net assets (annualized):(A) Net investment income, net of waivers .... 2.23% 1.89% 1.85% 1.75% 1.85% Net investment income, before waivers .... 2.23% 1.89% 1.85% 1.75% 1.85% Expenses, including expenses of the master portfolio, net of waivers ...... 0.13% 0.13% 0.14% 0.13% 0.17% Expenses, including expenses of the master portfolio, before waivers ...... 0.13% 0.13% 0.14% 0.13% 0.17%
---------- (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) Based upon average shares outstanding. 21 AMERICAN BEACON S&P 500 INDEX FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PlanAhead Class Year Ended December 31, -------------------------------------------------------- 2008 2007 2006 2005 2004 ------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 19.60 $ 18.97 $ 16.69 $ 16.23 $ 14.96 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income(A) .................... 0.33 0.31(B) 0.27(B,D) 0.21 0.23(B) Net gain (loss) on investments, foreign currency and futures transactions (both realized and unrealized) ................. (7.60) 0.62(B) 2.23(B) 0.48 1.29(B) ------- ------- ------- ------- ------- Total income (loss) from investment operations .................................. (7.27) 0.93 2.50 0.69 1.52 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income ........ (0.27) (0.30) (0.22) (0.23) (0.25) Tax return of capital ....................... -- -- -- 0.00(C) -- ------- ------- ------- ------- ------- Total distributions ............................ (0.27) (0.30) (0.22) (0.23) (0.25) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD ................. $ 12.06 $ 19.60 $ 18.97 $ 16.69 $ 16.23 ======= ======= ======= ======= ======= TOTAL RETURN ................................... (37.35)% 4.88% 15.09% 4.32% 10.21% ======= ======= ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .... $12,915 $18,430 $16,056 $48,985 $46,344 Ratios to average net assets (annualized):(A) Net investment income .................... 1.73% 1.38% 1.37% 1.28% 1.43% Expenses, including expenses of the master portfolio ...................... 0.62% 0.63% 0.61% 0.61% 0.62%
---------- (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. (B) For the years ended December 31, 2004, 2006 and 2007 the net investment income and net gains on securities (both realized and unrealized) have been restated from 0.21 and 1.31, 0.17 and 2.33, and 0.28 and 0.65, respectively. (C) The tax return of capital is calculated based upon outstanding shares at the time of distribution. Amounts are less than $0.01 per share. (D) Based upon average shares outstanding. 22 AMERICAN BEACON SMALL CAP INDEX FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Institutional Class Year Ended December 31, --------------------------------------------------------- 2008 2007 2006 2005 2004 ------- -------- -------- ------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 13.51 $ 14.89 $ 12.78 $12.57 $ 11.27 INCOME FROM INVESTMENT OPERATIONS: Net investment income(A) .................... 0.18 0.32 0.17 0.16 0.14 Net gain (loss) on investments, foreign currency and futures transactions (both realized and unrealized) .............. (4.78) (0.53) 2.11 0.42 1.87 ------- ------- -------- ------- ------- Total income (loss) from investment operations.. (4.60) (0.21) 2.28 0.58 2.01 ------- ------- -------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income ........ (0.17) (0.31) (0.17) (0.17) (0.13) Distributions from net realized gains on investments .............................. (0.61) (0.80) -- (0.15) (0.58) Tax return of capital(B) .................... (0.13) (0.06) -- (0.05) -- ------- ------- -------- ------- ------- Total distributions ............................ (0.91) (1.17) (0.17) (0.37) (0.71) ------- ------- -------- ------- ------- NET ASSET VALUE, END OF PERIOD ................. $ 8.00 $ 13.51 $ 14.89 $12.78 $ 12.57 ======= ======= ======== ======= ======= TOTAL RETURN ................................... (33.58)% (1.63)% 17.85% 4.51% 17.91% ======= ======= ======== ======= ======= RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .... $31,552 $52,325 $151,878 $46,113 $39,196 Ratios to average net assets (annualized):(A) Net investment income .................... 1.54% 1.49% 1.49% 1.12% 0.90% Expenses, including expenses of the master portfolio ......................... 0.20% 0.20% 0.18% 0.18% 0.22%
---------- (A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master Small Cap Index Series. (B) The tax return of capital is calculated based upon outstanding shares at the time of distribution. 23 AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND(SM) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Institutional Class Year Ended December 31, --------------------------------------------------------- 2008 2007 2006 2005 2004 -------- -------- -------- ------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 13.37 $ 12.76 $ 10.33 $ 9.39 $ 8.01 -------- -------- -------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income(A) .................... 0.39 0.52 0.23 0.21 0.17 Net gain (loss) on investments, foreign currency and futures transactions (both realized and unrealized) ................. (6.00) 0.85 2.50 1.06 1.44 Total income (loss) from investment operations.. (5.61) 1.37 2.73 1.27 1.61 -------- -------- -------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income ........ (0.30) (0.53) (0.23) (0.24) (0.23) Distributions from net realized gains on investments .............................. -- (0.22) (0.07) -- -- Tax return of capital ....................... -- (0.01)(B) -- (0.09)(B) -- -------- -------- -------- ------- ------- Total distributions ............................ (0.30) (0.76) (0.30) (0.33) (0.23) -------- -------- -------- ------- ------- NET ASSET VALUE, END OF PERIOD ................. $ 7.46 $ 13.37 $ 12.76 $ 10.33 $ 9.39 -------- -------- -------- ------- ------- TOTAL RETURN ................................... (41.85)% 10.68% 26.52% 13.58% 20.12% ======== ======== ======== ======= ======= RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .... $185,860 $267,293 $162,113 $90,200 $23,156 Ratios to average net assets (annualized):(A) Net investment income .................... 3.58% 2.96% 2.44% 2.49% 2.16% Expenses, including expenses of the master portfolio ...................... 0.19% 0.19% 0.22% 0.23% 0.26%
---------- (A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master International Index Series. (B) The tax return of capital is calculated based upon outstanding shares at the time of distribution. 24 AMERICAN BEACON FUNDS TAX INFORMATION FOR THE TAX YEAR ENDED DECEMBER 31, 2008 (UNAUDITED) We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those in other areas of 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, 2008, which is designated as qualifying for the dividends-received deduction, is as follows: S&P 500 Index Fund 96.4% Small Cap Index Fund 65.1% International Equity Index Fund 0.0%
For shareholders in the Funds, the percentage of dividend income distributed for the year ended December 31, 2008, which designated as qualified dividend income under the Jobs and Grown Tax relief Act of 2003, is as follows: S&P 500 Index Fund 100.0% Small Cap Index Fund 71.0% International Equity Index Fund 100.0%
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, 2008 (in thousands): S&P 500 Index Fund $ 0 Small Cap Index Fund $2,100 International Equity Index Fund $ 0
Of the ordinary dividends distributed to shareholders during the tax year ended December 31, 2008, the amount of income derived from short-term capital gains is as follows (in thousands): S&P 500 Index Fund $ 0 Small Cap Index Fund $27 International Equity Index Fund $ 0
25 AMERICAN BEACON FUNDS PRIVACY POLICY (UNAUDITED) 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. 26 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-three 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* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint Properties (1994- 2006); Member, Board of Trustees, Southern Methodist University; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital NON-INTERESTED TRUSTEES Term W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); 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) Brenda A. Cline (48) 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) (2001-2006); Director, Christian Church Foundation (1999-2007) Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994- Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001- Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990) Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (1998-2008) and Chief Executive Officer (1998-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-Present); Immediate Past Chairman and Board Member, Dallas (2003-Present), Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-Present); Vice Chair, State Fair of Texas (1987-Present); Board Member, Southwestern Medical Foundation (1994-Present) Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt Chairman since 2008 Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-Present). Chairman (2007- Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Healthcare Foundation (2006-Present)
27 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.) R. Gerald Turner (63) Trustee since 2001 President, Southern Methodist University (1995-Present); 225 Perkins Admin. Bldg. Director, ChemFirst (1986-2002); Director, J.C. Penney Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Dallas, Texas 75275 Federal Preferred Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Hospital Advisory Board; Co-Chair, Knight Commission on Intercollegiate Athletics. Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002- present); Director, National Kidney Foundation serving North Texas (2003- Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001). OFFICERS Term One Year William F. Quinn (60) President from Chairman (2006-Present) and CEO (2006-2007 and 2008 1987 to 2007 Present), President (1986- 2006) and Director and 2008 to Present (2003-Present), American Beacon Advisors, Inc.; Chairman Executive Vice (1989-2003) and Director (1979-1989, 2003-Present), President from American Airlines Federal Credit Union; Director, 2007 to 2008 Crescent Real Estate Equities, Inc.(1994-2007); Trustee from Director, Pritchard, Hubble & Herr, LLC (investment 1987 to 2008 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 (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008). Rosemary K. Behan (49) VP, Secretary and Vice President, Legal and Compliance, American Beacon Chief Legal Advisors, Inc. (2006- Present); Assistant General Officer since 2006 Counsel, First Command Financial Planning, Inc. (2004-2006); Enforcement Attorney (2002-2004) and Branch Chief (2000-2002), Securities and Exchange Commission. Brian E. Brett (48) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004). Wyatt Crumpler (42) VP since 2007 Vice President, Trust Investments, American Beacon Advisors, Inc. (2007- Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc.
28 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 --------------------- ------------------- -------------------------------------------------------- Michael W. Fields (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988- Present). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, Inc. 1995 (1995-Present). Christina E. Sears (37) Chief Compliance Chief Compliance Officer, American Beacon Advisors, Inc. Officer since 2004 (2004-Present); Senior Compliance Analyst, American and Asst. Beacon Advisors, Inc. (1998-2004). 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, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trusts, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's sub-advisors. 29 RESULTS OF SHAREHOLDER MEETING (UNAUDITED) A special meeting of shareholders of each of the portfolios of the American Beacon Funds (the "Trust") was held on August 22, 2008. The shareholders of the S&P 500 Index, Small Cap Index and International Equity Index Funds (the "Funds") approved a new investment management agreement between American Beacon Advisors, Inc. and the Funds. This proposal required a majority of shareholders of each Fund to achieve a quorum. The following are the results of the shareholder votes for this proposal:
FUND FOR AGAINST ABSTAIN NON-VOTING ---- --------------- ----------- ---------- -------------- S&P 500 Index 289,431,895.014 155,950.625 10,519.062 12,202,590.957 Small Cap Index 42,704,591.148 -0- -0- 261,197.760 International Equity Index 341,526,620.125 -0- -0- 18,572.641.920
The shareholders of the Trust also approved the re-election of five of the current Trustees to the Board of the Trust and the election of three additional Trustees to the Board. This proposal required a majority of the shareholders of the Trust to vote to achieve a quorum. The following are the results of the election of each Trustee: ALAN D. FELD Affirmative ................................................ 12,634,553,751.62 Withhold ................................................... 519,818,259.90 W. HUMPHREY BOGART Affirmative ................................................ 12,999,746,162.82 Withhold ................................................... 154,625,848.70 BRENDA A. CLINE Affirmative ................................................ 13,009,050,779.42 Withhold ................................................... 145,321,232.10 RICHARD A. MASSMAN Affirmative ................................................ 13,004,756,096.42 Withhold ................................................... 149,615,915.10 R. GERALD TURNER Affirmative ................................................ 13,004,259,224.92 Withhold ................................................... 150,112,786.60 THOMAS M. DUNNING Affirmative ................................................ 13,003,350,236.48 Withhold ................................................... 151,021,775.04 EUGENE J. DUFFY Affirmative ................................................ 12,985,296,316.39 Withhold ................................................... 169,075,695.13 PAUL J. ZUCCONI Affirmative ................................................ 12,983,378,136.76 Withhold ................................................... 170,993,874.76
30 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- COMMON STOCKS - 97.3% CONSUMER DISCRETIONARY - 8.4% Abercrombie & Fitch Co. Class A 15,846 $ 366 Amazon.Com, Inc. (a) 59,892 3,071 Apollo Group, Inc. Class A (a) 20,329 1,558 AutoNation, Inc. (a) 23,063 228 AutoZone, Inc. (a) 7,864 1,097 Bed Bath & Beyond, Inc. (a) 49,845 1,267 Best Buy Co., Inc. 62,919 1,769 Big Lots, Inc. (a) 16,227 235 Black & Decker Corp. 11,937 499 Carnival Corp. 80,550 1,959 CBS Corp. Class B 130,703 1,070 Centex Corp. 24,082 256 Coach, Inc. (a) 63,228 1,313 Comcast Corp. Class A 547,948 9,249 D.R. Horton, Inc. 52,876 374 Darden Restaurants, Inc. 25,688 724 DIRECTV Group, Inc. (a) 104,377 2,391 Eastman Kodak Co. 54,482 358 eBay, Inc. (a) 206,503 2,883 Expedia, Inc. (a) 39,215 323 Family Dollar Stores, Inc. 26,858 700 Ford Motor Co. (a) 462,398 1,059 Fortune Brands, Inc. 27,745 1,145 GameStop Corp. (a) 29,000 628 Gannett Co., Inc. 42,074 337 Gap, Inc. 87,698 1,174 General Motors Corp. 122,645 392 Genuine Parts Co. 30,509 1,155 Goodyear Tire & Rubber Co. (a) 45,257 270 H&R Block, Inc. 62,615 1,423 Harley-Davidson, Inc. 43,201 733 Harman International Industries, Inc. 10,521 176 Hasbro, Inc. 24,425 712 Home Depot, Inc. 318,512 7,332 Host Hotels & Resorts, Inc. 100,665 762 International Game Technology 55,119 655 Interpublic Group of Cos., Inc. (a) 83,694 331 JC Penney Co., Inc. 40,310 794 Johnson Controls, Inc. 110,886 2,014 Jones Apparel Group, Inc. 13,434 79 KB HOME 14,794 202 Kohl's Corp. (a) 56,033 2,028 Leggett & Platt, Inc. 27,898 424 Lennar Corp. Class A 27,931 242 Limited Brands 48,767 490 Lowe's Cos., Inc. 274,062 5,898 Macy's, Inc. 76,523 792 Marriot International, Inc. Class A 57,321 1,115 Mattel, Inc. 66,976 1,072
MARKET SHARES VALUE (000) --------- ----------- McDonald's Corp. 210,525 $ 13,093 McGraw-Hill, Inc. 60,266 1,398 Meredith Corp. 7,889 135 New York Times Co. Class A 22,922 168 Newell Rubbermaid, Inc. 51,593 505 News Corp. Class A 431,009 3,918 NIKE, Inc. Class B 73,252 3,736 Nordstrom, Inc. 27,033 360 Office Depot, Inc. (a) 51,256 153 Omnicom Group, Inc. 59,741 1,608 Polo Ralph Lauren Corp. 10,615 482 Pulte Homes, Inc. 41,426 453 Radioshack Corp. 26,203 313 Scripps Networks Interactive, Inc. Class A 16,835 370 Sears Holdings Corp. (a) 10,274 399 Sherwin-Williams Co. 18,396 1,099 Snap-On, Inc. 11,612 457 Stanley Works 14,583 497 Staples, Inc. 132,933 2,382 Starbucks Corp. (a) 136,061 1,287 Starwood Hotels & Resorts Worldwide, Inc. 33,647 602 Target Corp. 141,816 4,897 Tiffany & Co. 22,280 526 Time Warner, Inc. 672,173 6,762 TJX Cos., Inc. 77,406 1,592 V.F. Corp. 16,793 920 Viacom, Inc. Class B (a) 115,622 2,204 Walt Disney Co. 349,345 7,927 Washington Post Co. Class B 1,060 414 Whirlpool Corp. 13,761 569 Wyndham Worldwide Corp. 34,299 225 Wynn Resorts, Ltd. (a) 12,200 516 Yum! Brands, Inc. 87,192 2,747 ---------- 127,838 ---------- CONSUMER STAPLES - 12.5% Altria Group, Inc. 385,299 5,803 Archer-Daniels-Midland Co. 121,724 3,509 Avon Products, Inc. 80,660 1,938 Brown-Forman Corp. Class B 18,655 961 Campbell Soup Co. 39,265 1,178 Clorox Co. 25,643 1,425 Coca-Cola Co. 375,311 16,990 Coca-Cola Enterprises, Inc. 62,501 752 Colgate-Palmolive Co. 95,001 6,512 ConAgra Foods, Inc. 84,075 1,387 Constellation Brands, Inc. Class A (a) 37,426 590 Costco Wholesale Corp. 81,089 4,257 CVS Corp. 269,032 7,732 Dean Foods Co. (a) 29,658 533 Dr Pepper Snapple Group, Inc. (a) 45,800 744 Estee Lauder Cos, Inc. Class A 20,552 636
See notes to Financial Statements 31 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- CONSUMER STAPLES - (CONTINUED) General Mills, Inc. 62,932 $ 3,823 H.J. Heinz Co. 57,769 2,172 Kellogg Co. 45,935 2,014 Kimberly-Clark Corp. 77,200 4,072 Kraft Foods, Inc. 277,909 7,462 Kroger Co. 121,476 3,208 Lorillard, Inc. 32,461 1,829 McCormick & Co., Inc. 24,853 792 Molson Coors Brewing Co., Class B 28,562 1,397 Pepsi Bottling Group, Inc. 26,753 602 PepsiCo, Inc. 292,856 16,040 Philip Morris International, Inc. 381,699 16,608 Procter & Gamble Co. 562,619 34,781 Reynolds American, Inc. 31,387 1,265 Safeway, Inc. 80,364 1,910 Sara Lee Corp. 130,834 1,281 SuperValu, Inc. 37,648 550 Sysco Corp. 111,909 2,567 The Hershey Company 31,782 1,104 The J.M. Smucker Co. 22,760 987 Tyson Foods, Inc., Class A 57,835 507 UST Corp. 27,837 1,931 Wal-Mart Stores, Inc. 421,502 23,630 Walgreen Co. 184,018 4,540 Whole Foods Market, Inc. 25,433 240 ---------- 190,259 ---------- ENERGY - 12.6% Anadarko Petroleum Corp. 88,126 3,397 Apache Corp. 62,325 4,645 Baker Hughes, Inc. 57,578 1,847 BJ Services Co. 52,248 610 Cabot Oil & Gas Corp. 20,300 528 Cameron International Corp. (a) 41,400 849 Chesapeake Energy Corp. 97,582 1,578 Chevron Corp. (e) 383,846 28,393 ConocoPhillips 281,330 14,573 Devon Energy Corp. 82,951 5,451 El Paso Corp. 132,492 1,037 ENSCO International, Inc. 26,077 740 EOG Resources, Inc. 46,717 3,110 Equitable Resources, Inc. 24,300 815 ExxonMobil Corp. (e) 957,872 76,467 Halliburton Co. 170,334 3,097 Hess Corp. 52,501 2,816 Marathon Oil Corp. 133,077 3,641 Murphy Oil Corp. 35,641 1,581 Nabors Industries, Ltd. (a) 51,604 618 National Oilwell Varco, Inc. (a) 78,157 1,910 Noble Corp. 50,818 1,123 Occidental Petroleum Corp. 152,144 9,127 Pioneer Natural Resources Co. 21,600 349
MARKET SHARES VALUE (000) --------- ----------- Range Resources Corp. 29,400 $ 1,011 Rowan Cos., Inc. 19,520 310 Schlumberger, Ltd. 224,675 9,511 Smith International, Inc. 39,634 907 Sunoco, Inc. 21,584 938 Tesoro Corp. 26,365 347 Valero Energy Corp. 99,109 2,145 Weatherford International Ltd. (a) 127,010 1,374 Williams Cos., Inc. 109,968 1,592 XTO Energy, Inc. 109,552 3,864 ---------- 191,852 ---------- FINANCIALS - 13.1% AFLAC, Inc. 88,890 4,075 American Capital Ltd. 39,402 128 American Express Co. 216,164 4,010 American International Group, Inc. 483,466 759 Ameriprise Financial, Inc. 39,907 932 AON Corp. 52,147 2,382 Apartment Investment & Management Co. Class A 24,281 280 Assurant, Inc. 21,431 643 AvalonBay Communities, Inc. 14,653 888 Bank of America Corp. 947,062 13,335 Bank of New York Mellon Corp. 214,285 6,071 BB&T Corp. 102,870 2,825 Boston Properties, Inc. 22,967 1,263 Capital One Financial Corp. 74,963 2,391 CB Richard Ellis Group, Inc. Class A (a) 47,275 204 Charles Schwab Corp. 175,393 2,836 Chubb Corp. 67,475 3,441 Cincinnati Financial Corp. 31,214 907 CIT Group, Inc. 54,842 249 Citigroup, Inc. 1,030,602 6,915 CME Group, Inc. 12,391 2,579 Comerica, Inc. 27,144 539 Developers Diversified Realty Corp. 22,824 111 Discover Financial Services 85,605 816 E*Trade Financial Corp. (a) 81,315 94 Equity Residential 51,457 1,534 Federated Investors, Inc. Class B 15,270 259 Fidelity National Information Services, Inc. 36,777 598 Fifth Third Bancorp 107,116 885 First Horizon National Corp. 40,272 426 Franklin Resources, Inc. 28,180 1,797 Genworth Financial, Inc. Class A 79,351 225 Goldman Sachs Group, Inc. 83,700 7,063 Hartford Financial Services Group, Inc. 58,297 957 HCP, Inc. 46,700 1,297 Hudson City Bancorp, Inc. 95,992 1,532 Huntington Bancshares, Inc. 64,656 495 IntercontinentalExchange, Inc. (a) 13,980 1,152 Invesco Ltd. 69,400 1,002 J.P. Morgan Chase & Co. 703,715 22,188
See notes to Financial Statements 32 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- FINANCIALS - (CONTINUED) Janus Capital Group, Inc. 26,407 $ 212 KeyCorp 93,575 797 Kimco Realty Corp. 41,069 751 Legg Mason, Inc. 26,342 577 Leucadia National Corp. (a) 31,136 616 Lincoln National Corp. 46,692 880 Loews Corp. 69,031 1,950 M & T Bank Corp. 14,137 812 Marsh & McLennan Cos., Inc. 94,753 2,300 Marshall & Ilsley Corp. 45,493 621 Mastercard, Inc. Class A 13,600 1,944 MBIA, Inc. (a) 31,984 130 Merrill Lynch & Co., Inc. 304,490 3,544 MetLife, Inc. 150,396 5,243 Moody's Corp. 35,466 712 Morgan Stanley 205,330 3,293 NASDAQ OMX Group, Inc. (a) 24,600 608 National City Corp. 384,354 696 Northern Trust Corp. 41,706 2,175 NYSE Euronext 48,800 1,336 People's United Financial Inc. 63,600 1,134 Plum Creek Timber Co., Inc. 33,011 1,147 PNC Financial Services Group, Inc. 64,051 3,138 Principal Financial Group, Inc. 46,591 1,052 Progressive Corp. 127,401 1,887 ProLogis 48,091 668 Prudential Financial, Inc. 81,039 2,452 Public Storage, Inc. 23,887 1,899 Regions Financial Corp. 129,789 1,033 Simon Property Group, Inc. 42,400 2,253 SLM Corp. (a) 83,254 741 Sovereign Bancorp, Inc. (a) 105,974 316 State Street Corp. (b) 81,725 3,214 SunTrust Banks, Inc. 66,618 1,968 T. Rowe Price Group, Inc. 48,075 1,704 Torchmark Corp. 15,621 698 Travelers Cos, Inc. 110,204 4,981 U.S. Bancorp 331,752 8,297 Unum Group 66,529 1,237 Vornado Realty Trust 26,034 1,571 Wachovia Corp. 399,078 2,211 Wells Fargo Co. 714,593 21,066 Western Union Co. 134,085 1,923 XL Capital, Ltd. Class A 54,468 202 Zions Bancorp 21,753 533 ---------- 199,947 ---------- HEALTH CARE - 14.3% Abbott Laboratories 292,706 15,622 Aetna, Inc. 89,650 2,555 Allergan, Inc. 58,392 2,354 AmerisourceBergen Corp. 29,893 1,066 Amgen, Inc. (a) 200,036 11,552
MARKET SHARES VALUE (000) --------- ----------- Baxter International, Inc. 117,361 $ 6,289 Becton, Dickinson & Co. 45,197 3,091 Biogen Idec, Inc. (a) 55,031 2,621 Boston Scientific Corp. (a) 283,034 2,191 Bristol-Myers Squibb Co. 369,638 8,594 C.R. Bard, Inc. 18,697 1,575 Cardinal Health, Inc. 67,557 2,329 Celgene Corp. (a) 85,618 4,733 Cephalon, Inc. (a) 12,400 955 CIGNA Corp. 53,596 903 Coventry Health Care, Inc. (a) 27,603 411 Covidien Ltd. 95,704 3,468 DaVita, Inc. (a) 20,300 1,006 Dentsply International Inc. 27,200 768 Eli Lilly & Co. 187,675 7,558 Express Scripts, Inc. (a) 46,299 2,546 Forest Laboratories, Inc. (a) 58,202 1,482 Genzyme Corp. (a) 49,892 3,311 Gilead Sciences, Inc. (a) 173,899 8,893 Hospira, Inc. (a) 28,503 765 Humana, Inc. (a) 32,007 1,193 IMS Health, Inc. 34,832 528 Intuitive Surgical, Inc. (a) 7,500 953 Johnson & Johnson 522,149 31,240 King Pharmaceuticals, Inc. (a) 48,592 516 Laboratory Corp. of America Holdings (a) 20,622 1,328 Life Technologies Corp. (a) 31,287 729 McKesson Corp. 50,655 1,962 Medco Health Solutions, Inc. (a) 94,468 3,959 Medtronic, Inc. 210,278 6,607 Merck & Co., Inc. 401,219 12,197 Millipore Corp. (a) 9,535 491 Mylan Laboratories Inc. (a) 60,109 595 Patterson Cos., Inc. (a) 18,294 343 Pfizer, Inc. 1,271,271 22,514 Quest Diagnostics, Inc. 29,800 1,547 Schering-Plough Corp. 306,055 5,212 St. Jude Medical, Inc. (a) 63,126 2,081 Stryker Corp. 46,089 1,841 Tenet Healthcare Corp. (a) 66,670 77 Thermo Fisher Scientific, Inc. (a) 78,524 2,675 UnitedHealth Group, Inc. 226,996 6,038 Varian Medical Systems, Inc. (a) 22,860 801 Watson Pharmaceuticals, Inc. (a) 20,646 549 Wellpoint, Inc. (a) 95,838 4,038 Wyeth 248,887 9,336 Zimmer Holdings, Inc. (a) 41,652 1,684 ---------- 217,672 ---------- INDUSTRIALS - 10.9% 3M Co. 130,572 7,513 Avery Dennison Corp. 18,988 621 Boeing Co. 138,988 5,931 Burlington Northern Santa Fe Corp. 52,982 4,011
See notes to Financial Statements 33 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- INDUSTRIALS - (CONTINUED) Caterpillar, Inc. 114,479 $ 5,114 CH Robinson Worldwide, Inc. 31,961 1,759 Cintas Corp. 25,088 583 Cooper Industries, Ltd. Class A 32,034 936 CSX Corp. 75,538 2,453 Cummins, Inc. 37,258 996 Danaher Corp. 47,386 2,683 Deere & Co. 80,637 3,090 Domtar Corp. (a),(c) 11 -- Dover Corp. 34,295 1,129 Eaton Corp. 30,295 1,506 Emerson Electric Co. 144,148 5,277 Equifax, Inc. 23,683 628 Expeditors International Washington, Inc. 40,120 1,335 Fastenal Co. 23,200 809 FedEx Corp. 58,100 3,727 Ffir Systems, Inc. (a) 26,100 803 Flowserve Corp. 10,300 530 Fluor Corp. 33,460 1,501 General Dynamics Corp. 74,961 4,317 General Electric Co. (e) 1,979,233 32,064 Goodrich Co. 24,445 905 Honeywell International, Inc. 140,381 4,609 Illinois Tool Works, Inc. 75,071 2,631 Ingersoll-Rand Co. Class A 58,457 1,014 ITT Industries, Inc. 33,492 1,540 Jacobs Engineering Group, Inc. (a) 23,400 1,126 L-3 Communications Holdings, Inc. 22,303 1,646 Lockheed Martin Corp. 62,652 5,268 Manitowoc Co., Inc. 24,000 208 Masco Corp. 67,523 752 Monster Worldwide, Inc. (a) 22,609 273 Norfolk Southern Corp. 69,355 3,263 Northrop Grumman Corp. 62,811 2,829 PACCAR, Inc. 67,874 1,941 Pall Corp. 22,209 631 Parker-Hannifin Corp. 31,803 1,353 Pitney Bowes, Inc. 40,027 1,020 Precision Castparts Corp. 25,507 1,517 R.R. Donnelley & Sons Co. 38,309 520 Raytheon Co. 77,482 3,955 Republic Services, Inc. 61,603 1,527 Robert Half International, Inc. 30,640 638 Rockwell Automation, Inc. 27,505 887 Rockwell Collins, Inc. 30,231 1,182 Ryder Systems, Inc. 9,821 381 Southwest Airlines Co. 136,186 1,174 Ryder Systems, Inc. 9,821 381 Southwest Airlines Co. 136,186 1,174 Stericycle, Inc. (a) 15,600 812 Textron, Inc. 45,239 627
MARKET SHARES VALUE (000) --------- ----------- Total System Services, Inc. 37,775 $ 529 Tyco Electronics Ltd. 86,204 1,397 Tyco International Ltd. 87,961 1,900 Union Pacific Corp. 94,368 4,511 United Parcel Service, Inc. Class B 189,246 10,439 United Technologies Corp. 181,078 9,706 W.W. Grainger, Inc. 12,169 959 Waste Management, Inc. 92,139 3,053 ---------- 166,039 ---------- INFORMATION TECHNOLOGY - 14.4% Adobe Systems, Inc. (a) 99,657 2,122 Advanced Micro Devices, Inc. (a) 114,986 248 Affiliated Computer Services, Inc. Class A (a) 18,737 861 Agilent Technologies, Inc. (a) 68,068 1,064 Akamai Technologies, Inc. (a) 29,424 444 Altera Corp. 58,354 975 Amphenol Corp. Class A 31,900 765 Analog Devices, Inc. 54,669 1,040 Apple Computer, Inc. (a) 167,684 14,312 Applied Materials, Inc. 248,807 2,520 Autodesk, Inc. (a) 41,676 819 Automatic Data Processing, Inc. 94,317 3,710 BMC Software, Inc. (a) 35,621 959 Broadcom Corp. Class A (a) 83,259 1,413 CA, Inc. 73,599 1,364 CIENA Corp. (a) 14,529 97 Cisco Systems, Inc. (a) 1,106,619 18,038 Citrix Systems, Inc. (a) 33,467 789 Cognizant Technology Solutions Corp. Class A (a) 54,884 991 Computer Sciences Corp. (a) 28,244 992 Compuware Corp. (a) 51,350 347 Convergys Corp. (a) 20,035 128 Corning, Inc. 297,476 2,835 Dell, Inc. (a) 322,450 3,302 Dun & Bradstreet Corp. 9,900 764 Electronic Arts, Inc. (a) 58,200 934 EMC Corp. (a) 388,384 4,066 Fiserv, Inc. (a) 29,952 1,089 Google, Inc. Class A (a) 45,190 13,903 Harris Corp. 24,100 917 Hewlett-Packard Co. 462,016 16,767 Intel Corp. 1,053,556 15,445 International Business Machines Corp. 253,242 21,313 Intuit, Inc. (a) 58,463 1,391 Jabil Circuit, Inc. 39,951 270 Juniper Networks, Inc. (a) 100,793 1,765 KLA-Tencor Corp. 34,105 743 Lexmark International Group, Inc Class A (a) 15,842 426 Linear Technology Corp. 40,863 904 LSI Corp. (a) 112,662 371 McAfee, Inc. (a) 28,700 992 MEMC Electronic Materials, Inc. (a) 40,878 584
See notes to Financial Statements 34 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- INFORMATION TECHNOLOGY - (CONTINUED) Microchip Technology, Inc. 33,189 $ 648 Micron Technology, Inc. (a) 142,362 376 Microsoft Corp. (e) 1,441,835 28,029 Molex, Inc. 24,805 359 Motorola, Inc. 417,065 1,848 National Semiconductor Corp. 39,396 397 NetApp, Inc. (a) 61,157 854 Novell, Inc. (a) 68,720 267 Novellus Systems, Inc. (a) 20,030 247 NVIDIA Corp. (a) 100,756 813 Oracle Corp. (a) 733,462 13,004 Paychex, Inc. 61,038 1,604 PerkinElmer, Inc. 21,118 294 QLogic Corp. (a) 24,322 327 QUALCOMM, Inc. 312,711 11,204 Salesforce.com, Inc. (a) 18,600 595 SanDisk Corp. (a) 40,167 386 Sun Microsystems, Inc. (a) 142,341 544 Symantec Corp. (a) 159,663 2,159 Tellabs, Inc. (a) 73,830 304 Teradata Corp. (a) 33,520 497 Teradyne, Inc. (a) 27,649 117 Texas Instruments, Inc. 247,399 3,840 VeriSign, Inc. (a) 37,521 716 Waters Corp. (a) 18,665 684 Xerox Corp. 161,834 1,290 Xilinx, Inc. 53,002 944 Yahoo!, Inc. (a) 260,319 3,176 ---------- 218,302 ---------- MATERIALS - 3.1% Air Products & Chemicals, Inc. 40,009 2,011 AK Steel Holding Corp. 20,000 186 Alcoa, Inc. 152,249 1,714 Allegheny Technologies, Inc. 17,528 447 Ball Corp. 17,562 730 Bemis Co., Inc. 17,262 409 CF Industries Holdings, Inc. 10,150 499 Consol Energy, Inc. 33,273 951 Dow Chemical Co. 173,228 2,614 E.I. Du Pont de Nemours & Co. 168,412 4,261 Eastman Chemical Co. 14,204 450 Ecolab, Inc. 33,566 1,180 Freeport-McMoRan Copper & Gold, Inc. Class B 70,752 1,729 International Flavors & Fragrances, Inc. 14,331 426 International Paper Co. 82,811 977 Massey Energy Co. 14,300 197 MeadWestvaco Corp. 32,320 362 Monsanto Co. 103,355 7,271 Newmont Mining Corp. 86,206 3,509 Nucor Corp. 58,554 2,705 Owens-Illinois, Inc. (a) 31,400 858 Pactiv Corp. (a) 23,915 595
MARKET SHARES VALUE (000) --------- ----------- Peabody Energy Corp. 50,924 $ 1,159 PPG Industries, Inc. 29,871 1,267 Praxair, Inc. 59,011 3,503 Rohm & Haas Co. 23,006 1,422 Sealed Air Corp. 28,492 426 Sigma-Aldrich Corp. 23,934 1,011 Titanium Metals Corp. 16,600 146 United States Steel Corp. 20,978 780 Vulcan Materials Co. 20,861 1,452 Weyerhaeuser Co. 38,837 1,189 ---------- 46,436 ---------- TELECOMMUNICATION SERVICES - 3.7% American Tower Corp. Class A (a) 74,300 2,179 AT&T, Inc. 1,110,550 31,651 CenturyTel, Inc. 19,441 531 Embarq Corp. 27,397 985 Fairpoint Communications, Inc. (c) 8 -- Frontier Communications Corp. 60,384 528 JDS Uniphase Corp. (a) 42,723 156 Qwest Communications International, Inc. 283,890 1,033 Sprint Nextel Corp. (a) 517,465 947 Verizon Communications, Inc. 532,566 18,054 Windstream Corp. 79,613 732 ---------- 56,796 ---------- UTILITIES - 4.3% AES Corp. (a) 12,395 1,058 Allegheny Energy, Inc. 30,759 1,042 Ameren Corp. 38,360 1,276 American Electric Power Co., Inc. 75,952 2,528 CenterPoint Energy, Inc. 65,611 828 CMS Energy Corp. 38,856 393 Consolidated Edison, Inc. 50,152 1,952 Constellation Energy Group, Inc. 34,414 863 Dominion Resources, Inc. 108,262 3,880 DTE Energy Co. 30,484 1,087 Duke Energy Corp. 236,920 3,556 Dynegy, Inc. (a) 82,690 165 Edison International 62,119 1,995 Entergy Corp. 36,198 3,009 Exelon Corp. 123,321 6,858 FirstEnergy Corp. 56,507 2,745 FPL Group, Inc. 76,721 3,861 Integrys Energy Group, Inc. 14,716 633 Nicor, Inc. 7,400 257 NiSource, Inc. 49,982 548 Pepco Holdings, Inc. 41,700 741 PG&E Corp. 67,626 2,618 Pinnacle West Capital Corp. 17,760 571 PPL Corp. 69,075 2,120 Progress Energy, Inc. 49,081 1,956 Public Service Enterprise Group, Inc. 96,324 2,810 Questar Corp. 32,968 1,078 SCANA Corp. 22,200 789
See notes to Financial Statements 35 STATE STREET EQUITY 500 INDEX PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2008
MARKET SHARES VALUE (000) --------- ----------- UTILITIES - (CONTINUED) Sempra Energy 45,686 $ 1,948 Southern Co. 144,743 5,355 Southwestern Energy Co. (a) 64,000 1,854 Spectra Energy Corp. 113,398 1,785 TECO Energy, Inc. 42,151 521 Wisconsin Energy Corp. 21,200 890 Xcel Energy, Inc. 83,951 1,557 ---------- 65,127 ---------- TOTAL COMMON STOCKS (COST $1,445,363,525) 1,480,268
PAR AMOUNT MARKET (000) VALUE (000) --------- ----------- U.S. GOVERNMENT SECURITIES - 0.3% United States Treasury Bill(d)(e) 0.2% due 6/11/09 195 $ 195 United States Treasury Bill(d)(e) 0.2% due 6/11/09 4,620 4,616 ------ TOTAL U.S. GOVERNMENT SECURITIES (COST $4,810,923) 4,811 ------
SHARES MARKET (000) VALUE (000) --------- ----------- MONEY MARKET FUNDS - 2.3% AIM Short Term Investment Prime Portfolio 35,121 $ 35,121 Federated Money Market Obligations Trust 571 571 ---------- TOTAL MONEY MARKET FUNDS (Cost $35,692,807) 35,692 ---------- TOTAL INVESTMENTS # - 99.9% (identified cost $1,485,867) 1,520,771 OTHER ASSETS IN EXCESS OF LIABILITIES - 0.1% 1,437 ---------- NET ASSETS - 100.0% $1,522,208 ==========
NUMBER UNREALIZED OF APPRECIATION CONTRACTS (000) --------- ------------ Schedule of Futures Contracts S&P 500 Financial Futures Contracts (long) Expiration Date 03/2009 924 $951 ---- Total unrealized depreciation on open futures contracts purchased $951 ---- (a) Non-income producing security. (b) Affiliated issuer. See table that follows for more information. (c) Amount is less than $1,000. (d) Rate represents annualized yield at date of purchase. (e) All or part of this security has been designated as collateral for futures contracts. # See Note 2 of the Notes to Financial Statements.
AFFILIATE TABLE Certain investments made by the Portfolio were made in securities affiliated with State Street and SSgA FM. Investments in State Street Corp., the holding company of State Street, were made according to its representative portion of the S&P 500(R) Index. The market value of this investment at December 31, 2008 is listed in the Portfolio of Investments.
Income Earned Realized Number of Shares Number of for the year Gain on shares held purchased for Shares sold for shares held Value at ended shares Security at the year ended the year ended at 12/31/08 12/31/08 sold Description 12/31/2007 12/31/08 12/31/08 12/31/08 (000) (000) (000) ------------------ ----------- -------------- --------------- ----------- -------- ------------ -------- State Street Corp. 70,325 19,000 7,600 81,725 $3,214 $72 $(8)
See notes to Financial Statements 36 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008 (AMOUNTS IN THOUSANDS) ASSETS Investments in unaffiliated issuers at market (identified cost $1,482,293) ......... $1,517,557 Investments in non-controlled affiliates at market (identified cost $3,574) (Note 4) ........................................................................ 3,214 ---------- Total investments at market (identified cost $1,485,867) ..................... 1,520,771 Cash ............................................................................... 8 Receivables: Daily variation margin on futures contracts .................................. 545 Dividends and interest ....................................................... 3,390 ---------- TOTAL ASSETS .............................................................. 1,524,714 ---------- LIABILITIES Payables: Investment securities purchased .............................................. 2,450 Management fees (Note 4) ..................................................... 56 TOTAL LIABILITIES ......................................................... 2,506 ---------- NET ASSETS ......................................................................... $1,522,208 ==========
See notes to Financial Statements 37 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 (AMOUNTS IN THOUSANDS) INVESTMENT INCOME Dividend income - unaffiliated issuers .................. $ 45,238 Dividend income - non-controlled affiliated issuer ...... 72 Interest ................................................ 1,146 --------- TOTAL INVESTMENT INCOME .............................. 46,456 --------- EXPENSES Management fees (Note 4) ................................ $ 893 --------- TOTAL EXPENSES ....................................... 893 --------- NET INVESTMENT INCOME ...................................... 45,563 --------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments - unaffiliated issuers ...................... 1,264 Investments - non-controlled affiliated issuer .......... (8) Futures contracts ....................................... (21,109) --------- --------- (19,853) --------- Net change in net unrealized appreciation (depreciation) on: Investments ............................................. (898,078) Futures contracts ....................................... 276 --------- (897,802) --------- Net realized and unrealized loss ........................... (917,655) --------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $(872,092) =========
See notes to Financial Statements 38 STATE STREET EQUITY 500 INDEX PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
FOR THE FOR THE YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31, 2008 2007 ----------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net Investment Income ................................................ $ 45,563 $ 53,117 Net realized gain (loss) on investments and futures contracts ........ (19,853) 169,211 Net change in net unrealized appreciation (depreciation) ............. (897,802) (66,481) ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ... (872,092) 155,847 ---------- ---------- CAPITAL TRANSACTIONS Proceeds from contributions .......................................... 288,497 328,812 Fair value of withdrawals ............................................ (316,574) (765,322) Withdrawals in-kind .................................................. -- (63,656) ---------- ---------- NET DECREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS .............. (28,077) (500,166) ---------- ---------- TOTAL NET DECREASE IN NET ASSETS ........................................ (900,169) (344,319) NET ASSETS Beginning of period ..................................................... 2,422,377 2,766,696 ---------- ---------- END OF PERIOD ........................................................... $1,522,208 $2,422,377 ========== ==========
See notes to Financial Statements 39 STATE STREET EQUITY 500 INDEX PORTFOLIO FINANCIAL HIGHLIGHTS The following table includes selected supplemental data and ratios to average net assets:
YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 12/31/2008 12/31/2007 12/31/2006 12/31/2005 12/31/2004 ---------- ---------- ---------- ---------- ---------- SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) ............... $1,522,208 $2,422,377 $2,766,696 $2,453,109 $2,767,467 Ratios to average net assets: Operating expenses .......... 0.045% 0.045% 0.045% 0.045% 0.045% Net investment income ....... 2.30% 1.96% 1.94% 1.84% 1.97% Portfolio turnover rate* ....... 14% 12% 10% 8% 9% Total return (a) ............... (37.02)% 5.49% 15.75% 4.87% 10.86%
---------- * The portfolio turnover rate excludes in-kind security transactions. (a) Results represent past performance and are not indicative of future results. 40 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. ORGANIZATION 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 eleven 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, the State Street Tax Free Money Market Portfolio, the State Street Short-Term Tax Exempt Bond Portfolio, the State Street Limited Duration Bond Portfolio, the State Street Treasury Money Market Portfolio, the State Street Treasury Plus 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, 2008, only the Portfolio, the State Street Money Market Portfolio, the State Street Tax Free Money Market Portfolio, the State Street Short-Term Tax Exempt Bond Portfolio, the State Street Treasury Money Market Portfolio, the State Street Treasury Plus Money Market Portfolio and the State Street U.S. Government 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. The Portfolio adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In accordance with FAS 157, fair value is defined as the price that the portfolio would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. Various inputs are used in determining the value of the Portfolio's investments. FAS 157 established a three tier hierarchy of inputs to establish a classification of fair value measurement and disclosure. The three tier hierarchy of inputs is summarized below: Level 1 - quoted prices in active markets for identical securitites 41 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 - significant unobservable inputs (including the Portfolio's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the inputs used, as of December 31, 2008, in valuing the Portfolio's assets carried at fair value:
Investments in Other Financial Valuation Inputs Securities Instruments* ------------------------------------------------- -------------- --------------- Level 1 - Quoted Prices ......................... $1,515,960,091 $950,935 Level 2 - Other significant observable inputs ... 4,810,926 -- Level 3 - Significant unobservable inputs ....... -- -- -------------- -------- Total ........................................... $1,520,771,017 $950,935
* Other financial instruments include futures contracts. Securities transactions, investment income and expenses: Securities transactions are recorded on a trade date basis for fmancial 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 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. The Portfolio has reviewed the tax positions for open years as of and during the year ended December 31, 2008, and determined it did not have a liability for any unrecognized tax expenses. The Portfolio recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2008, tax years 2005 through 2008 remain subject to examination by the portfolio's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts. 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 42 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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, 2008, purchases and sales of investment securities, excluding short-term investments, futures contracts, and contributions in-kind and fair value of withdrawals, aggregated to $307,643,773 and $281,597,781, respectively. At December 31, 2008, the book cost of investments was $1,485,867,258 which approximates cost computed on a federal tax basis. The aggregate gross unrealized appreciation and gross unrealized depreciation was $357,487,087 and $322,583,328, respectively, resulting in net appreciation of $34,903,759 for all securities as computed on a federal income tax basis. 4. RELATED PARTY FEES AND TRANSACTIONS The Portfolio has entered into an investment advisory agreement with SSgA Funds Management, Inc. ("SSgA FM" or the "Adviser"), a subsidiary of State Street Corp. and an affiliate of State Street Bank and Trust Company ("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 portion of the S&P 500(R) Index. The market value of this investment at December 31, 2008 is listed in the Portfolio of Investments. 5. TRUSTEES' FEES Pursuant to certain agreements with State Street and its affiliates, each Independent Trustee receives for his or her services a $30,000 retainer in addition to $2,500 for each in-person meeting and $500 for each telephonic meeting from State Street or its affiliates. 43 STATE STREET EQUITY 500 INDEX PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 6. INDEMNIFICATIONS 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. Management does not expect any significant claims. 7. NEW ACCOUNTING PRONOUNCEMENTS On March 19, 2008, the FASB released Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS 161"). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of FAS 161 and believes the impact of adopting FAS 161 will be limited to additional disclosures. 44 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 of the State Street Equity 500 Index Portfolio (one of the portfolios constituting State Street Master Funds) (the "Portfolio"), including the portfolio of investments, as of December 31, 2008, and the related statement of operations for the year then ended, the statement 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, 2008, 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 State Street Equity 500 Index Portfolio of State Street Master Funds at December 31, 2008, 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 23, 2009 45 STATE STREET EQUITY 500 INDEX PORTFOLIO GENERAL INFORMATION DECEMBER 31, 2008 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES AND RECORD The Trust has adopted proxy voting procedures relating to portfolio securities held by the Portfolio. A description of the policies and procedures are available (i) without charge, upon request, by calling (877) 521-4083 or (ii) on the website of the Securities and Exchange Commission (the "SEC") at www.sec.gov. Information on how the Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available by August 31 (i) without charge, upon request, by 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 20, 2008 (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 investment 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 $1.69 trillion in assets under management as of September 30, 2008, including over $157 billion managed by the Adviser. 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 are exceptional. As discussed more fully below, they also determined that the advisory fee for the Portfolio was fair and reasonable and that its performance and expense ratio were satisfactory. On the basis of this review, the Trustees determined that the nature and extent of the services provided by the Adviser to the Portfolio was appropriate, had been of uniformly high quality, and could be expected to remain so. 46 STATE STREET EQUITY 500 INDEX PORTFOLIO GENERAL INFORMATION DECEMBER 31, 2008 (UNAUDITED) 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. 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 June 30, 2008. 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 during the period for which information had been provided, 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; after discussion, they concluded that the data available provided confirmation of the reasonableness of the Adviser's fee. The Board determined that the Adviser's fee was fair and reasonable. In considering whether the Adviser benefits in other ways from its relationship with the Trust, the Trustees also considered whether the Adviser's affiliates may benefit from the Trust's relationship with State Street as fund administrator, custodian and transfer agent. 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 fee 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 an advisory fee of a comparatively low level that subsumed economies of scale in the fee itself. The Trustees also recognized, however, that should sustained, substantial asset growth be realized in the future, it might be necessary to consider additional measures. On the basis of the foregoing discussions and determinations, without any one factor being dispositive, the Board decided to approve the continuance of the Advisory Agreement 47 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.
NUMBER OF FUNDS IN FUND COMPLEX NAME, ADDRESS, POSITION(S) TERM OF OFFICE OVERSEEN AND DATE OF BIRTH HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION BY OTHER DIRECTORSHIPS ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE* HELD BY TRUSTEE ------------------- ----------- ---------------- -------------------------------------- --------- ----------------------------- INDEPENDENT TRUSTEES Michael F. Holland Trustee and Term: Indefinite Chairman, Holland & Company L.L.C. 22 Trustee, State Street Holland & Company, Chairman of (investment adviser) (1995 - present). Institutional Investment LLC the Board Elected: 7/99 Trust; Director, the 375 Park Avenue Holland Series Fund, Inc.; New York, NY 10152 Director, The China Fund, DOB: 1944 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 South Africa 22 Trustee, State Street State Street Master Trust (investments) (1995 - Institutional Investment Master Funds Elected: 7/99 present); Chairman emeritus, Trust; and Trustee, Old P.O. Box 5049 Children's Hospital (1984 - present); Mutual South Africa Master Boston, MA 02206 Director, Boston Plan For Excellence Trust DOB 1937 (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 International 22 Trustee, State Street State Street LLC (1998 - present); Member of the Institutional Investment Master Funds Elected: 7/99 Advisory Board, Ingenium Corp. Trust; Director, Berkshire P.O. Box 5049 (technology company) (2001 - Life Insurance Company of Boston, MA 02206 present); Chief Executive Officer, America; and Director, DOB: 1948 IEmily.com (internet company) (2000 - IEmily.com 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 of Chase 22 Trustee, State Street State Street Master Manhattan Bank (1987 - 1999). Mr. Institutional Investment Funds Elected: 7/99 Williams retired in 1999. Trust P.O. Box 5049 Boston, MA 02206 DOB: 1940
* The "Fund Complex" consists of eleven series of the Trust and eleven series of State Street Institutional Investment Trust. 48 STATE STREET EQUITY 500 INDEX PORTFOLIO TRUSTEES AND EXECUTIVE OFFICERS (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX NAME, ADDRESS, POSITION(S) TERM OF OFFICE OVERSEEN AND DATE OF BIRTH HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION BY OTHER DIRECTORSHIPS ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE* HELD BY TRUSTEE ------------------- ----------- ---------------- -------------------------------------- --------- ----------------------------- INTERESTED TRUSTEES(1) James E. Ross Trustee/ Term: Indefinite President, SSgA Funds Management, 22 Trustee, State Street SSgA Funds President Inc. (2005 - present); Principal, SSgA Institutional Investment Management, Inc. Elected Trustee: Funds Management, Inc. (2001 - Trust; Trustee, SPDR(R) State Street 2/07 2005); Senior Managing Director, State Series Trust; Trustee, Financial Center Street Global Advisors (March 2006 - SPDR(R) Index Shares TrusT One Lincoln Street present); Principal, State Street and Trustee, Select Sector Boston, MA Elected Global Advisers (2000 - 2006). SPDR(R) Trust 02111-2900 President: 4/05 DOB: 1965 OFFICERS Gary L. French Treasurer Term: Indefinite Senior Vice President of State Street -- -- State Street Bank Bank and Trust Company (2002 - and Trust Company Elected: 5/05 present). 2 Avenue de Lafayette Boston, MA 02111 DOB: 1951 Laura F. Healy Assistant Term: Indefinite Vice President of State Street Bank -- -- State Street Bank Treasurer Elected: 11/08 and Trust Company (prior to July 2, and Trust Company 3008, Investors Financial Corporation) 2 Avenue de since 2002. Lafayette Boston, MA 02111 DOB: 1964 Brian D. O'Sullivan Assistant Term: Indefinite Vice President of State Street Bank -- -- State Street Bank Treasurer and Trust Company (2007 - present) and Trust Company Elected: 11/08 with which he has been affiliated with 801 Pennsylvania since 1997. Ave. Kansas City, MO 64105 DOB: 1975 Peter T. Sattelmair Assistant Term: Indefinite Director of Fund Administration of -- -- State Street Bank Treasurer State Street Bank and Trust Company and Trust Company Elected: 11/08 (2007 - present) with which he has 801 Pennsylvania been affiliated with since 1999. Ave. Kansas City, MO 64105 DOB: 1977
* The "Fund Complex" consists of eleven series of the Trust and eleven series of State Street Institutional Investment Trust. (1) Mr. Ross is an interested Trustee because of his employment by SSgA Funds Management, Inc., an affiliate of the Trust. Julie Piatelli Chief Term: Indefinite Principal and Senior Compliance and -- -- SSgA Funds Compliance Risk Management Officer, SSgA Funds Management, Inc. Officer Elected: 7/07 Management, Inc. (2004-present), State Street Vice President State Street Global Financial Center Advisors (2004-present). One Lincoln Street Boston, MA 02111 DOB: 1967
49 STATE STREET EQUITY 500 INDEX PORTFOLIO TRUSTEES AND EXECUTIVE OFFICERS (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX NAME, ADDRESS, POSITION(S) TERM OF OFFICE OVERSEEN AND DATE OF BIRTH HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION BY OTHER DIRECTORSHIPS ("DOB") TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE* HELD BY TRUSTEE ------------------- ----------- ---------------- -------------------------------------- --------- ----------------------------- Nancy L. Conlin Secretary Term: Indefinite Vice President and Managing Counsel, -- -- State Street Bank State Street Bank and Trust Company and Trust Company Elected: 2/09 (2007 - present); General Counsel to 2 Avenue de Plymouth Rock Companies (2004- Lafayette Boston, 2007). MA 02111 DOB: 1953 Brian C. Poole Assistant Term: Indefinite Vice President and Counsel (2008- -- -- State Street Bank Secretary present) and Associate Counsel (2004- and Trust Company Elected: 9/08 2007), State Street Bank and Trust 4 Copley Place Company (formerly Investors Bank Boston, MA 02116 and Trust Company); Legal Product DOB: 1971 Manager, Fidelity Investments (2000- 2004).
* The "Fund Complex" consists of eleven series of the Trust and eleven series of State Street Institutional Investment Trust. 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. 50 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 This summary schedule of investments is presented to help investors focus on the Series' principal holdings. It includes the Series' 50 largest holdings, each investment of any issuer that exceeds 1% of the Series' net assets and affiliated issues. "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 website at http://www.sec.gov.
PERCENT OF NET INDUSTRY COMMON STOCKS SHARES VALUE ASSETS -------- ----------------------------------------- ------- ------------ ------- ADVERTISING AGENCIES Other Securities $ 856,963 0.3% AEROSPACE Curtiss-Wright Corp. 18,468 616,647 0.2 Moog, Inc. Class A (a) 17,613 644,107 0.2 Teledyne Technologies, Inc. (a) 14,634 651,945 0.2 Other Securities 1,779,852 0.5 ------------ ----- 3,692,551 1.1 ------------ ----- AGRICULTURE, FISHING & RANCHING Other Securities 337,315 0.1 AIR TRANSPORT Other Securities 3,890,238 1.1 ALUMINUM Other Securities 139,624 0.0 AUTO PARTS: AFTER MARKET Other Securities 309,186 0.1 AUTO PARTS: ORIGINAL EQUIPMENT Other Securities 613,863 0.2 AUTO, TRUCKS & PARTS Other Securities 358,447 0.1 BANKS: NEW YORK CITY Other Securities 424,612 0.1 BANKS: NON U.S. BANKS Other Securities 162,268 0.0 BANKS: OUTSIDE NEW YORK CITY FirstMerit Corp. 34,000 700,060 0.2 UMB Financial Corp. 13,052 641,375 0.2 Westamerica Bancorp. 12,183 623,160 0.2 Other Securities 23,510,673 6.8 ------------ ----- 25,475,268 7.4 ------------ ----- BEVERAGE: BREWERS (WINERIES) Other Securities 99,400 0.0 BEVERAGE: SOFT DRINKS Other Securities 584,603 0.2 BIOTECHNOLOGY RESEARCH & PRODUCTION Alexion Pharmaceuticals, Inc. (a)(i) 32,160 1,163,870 0.3 Myriad Genetics, Inc. (a) 18,700 1,239,062 0.4 OSI Pharmaceuticals, Inc. (a) 24,000 937,200 0.3 Other Securities 9,012,788 2.6 ------------ ----- 12,352,920 3.6 ------------ ----- BUILDING MATERIALS Other Securities 1,934,147 0.6 BUILDING: CEMENT Other Securities 54,432 0.0 BUILDING: HEATING & PLUMBING Other Securities 262,502 0.1 BUILDING: MISCELLANEOUS Other Securities 546,544 0.2 BUILDING: ROOFING & WALLBOARD Other Securities 277,804 0.1 CABLE TELEVISION SERVICES Other Securities 404,521 0.1 CASINOS & GAMBLING Other Securities 1,704,403 0.5 CHEMICALS Other Securities 4,513,774 1.3 COAL Other Securities 357,362 0.1 COMMERCIAL INFORMATION SERVICES Other Securities 373,719 0.1 COMMUNICATIONS & MEDIA Other Securities 98,592 0.0 COMMUNICATIONS TECHNOLOGY Other Securities 8,596,701 2.5 COMPUTER SERVICES SOFTWARE & SYSTEMS Parametric Technology Corp.(a) 48,360 611,754 0.2 Sybase, Inc. (a) 33,300 824,841 0.2 Other Securities 16,156,112 4.7 ------------ ----- 17,592,707 5.1 ------------ ----- COMPUTER TECHNOLOGY Other Securities 3,179,823 0.9 CONSTRUCTION EMCOR Group, Inc. (a) 28,472 638,627 0.2 Granite Construction, Inc. 13,871 609,353 0.2 Other Securities 670,714 0.2 ------------ ----- 1,918,694 0.6 ------------ ----- CONSUMER ELECTRONICS Other Securities 1,877,777 0.5 CONSUMER PRODUCTS Other Securities 1,698,048 0.5 CONTAINERS & PACKAGING: METALS & GLASS Other Securities 731,896 0.2 CONTAINERS & PACKAGING: PAPER & PLASTIC Other Securities 205,110 0.1 COSMETICS Other Securities 674,318 0.2
51 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF NET INDUSTRY COMMON STOCKS SHARES VALUE ASSETS -------- ----------------------------------------- ------- ------------ ------- DIVERSIFIED FINANCIAL SERVICES Other Securities $ 2,378,073 0.7% DIVERSIFIED MATERIALS & PROCESSING Clarcor, Inc. 20,810 690,476 0.2 Other Securities 2,610,215 0.8 ------------ ----- 3,300,691 1.0 ------------ ----- DRUG & GROCERY STORE CHAINS Other Securities 2,284,787 0.7 DRUGS & PHARMACEUTICALS Onyx Pharmaceuticals, Inc. (a) 23,320 796,611 0.2 Valeant Pharmaceuticals International (a)(b) 26,700 611,430 0.2 Other Securities 8,065,321 2.3 ------------ ----- 9,473,362 2.7 ------------ ----- EDUCATION SERVICES Other Securities 1,595,653 0.5 ELECTRICAL & ELECTRONICS Other Securities 1,215,231 0.4 ELECTRICAL EQUIPMENT & COMPONENTS Other Securities 3,238,471 0.9 ELECTRICAL: HOUSEHOLD APPLIANCE Other Securities 185,658 0.1 ELECTRONICS Other Securities 1,524,301 0.4 ELECTRONICS: INSTRUMENTS, Other Securities 234,638 0.1 GAUGES & METERS ELECTRONICS: MEDICAL SYSTEMS Haemonetics Corp. (a) 10,772 608,618 0.2 Other Securities 3,307,858 0.9 ------------ ----- 3,916,476 1.1 ------------ ----- ELECTRONICS: OTHER Other Securities 45,087 0.0 ELECTRONICS: Other Securities 4,795,470 1.4 SEMI-CONDUCTORS/COMPONENTS ELECTRONICS: TECHNOLOGY Other Securities 1,836,291 0.5 ENERGY EQUIPMENT Other Securities 140,775 0.0 ENERGY MISCELLANEOUS Other Securities 2,332,626 0.7 ENGINEERING & CONTRACTING SERVICES Other Securities 1,254,649 0.4 ENTERTAINMENT Other Securities 549,114 0.2 FINANCE COMPANIES Other Securities 444,171 0.1 FINANCE: SMALL LOAN Other Securities 315,523 0.1 FINANCIAL DATA PROCESSING Jack Henry & Associates, Inc. 31,300 607,533 0.2 SERVICES & SYSTEMS Other Securities 1,957,471 0.5 ------------ ----- 2,565,004 0.7 ------------ ----- FINANCIAL INFORMATION SERVICES Other Securities 855,442 0.2 FINANCIAL MISCELLANEOUS Other Securities 2,391,320 0.7 FOODS Flowers Foods, Inc. 32,476 791,115 0.2 Ralcorp Holdings, Inc. (a) 23,595 1,377,948 0.4 Other Securities 4,215,668 1.3 ------------ ----- 6,384,731 1.9 ------------ ----- FOREST PRODUCTS Other Securities 453,034 0.1 FORMS & BULK PRINTING SERVICES Other Securities 269,046 0.1 FUNERAL PARLORS & CEMETERIES Other Securities 103,917 0.0 GLASS Other Securities 127,428 0.0 GOLD Other Securities 899,599 0.3 HEALTH CARE FACILITIES Psychiatric Solutions, Inc. (a) 23,300 648,905 0.2 Other Securities 1,128,158 0.3 ------------ ----- 1,777,063 0.5 ------------ ----- HEALTH CARE MANAGEMENT SERVICES AMERIGROUP Corp. (a) 22,500 664,200 0.2 Other Securities 3,825,787 1.1 ------------ ----- 4,489,987 1.3 ------------ ----- HEALTH CARE SERVICES Other Securities 2,667,230 0.8 HOMEBUILDING Other Securities 683,878 0.2 HOTEL/MOTEL Other Securities 201,988 0.1 HOUSEHOLD FURNISHINGS Other Securities 731,947 0.2 IDENTIFICATION CONTROL & FILTER DEVICES Other Securities 2,301,398 0.7 INDUSTRIAL PRODUCTS Other Securities 158,244 0.0 INSURANCE: LIFE Other Securities 1,347,609 0.4 INSURANCE: MULTI-LINE Montpelier Re Holdings Ltd. 39,100 656,489 0.2 Platinum Underwriters Holdings Ltd. 20,600 743,248 0.2 Other Securities 2,389,968 0.7 ------------ ----- 3,789,705 1.1 ------------ -----
52 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF NET INDUSTRY COMMON STOCKS SHARES VALUE ASSETS -------- ----------------------------------------- ------- ------------ ------- INSURANCE: PROPERTY-CASUALTY Aspen Insurance Holdings Ltd. 35,800 $ 868,150 0.3% ProAssurance Corp. (a) 13,523 713,744 0.2 Validus Holdings Ltd. 26,600 695,856 0.2 Other Securities 6,375,254 1.8 ------------ ----- 8,653,004 2.5 ------------ ----- INVESTMENT MANAGEMENT COMPANIES Other Securities 1,561,805 0.5 JEWELRY, WATCHES & GEMSTONES Other Securities 404,314 0.1 LEAD & ZINC Other Securities 71,440 0.0 LEISURE TIME Other Securities 1,256,235 0.4 MACHINE TOOLS Other Securities 71,385 0.0 MACHINERY & ENGINEERING Other Securities 330,911 0.0 MACHINERY: AGRICULTURAL Other Securities 243,225 0.1 MACHINERY: CONSTRUCTION & HANDLING Other Securities 331,680 0.1 MACHINERY: ENGINES Other Securities 456,024 0.1 MACHINERY: INDUSTRIAL/SPECIALTY Other Securities 2,620,302 0.8 MACHINERY: OIL WELL EQUIPMENT & SERVICES Other Securities 2,576,349 0.7 MACHINERY: SPECIALTY Other Securities 261,283 0.1 MANUFACTURED HOUSING Other Securities 174,021 0.1 MANUFACTURING Other Securities 264,841 0.1 MEDICAL & DENTAL INSTRUMENTS & SUPPLIES Immucor, Inc. (a) 29,343 779,937 0.2 Owens & Minor, Inc. 17,298 651,270 0.2 Thoratec Corp. (a) 22,847 742,299 0.2 Other Securities 9,194,626 2.7 ------------ ----- 11.368.132 3.3 ------------ ----- MEDICAL SERVICES Magellan Health Services, Inc. (a) 17,000 665,720 0.2 Other Securities 941,711 0.3 ------------ ----- 1,607,431 0.5 ------------ ----- METAL FABRICATING Other Securities 3,120,324 0.9 METALS & MINERALS MISCELLANEOUS Compass Minerals International, Inc. (i) 13,600 797,776 0.2 Other Securities 1,031,148 0.3 ------------ ----- 1,828,924 0.5 ------------ ----- MISCELLANEOUS BUSINESS & Other Securities 332,279 0.1 CONSUMER DISCRETIONARY MISCELLANEOUS CONSUMER STAPLES Other Securities 10,656 0.0 MISCELLANEOUS HEALTH CARE Other Securities 100,740 0.0 MISCELLANEOUS MATERIALS & COMMODITIES Other Securities 538,603 0.2 MISCELLANEOUS MATERIALS & PROCESSING Other Securities 442,568 0.1 MISCELLANEOUS PRODUCER DURABLES Other Securities 170,762 0.1 MISCELLANEOUS TECHNOLOGY Other Securities 241,175 0.1 MULTI-SECTOR COMPANIES Other Securities 1,054,867 0.3 OFFICE FURNITURE & BUSINESS EQUIPMENT Other Securities 1,004,673 0.3 OIL: CRUDE PRODUCERS Comstock Resources, Inc. (a) 19,057 900,443 0.3 Other Securities 5,345,917 1.5 ------------ ----- 6,246,360 1.8 ------------ ----- OIL: INTEGRATED DOMESTIC Other Securities 315,744 0.1 OIL: INTEGRATED INTERNATIONAL Other Securities 186,744 0.1 PAINTS & COATINGS Other Securities 462,706 0.1 PAPER Other Securities 1,364,303 0.4 PLASTICS Other Securities 79,214 0.0 POLLUTION CONTROL & Other Securities 925,709 0.3 ENVIRONMENTAL SERVICES POWER TRANSMISSION EQUIPMENT Other Securities 509,253 0.2 PRINTING & COPYING SERVICES Other Securities 565,976 0.2 PRODUCTION TECHNOLOGY EQUIPMENT Other Securities 3,092,187 0.9 PUBLISHING: MISCELLANEOUS Other Securities 375,185 0.1 PUBLISHING: NEWSPAPERS Other Securities 234,468 0.1 RADIO & TV BROADCASTERS Other Securities 532,673 0.2 RAILROAD EQUIPMENT Westinghouse Air Brake Technologies Corp. 20,339 808,475 0.2 Other Securities 177,801 0.1 ------------ ----- 986,276 0.3 ------------ ----- RAILROADS Other Securities 392,688 0.1
53 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF NET INDUSTRY COMMON STOCKS SHARES VALUE ASSETS -------- ----------------------------------------- ------- ------------ ------- REAL ESTATE Other Securities $ 854,938 0.3% REAL ESTATE INVESTMENT TRUSTS (REITS) Anthracite Capital, Inc. (b)(c) 24,500 54,635 0.0 Highwoods Properties, Inc. 26,700 730,512 0.2 Realty Income Corp. (b) 42,500 983,875 0.3 Senior Housing Properties Trust 47,914 858,619 0.2 Washington Real Estate Investment Trust 22,065 624,440 0.2 Other Securities 15,026,977 4.4 ------------ ----- 18,279,058 5.3 ------------ ----- RECREATIONAL VEHICLES & BOATS Other Securities 491,782 0.1 RENTAL & LEASING SERVICES: COMMERCIAL Other Securities 453,023 0.1 RENTAL & LEASING SERVICES: CONSUMER Other Securities 1,311,045 0.4 RESTAURANTS Wendy's 165,652 818,321 0.3 Other Securities 3,563,503 1.0 ------------ ----- 4,381,824 1.3 ------------ ----- RETAIL Other Securities 8,696,576 2.5 SAVINGS & LOAN First Niagara Financial Group, Inc. 49,853 806,123 0.2 Other Securities 4,008,991 1.2 ------------ ----- 4,815,114 1.4 ------------ ----- SECURITIES BROKERAGE & SERVICES Knight Capital Group, Inc. Class A (a) 39,500 637,925 0.2 Other Securities 1,226,496 0.3 ------------ ----- 1,864,421 0.5 ------------ ----- SERVICES: COMMERCIAL Waste Connections, Inc. (a) 33,427 1,055,290 0.3 Watson Wyatt Worldwide, Inc. 17,915 856,695 0.2 Other Securities 9,958,418 2.9 ------------ ----- 11,870,403 3.4 ------------ ----- SHIPPING Other Securities 1,926,274 0.5 SHOES Other Securities 2,168,556 0.6 STEEL Other Securities 151,254 0.0 SUGAR Other Securities 74,568 0.0 TELECOMMUNICATIONS EQUIPMENT Other Securities 2,124,104 0.6 TEXTILE PRODUCTS Other Securities 156,603 0.0 TEXTILES APPAREL MANUFACTURERS Other Securities 2,101,467 0.6 TIRES & RUBBER Other Securities 268,694 0.1 TOBACCO Other Securities 856,228 0.2 TOYS Marvel Entertainment, Inc. (a) 20,500 630,375 0.2 Other Securities 289,125 0.1 ------------ ----- 919,500 0.3 ------------ ----- TRANSPORTATION MISCELLANEOUS Other Securities 850,543 0.2 TRUCKERS Other Securities 2,307,856 0.7 UTILITIES: ELECTRICAL ITC Holdings Corp. 20,600 899,808 0.3 Westar Energy, Inc. 43,900 900,389 0.3 Other Securities 6,076,930 1.7 ------------ ----- 7,877,127 2.3 ------------ ----- UTILITIES: GAS DISTRIBUTORS New Jersey Resources Corp. 17,661 694,960 0.2 Nicor, Inc. 18,900 656,586 0.2 Piedmont Natural Gas Co. 30,600 969,102 0.3 WGL Holdings, Inc. 20,700 676,683 0.2 Other Securities 1,937,330 0.5 ------------ ----- 4,934,661 1.4 ------------ ----- UTILITIES: TELECOMMUNICATIONS Other Securities 3,249,984 0.9 UTILITIES: WATER Other Securities 1,073,422 0.3 WHOLESALERS Other Securities 781,901 0.2 ------------ ----- TOTAL COMMON STOCKS 311,768,114 90.4 ------------ ----- INVESTMENT COMPANIES BlackRock Kelso Capital Corp. (c) 4,400 43,384 0.0 Other Securities 412,452 0.1 ------------ ----- TOTAL INVESTMENT COMPANIES 455,836 0.1 ------------ -----
54 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF NET INDUSTRY COMMON STOCKS SHARES VALUE ASSETS -------- ----------------------------------------- ------- ------------ ------- WARRANTS (d) COMMUNICATIONS TECHNOLOGY OTHER SECURITIES $ 0 0.0% ENERGY MISCELLANEOUS GreenHunter Energy, Inc. (expires 8/27/11) 180 (b)(e) 0 0.0 ------------ ----- TOTAL WARRANTS 0 0.0 ------------ ----- OTHER INTERESTS (f) OIL: CRUDE PRODUCERS Other Securities 0 0.0 ------------ ----- TOTAL OTHER INTERESTS 0 0.0 ------------ ----- TOTAL LONG-TERM INVESTMENTS (COST -- $404,884,567) 312,223,950 90.5 ------------ -----
BENEFICIAL SHORT-TERM SECURITIES INTEREST (000) ---------- BlackRock Liquidity Series, LLC Cash Sweep $33,515 33,514,609 9.7 Series, 1.64% (c)(g) BlackRock Liquidity Series, LLC Money Market 24,644 24,644,202 7.2 ------------ ----- Series, 0.80% (c)(g)(h) TOTAL SHORT-TERM SECURITIES (COST -- $58,158,811) 58,158,811 16.9 ------------ ----- TOTAL INVESTMENTS (COST - $463,043,378*) 370,382,761 107.4 LIABILITIES IN EXCESS OF OTHER ASSETS (25,662,641) (7.4) ------------ ----- NET ASSETS $344,720,120 100.0% ============ =====
* The cost and unrealized appreciation (depreciation) of investments, as of December 31, 2008, as computed for federal income tax purposes, were as follows: Aggregate cost $ 484,047,076 ------------- Gross unrealized appreciation $ 35,373,591 Gross unrealized depreciation (149,037,906) ------------- Net unrealized appreciation $(113,664,315) =============
(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:
INTEREST/ DIVIDEND AFFILIATE PURCHASE COST SALE COST REALIZED LOSS INCOME --------- ------------- ----------- ------------- ---------- Anthracite Capital, Inc. $ 62,886 $ 166,460 $(68,727) $ 24,910 BlackRock Kelso Capital Corp. 18,400 6,168 (524) 5,848 BlackRock Liquidity Series, LLC Cash Sweep Series 287,816* -- -- 580,110 BlackRock Liquidity Series, LLC Money Market Series -- 59,164,615** -- 1,200,163
* Represents net purchase cost. ** Represents net sale cost. (d) Warrants entitle the Series to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date. (e) Restricted security as to resale, representing 0.0% of net assets, were as follows:
Issue Acquisition Date Cost Value ----- ---------------- ---- ----- GreenHunter Energy, Inc. 6/27/08 $-- $--
(f) Other interest represent beneficial interest in liquidation trust and other reorganization entities and are non-income producing. (g) Represents the current yield as of December 31, 2008. (h) Security was purchased with the cash proceeds from securities loans. 55 MASTER SMALL CAP INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (i) All or a portion of the security has been pledged 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. - 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 futures contracts or are out on loan. - Financial futures contracts purchased as of December 31, 2008, were as follows:
NUMBER OF UNREALIZED CONTRACTS ISSUE EXPIRATION DATE FACE VALUE APPRECIATION --------- ------------------ --------------- ----------- ------------ 683 Russell 2000 Index March 2009 $31,631,628 $2,374,942
- Effective January 1, 2008, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements,"clarifies the definition of fair value, establishes a framework for measuring fair values and requires additional disclosures about the use of fair value measurements. Various inputs are used in determining the fair value of investments, which are as follows: - Level 1 - price quotations in active markets/exchanges for identical securities - Level 2 - other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs) - Level 3 - unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Series' own assumption used in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For information about the Series' policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2008 in determining the fair valuation of the Series' investments:
INVESTMENTS OTHER FINANCIAL IN SECURITIES INSTRUMENTS* VALUATION INPUTS ASSETS ASSETS ---------------- ------------- --------------- Level 1 ........................... $312,223,950 $2,374,942 Level 2 ........................... 58,158,811 -- Level 3 ........................... -- -- ------------ ---------- TOTAL ............................. $370,382,761 $2,374,942 ============ ==========
* Other financial instruments are futures. 56 MASTER SMALL CAP INDEX SERIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008 ASSETS: Investments at value - unaffiliated (including securities loaned of $23,975,661) (cost - $404,606,765) ............................................................ $312,125,931 Investments at value - affiliated (cost - $58,436,613) .............................. 58,256,830 Cash ................................................................................ 1,156,226 Margin variation receivable - affiliated ............................................ 972,195 Dividends receivable ................................................................ 494,666 Investments sold receivable ......................................................... 255,872 Securities lending income receivable - affiliated ................................... 185,400 Prepaid expenses .................................................................... 13,361 Other assets ........................................................................ 5,208 Investment advisor receivable ....................................................... 1,235 ------------ TOTAL ASSETS ........................................................................ 373,466,924 ------------ LIABILITIES: Collateral at value - securities loaned ............................................. 24,644,202 Investments purchased payable ....................................................... 3,424,491 Withdrawls payable from investors ................................................... 615,391 Other accrued expenses payable ...................................................... 60,633 Other affiliates payable ............................................................ 1,998 Officer's and Directors' fees payable ............................................... 89 ------------ TOTAL LIABILITIES ................................................................... 28,746,804 ------------ NET ASSETS .......................................................................... $344,720,120 ============ NET ASSETS CONSIST OF Investors' capital .................................................................. $435,005,795 Unrealized appreciation/depreciation ................................................ (90,285,675) ------------ NET ASSETS .......................................................................... $344,720,120 ============
See notes to Financial Statements 57 MASTER SMALL CAP INDEX SERIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 INVESTMENT INCOME: Dividends ................................................... $ 6,083,383 Foreign taxes withheld ...................................... (2,011) Income - affiliated ......................................... 611,275 Securities lending - affiliated ............................. 1,200,163 ------------- TOTAL INCOME ................................................ 7,892,810 ------------- EXPENSES: Custodian ................................................... 134,965 Accounting services ......................................... 96,677 Professional ................................................ 64,069 Investment advisory ......................................... 47,115 Officers and Directors ...................................... 22,623 Printing .................................................... 1,393 Other ....................................................... 12,324 ------------- Total expenses .............................................. 379,166 Less fees waived by advisor ................................. (26,007) Less fees paid indirectly ................................... (2,122) ------------- Total expenses after fees waived and paid indirectly ........ 351,037 ------------- INVESTMENT INCOME ........................................... 7,541,773 ------------- REALIZED & UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments - unaffiliated ............................... 2,219,093 Investments - affiliated ................................. (69,251) In-kind redemptions ...................................... (22,495,309) Futures .................................................. (8,083,531) ------------- (28,428,998) ------------- Net change in unrealized appreciation/depreciation on: Investments .............................................. (155,061,624) Futures .................................................. 1,905,337 ------------- (153,156,287) ------------- TOTAL REALIZED AND UNREALIZED LOSS .......................... (181,585,285) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ $(174,043,512) =============
See notes to Financial Statements 58 MASTER SMALL CAP INDEX SERIES STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, ------------------------------- 2008 2007 ------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income ................................. $ 7,541,773 $ 10,909,414 Net realized gain (loss) .............................. (28,428,998) 21,031,968 Net change in unrealized appreciation/depreciation .... (153,156,287) (45,314,859) ------------- ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... (174,043,512) (13,373,477) ------------- ------------- CAPITAL TRANSACTIONS Proceeds from contributions ........................... 277,100,847 443,692,332 Fair value of withdrawals ............................. (388,791,499) (361,297,148) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL TRANSACTIONS .......................................... (111,630,652) 82,395,184 ------------- ------------- NET ASSETS Total increase (decrease) in net assets ............... (285,674,164) 69,021,707 Beginning of year ..................................... 630,394,284 561,372,577 ------------- ------------- END OF YEAR ........................................... $ 344,720,120 $ 630,394,284 ============= =============
FINANCIAL HIGHLIGHTS
For the Year Ended December 31, -------------------------------------------------------- 2008 2007 2006 2005 2004 -------- -------- -------- -------- -------- TOTAL INVESTMENT RETURN Total investment return .................................. (33.57)% (1.46)% 18.13% 4.63% 18.15% -------- -------- -------- -------- -------- RATIOS TO AVERAGE NET ASSETS Total expenses after waiver and fees paid indirectly .. 0.07% 0.06% 0.07% 0.07% 0.08% -------- -------- -------- -------- -------- Total expenses after waiver and before fees paid indirectly ......................................... 0.07% 0.06% 0.07% 0.07% 0.08% -------- -------- -------- -------- -------- Total expenses ........................................ 0.08% 0.06% 0.07% 0.08% 0.08% -------- -------- -------- -------- -------- Net investment income ................................. 1.60% 1.69% 1.55% 1.17% 1.11% -------- -------- -------- -------- -------- SUPPLEMENTAL DATA Net assets, end of year (000) ......................... $344,720 $630,394 $561,373 $370,145 $365,661 -------- -------- -------- -------- -------- Portfolio turnover .................................... 42% 26% 40% 37% 38% -------- -------- -------- -------- --------
See notes to Financial Statements 59 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. SIGNIFICANT ACCOUNTING POLICIES: Master Small Cap Index Series (the "Series"), a non-diversified management investment company, is part of Quantitative Master Series LLC (the "Master LLC"). The Master LLC is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and is organized as a Delaware limited liability company. The Limited Liability Company Agreement permits the Board of Directors (the "Board") to issue nontransferable interests in the Master LLC, subject to certain limitations. The Series' financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, 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. Valuation of investments Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid price. If no bid price is available, the prior day's price will be used, unless it is determined that such prior day's price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Short-term securities with maturities less than 60 days are valued at amortized cost, which approximates fair value. Investments in open-end investment companies are valued at net asset value each business day. The Series values its investments in Cash Sweep Series and Money Market Series, each of the BlackRock Liquidity Series, LLC, at fair value, which is ordinarily based upon their pro-rata ownership in the net assets of the underlying fund. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by a method approved by the Board as reflecting fair value ("Fair Value Assets"). When determining the price for Fair Value Assets, the investment advisor and/or sub-advisor seeks to determine the price that the Series might reasonably expect to receive from the current sale of that asset in an arm's-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof. 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 if the value of the contract decreases due to an unfavorable change in the price of the underlying security, 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 financial futures contracts for investment purposes or to manage its interest rate risk. Futures are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. 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 margin variation and are recognized 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. The use of futures transactions involves the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates and the underlying assets, and the possible inability of counter-parties to meet the terms of their contracts. 60 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Segregation and Collateralization In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission ("SEC") require that the Series segregate assets in connection with certain investments (e.g., financial futures contracts), the Series will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, the Series may also be required to deliver or deposit securities as collateral for certain investments (e.g., financial futures contracts). Investment Transactions and Investment Income Investment transactions are recorded on the dates the transactions are entered into (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. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Interest income is recognized on the accrual basis. Securities Lending The Series may lend securities to financial institutions that provide cash or securities issued or guaranteed by the US 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. 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. The Series may receive a flat fee for its loans. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. The Series may pay reasonable 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 invested collateral falls below the market value of the borrowed securities either in the event of borrower default or in the event of losses on investments made with cash collateral. For the year ended December 31, 2008, the Series received only cash collateral for any securities loaned. Income taxes The Series is classified as a "pass-through entity" for federal income tax purposes. As such, each investor in the Series is treated as owner of its proportionate shares of the net assets, income, expenses and realized and unrealized gains and losses of the Series. Therefore, no federal income tax provision is required. It is intended that the Master LLC's assets will be managed so an investor in the Master LLC can satisfy the requirements of Subchapter M of the Internal Revenue Code. The Series is disregarded as an entity from its owner for tax purposes, therefore it is not required to file tax returns. Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividend and capital gains at various rates. The Series files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Series' US federal tax returns remains open for the years ended December 31, 2005 through December 31, 2007. The statutes of limitations on the Series' state and local tax returns may remain open for an additional year depending upon the jurisdiction. 61 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Recent Accounting Pronouncement In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("FAS 161"), was issued and is effective for fiscal years beginning after November 15, 2008. FAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.The impact of the Fund's financial statement disclosures, if any, is currently being assessed. Other Expenses directly related to the Series are charged to that Series. Other operating expenses shared by several funds are pro-rated among those funds on the basis of relative net assets or other appropriate methods. 2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES: The Master LLC, on behalf of the Series, has entered into an Investment Advisory Agreement with BlackRock Advisors, LLC (the "Advisor"), an indirect, wholly owned subsidiary of BlackRock, Inc., to provide investment advisory and administration services. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. are the largest stockholders of BlackRock, Inc. As of December 31, 2008, Merrill Lynch and PNC are affiliates of BlackRock, Inc. The Advisor 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 the Advisor a monthly fee at an annual rate of 0.01% of the average daily net assets of the Series. The Advisor has entered into a contractual arrangement with the Master LLC with respect to the Series under which the Advisor will waive its fees or reimburse expenses so that the total operating expenses incurred by the Series will not exceed 0.08% of the Series' average daily net assets. This arrangement has a one-year term and is renewable. This amount is shown on the Statement of Operations as fees waived by advisor. The Advisor has entered into a separate sub-advisory agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the Advisor, under which the Advisor pays BIM for services it provides, a monthly fee that is a percentage of the investment advisory fee paid by the Series to the Advisor. For the year ended December 31, 2008, the Series reimbursed the Advisor $8,365 for certain accounting services, which is included in accounting services in the Statement of Operations. The Master LLC, on behalf of the Series, has received an exemptive order from the SEC permitting it to lend portfolio securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill Lynch, or its affiliates. As of the report date, the Series lent securities with a value of $1,175,816 to MLPF&S or its affiliates. Pursuant to that order, the Master LLC has retained BIM as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. BIM may, on behalf of the Master LLC and the Series, invest cash collateral received by the Series for such loans, among other things, in a private investment company managed by the Advisor or in registered money market funds advised by the Advisor or its affiliates. The share of income earned by the Series on such investments is shown as securities lending - affiliated on the Statement of Operations. For the year ended December 31, 2008, BIM received $298,692 in securities lending agent fees. The Series may earn income on positive cash balances in demand deposit accounts. For the year ended December 31,2008, the Series earned $407, which is included in income - affiliated in the Statement of Operations. 62 MASTER SMALL CAP INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Pursuant to the terms of the custody agreement, custodian fees may be reduced by amounts calculated on uninvested cash balances, which are shown on the Statement of Operations as fees paid indirectly. Certain officers and/or directors of the Master LLC are officers and/or directors of BlackRock, Inc. or its affiliates. The Series reimburses the Advisor for its allocated share of compensation paid to the Master LLC's Chief Compliance Officer. 3. INVESTMENTS: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2008 were $191,017,169 and $303,329,787, respectively. 4. SHORT-TERM BORROWINGS: The Master LLC, on behalf of the Series, along with certain other funds managed by the Manager and its affiliates, is a party to a $500,000,000 credit agreement with a group of lenders, which expired November 2008 and was subsequently renewed until November 2009.The Series may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Series may borrow up to the maximum amount allowable under the Series' current Prospectus and Statement of Additional Information, subject to various other legal, regulatory or contractual limits. The Series paid its pro rata share of a 0.02% upfront fee on the aggregate commitment amount based on its net assets as of October 31, 2008. The Series pays a commitment fee of 0.08% per annum based on the Series' pro rata share of the unused portion of the credit agreement, which is included in miscellaneous in the Statement of Operations. Amounts borrowed under the credit agreement bear interest at a rate equal to the higher of the (a) federal funds effective rate and (b) reserve adjusted one month LIBOR, plus, in each case, the higher of (i) 1.50% and (ii) 50% of the CDX Index (as defined in the credit agreement) in effect from time to time. The Series did not borrow under the credit agreement during the year ended December31, 2008. 5. MARKET AND CREDIT RISK: In the normal course of business, the Series invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (credit risk). The value of securities held by the Series may decline in response to certain events, including those directly involving the companies whose securities are owned by the Series; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to credit risk, the Series may be exposed to counter-party risk, or the risk that an entity with which the Series has unsettled or open transactions may default. Financial assets, which potentially expose the Series to credit and counterparty risks, consist principally of investments and cash due from counterparties. The extent of the Series' exposure to credit and counterparty risks with respect to these financial assets is approximated by their value recorded in the Series' Statement of Assets and Liabilities. The Series invests a significant portion of its assets in the financial services industry. Please see the Summary Schedule of Investments for these securities. Changes in economic conditions affecting the financial services industry would have a greater impact on the Series, and could affect the value, income and/or liquidity of positions in such securities. 6. SUBSEQUENT EVENT: On January 1, 2009, Bank of America Corporation announced that it had completed its acquisition of Merrill Lynch, one of the largest stockholders of BlackRock, Inc. 63 MASTER SMALL CAP INDEX SERIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Investors and Board of Directors of Quantitative Master Series LLC: 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 LLC (the "Master LLC") as of December 31,2008, 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 Master LLC'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 Master LLC 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 Master LLC'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, 2008, 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 Quantitative Master Series LLC as of December 31, 2008, 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 accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey February 25, 2009 64 MASTER SMALL CAP INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
NUMBER OF LENGTH BLACKROCK- OF TIME ADVISED POSITION(S) SERVED FUNDS AND NAME, ADDRESS AND HELD WITH AS A PORTFOLIOS PUBLIC YEAR OF BIRTH MASTER LLC DIRECTOR(2) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS OVERSEEN DIRECTORSHIPS ----------------- ------------- ----------- --------------------------------------------------- ------------- ----------------- NON-INTERESTED DIRECTORS(1) RONALD W. FORBES Co-Chair of Since Professor Emeritus of Finance, School of Business, 34 Funds None 40 East 52nd Street the Board of 2007 State University of New York at Albany since 2000. 81 Portfolios New York, NY 10022 Directors and 1940 Director RODNEY D. JOHNSON Co-Chair of Since President, Fairmount Capital Advisors, Inc. since 34 Funds None 40 East 52nd Street the Board of 2007 1987; Director, Fox Chase Cancer Center since 81 Portfolios New York, NY 10022 Directors and 2002; Member of the Archdiocesan Investment 1941 Director Committee of the Archdiocese of Philadelphia since 2003; Director The Committee of Seventy (civic) since 2006. DAVID O. BEIM Director Since Professor of Finance and Economics at the 34 Funds None 40 East 52nd Street 2007 Columbia University Graduate School of Business 81 Portfolios New York, NY 10022 since 1991; Trustee of Phillips Exeter Academy 1940 since 2002; Formerly Chairman, Wave Hill Inc. (public garden and cultural center) from 1990 to 2006. DR. MATINA HORNER Director Since Formerly Executive Vice President of Teachers 34 Funds NSTAR (electric 40 East 52nd Street 2007 Insurance and Annuity Association and College 81 Portfolios and gas utility) New York, NY 10022 Retirement Equities Fund from 1989 to 2003. 1939 HERBERT I. LONDON Director and Since Professor Emeritus, New York University since 2005; 34 Funds AIMS Worldwide, 40 East 52nd Street Member of 2007 John M. Olin Professor of Humanities, New York 81 Portfolios Inc. (marketing) New York, NY 10022 the Audit University from 1993 to 2005 and Professor thereof 1939 Committee from 1980 to 2005; President, Hudson Institute (policy research organizations) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director of InnoCentive, Inc. (strategic solutions company) since 2005; Director of Cerego, LLC (software development and design) since 2005. CYNTHIA A. MONTGOMERY Director Since Professor, Harvard Business School since 34 Funds Newell 2007 1989;Director, Harvard Business School Publishing 81 Portfolios Rubbermaid, 40 East 52nd Street since 2005; Director, McLean Hospital since 2005. Inc. New York, NY 10022 (manufacturing) 1952 JOSEPH P. PLATT, JR. Director Since Director,The West Penn Allegheny Health System (a 34 Funds Greenlight 40 East 52nd Street 2007 not-for-profit health system) since 2008; Director, 81 Portfolios Capital Re, Ltd. New York, NY 10022 Jones and Brown (Canadian insurance broker) since (reinsurance 1947 1998; General Partner, Thorn Partners, LP (private company) investment) since 1998; Formerly Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008. ROBERT C. ROBB, JR. Director Since Partner, Lewis, Eckert, Robb and Company 34 Funds None 40 East 52nd Street 2007 (management and financial consulting firm) since 81 Portfolios New York, NY 10022 1981. 1945 TOBY ROSENBLATT Director Since President, Founders Investments Ltd. (private 34 Funds A.P. Pharma, 40 East 52nd Street 2007 investments) since 1999; Director of Forward 81 Portfolios Inc.(speciality New York, NY 10022 Management, LLC since 2007; Director,The James Pharmaceuticals) 1938 Irvine Foundation (philanthropic foundation) since 1997; Formerly Trustee, State Street Research Mutual Funds from 1990 to 2005; Formerly Trustee, Metropolitan Series Funds, Inc. from 2001 to 2005.
65 MASTER SMALL CAP INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
NUMBER OF BLACKROCK- ADVISED POSITION(S) LENGTH FUNDS AND NAME, ADDRESS AND HELD WITH OF TIME PORTFOLIOS PUBLIC YEAR OF BIRTH MASTER LLC SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS OVERSEEN DIRECTORSHIPS ----------------- ------------- ----------- --------------------------------------------------- ------------- ----------------- NON-INTERESTED DIRECTORS(1) (CONCLUDED) KENNETH L. URISH Director and Since Managing Partner, Urish Popeck & Co., LLC 34 Funds None 40 East 52nd Street Chairman of 2007 (certified public accountants and consultants) 81 Portfolios New York, NY 10022 the Audit since 1976; Member of External Advisory Board, The 1951 Committee Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation since 2001; Committee Member/ Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants since 2007; Formerly President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Formerly Director, Inter-Tel from 2006 to 2007. FREDERICK W. Director and Since Professor and Dean Emeritus of the Joseph M. Katz 34 Funds None WINTER 40 East 52nd Member of 2007 School of Business, University of Pittsburgh since 81 Portfolios Street New York, NY the Audit 2005 and Dean thereof from 1997 to 2005. 10022 Committee Director,Alkon Corporation (pneumatics) since 1992; 1945 Formerly Director, Indotronix International (IT services) from 2004 to 2008; Director,Tippman Sports (recreation) since 2005. (1) Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. (2) Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc. ("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007.As a result, although the chart shows directors as joining the Master LLC's board in 2007, each director first became a member of the board of directors of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim since 1998; Ronald W. Forbes since 1977; Matina Horner since 2004; Rodney D. Johnson since 1995; Herbert I. London since 1987; Cynthia A. Montgomery since 1994; Joseph P. Platt since 1999; Robert C. Robb, Jr. since 1999; Toby Rosenblatt since 2005; Kenneth L. Urish since 1999; and Frederick W. Winter since 1999. INTERESTED DIRECTORS(3) RICHARD S. DAVIS Director Since Managing Director, BlackRock, Inc. since 2005; 174 Funds None 40 East 52nd Street 2007 Formerly Chief Executive Officer, State Street 286 Portfolios New York, NY 10022 Research & Management Company from 2000 to 1945 2005; Formerly Chairman of the Board of Trustees, State Street Research Mutual Funds from 2000 to 2005; Formerly Chairman, SSR Realty from 2000 to 2004 HENRY GABBAY Director Since Formerly Consultant, BlackRock, Inc. from 2007 to 174 Funds None 40 East 52nd Street 2007 2008; Formerly Managing Director, BlackRock, Inc. 286 Portfolios New York, NY 10022 from 1989 to 2007; Formerly Chief Administrative 1947 Officer, BlackRock Advisors, LLC from 1998 to 2007; Formerly President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock Fund complex from 1989 to 2006. (3) Mr. Davis is an "interested person," as defined in the Investment Company Act of 1940, of the Master LLC based on his position with BlackRock, Inc. and its affiliates. Mr. Gabbay is an "interested person" of the Master LLC based on his former positions with BlackRock, Inc. and its affiliates, as well as his ownership of BlackRock, Inc. and PNC securities. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
66 MASTER SMALL CAP INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
POSITION(S) LENGTH NAME, ADDRESS AND HELD WITH OF TIME YEAR OF BIRTH MASTER LLC SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ----------------- ------------- ----------- ----------------------------------------------------------------------------------- MASTER LLC OFFICERS(1) DONALD C. BURKE Master LLC Since Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of 40 East 52nd Street President and 2007 Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. New York, NY 10022 Chief ("FAM") in 2006; First Vice President thereof from 1997 to 2005; Treasurer thereof 1960 Executive from 1999 to 2006 and Vice President thereof from 1990 to 1997. Officer ANNE F. ACKERLEY Vice Since Managing Director of BlackRock, Inc. since 2000 Chief Operating Officer of 40 East 52nd Street President 2007 BlackRock's US Retain Group since 2006; Formerly Head of BlackRock's Mutual New York, NY 10022 Fund Group from 2000 to 2006. 1962 NEAL J. ANDREWS Chief Since Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice President and 40 East 52nd Street Financial 2007 Line of Business Head of Fund Accounting and Administration at PNC Global New York, NY 10022 Officer Investment Servicing (US) Inc. (formerly PFPC Inc.) from 1992 to 2006. 1966 JAY M. FIFE Treasurer Since Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly 40 East 52nd Street 2007 Assistant Treasurer of the MLIM/FAM advised funds from 2005 to 2006; Director of New York, NY 10022 MLIM Fund Services Group from 2001 to 2006. 1970 BRIAN P. KINDELAN Chief Since Chief Compliance Officer of the BlackRock-advised Funds since 2007; Managing 40 East 52nd Street Compliance 2007 Director and Senior Counsel of BlackRock, Inc. since 2005; Formerly Director and New York, NY 10022 Officer Senior Counsel of BlackRock Advisors, Inc. from 2001 to 2004. 1959 HOWARD SURLOFF Secretary Since Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at 40 East 52nd Street 2007 BlackRock, Inc. since 2006; Formerly General Counsel (US) of Goldman Sachs Asset New York, NY 10022 Management, L.P. from 1993 to 2006. 1965 (1) Officers of the Master LLC serve at the pleasure of the Board of Directors. Further information about the Master LLC's Officers and Directors is available in the Master LLC's Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.
INDEPENDENT REGISTERED PUBLIC CUSTODIAN ACCOUNTING AGENT ACCOUNTING FIRM LEGAL COUNSEL --------- --------------------- ----------------------------- ------------- State Street Bank and State Street Bank and Deloitte & Touche LLP Sidley Austin LLP Trust Company Trust Company Princeton, NJ 08540 New York, NY 10019 North Quincy, MA 02171 Princeton, NJ 08540
67 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 This summary schedule of investments is presented to help investors focus on the Series' principal holdings. It includes the Series' 50 largest holdings, each investment of any issuer that exceeds 1% of the Series' net assets and affiliated issues. "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 website at http://www.sec.gov.
PERCENT OF INDUSTRY COMMON STOCKS SHARES HELD VALUE NET ASSETS -------- ------------------------------------ ----------- ------------- ---------- AEROSPACE & DEFENSE Other Securities $ 4,546,560 0.6% AIR FREIGHT & LOGISTICS Other Securities 2,540,547 0.4 AIRLINES Other Securities 1,804,705 0.3 AUTO COMPONENTS Other Securities 4,873,656 0.7 AUTOMOBILES DaimlerChrysler AG 70,599 2,689,951 0.4 Honda Motor Co., Ltd. 136,500 2,907,271 0.4 Toyota Motor Corp. 228,200 7,543,910 1.0 Volkswagen AG 9,578 3,331,346 0.5 Other Securities 4,853,744 0.7 ------------- 21,326,222 3.0 ------------- BEVERAGES Diageo Plc 210,498 2,957,677 0.4 Other Securities 7,255,328 1.0 ------------- 10,213,005 1.4 ------------- BIOTECHNOLOGY Other Securities 1,826,053 0.3 BUILDING PRODUCTS Other Securities 3,653,714 0.5 CAPITAL MARKETS UBS AG (a) 245,571 3,572,900 0.5 Other Securities 9,554,396 1.4 ------------- 13,127,296 1.9 ------------- CHEMICALS BASF SE 78,772 3,060,578 0.4 Other Securities 15,350,353 2.2 ------------- 18,410,931 2.6 ------------- COMMERCIAL BANKS BNP Paribas SA 68,178 2,942,866 0.4 Banco Bilbao Vizcaya Argentaria SA 295,581 3,662,358 0.5 Banco Santander SA 652,338 6,295,854 0.9 HSBC Holdings Plc 991,572 9,704,709 1.4 Mitsubishi UFJ Financial Group, Inc. 904,674 5,686,011 0.8 Westpac Banking Corp. 232,966 2,794,129 0.4 Other Securities 46,270,359 6.6 ------------- 77,356,286 11.0 ------------- COMMERCIAL SERVICES & SUPPLIES Other Securities 3,701,343 0.5 COMMUNICATIONS EQUIPMENT Nokia Oyj 317,753 4,986,297 0.7 Other Securities 2,427,824 0.3 ------------- 7,414,121 1.0 ------------- COMPUTERS & PERIPHERALS Other Securities 2,839,458 0.4 CONSTRUCTION & ENGINEERING Other Securities 6,505,751 0.9 CONSTRUCTION MATERIALS Other Securities 3,952,025 0.6 CONSUMER FINANCE Other Securities 1,133,074 0.2 CONTAINERS & PACKAGING Other Securities 736,317 0.1 DISTRIBUTORS Other Securities 443,728 0.1 DIVERSIFIED CONSUMER SERVICES Other Securities 236,310 0.0 DIVERSIFIED FINANCIAL SERVICES Other Securities 6,951,431 1.0 DIVERSIFIED TELECOMMUNICATION SERVICES Deutsche Telekom AG 229,735 3,473,430 0.5 France Telecom SA 150,246 4,187,757 0.6 Telefonica SA 350,872 7,919,764 1.1 Other Securities 14,936,900 2.1 ------------- 30,517,851 4.3 ------------- ELECTRIC UTILITIES E.ON AG 158,040 6,205,782 0.9 The Tokyo Electric Power Co., Inc. 102,100 3,408,277 0.5 Other Securities 20,739,937 2.9 ------------- 30,353,996 4.3 ------------- ELECTRICAL EQUIPMENT ABB Ltd. 189,024 2,882,643 0.4 Other Securities 6,599,483 0.9 ------------- 9,482,126 1.3 -------------
See notes to Financial Statements 68 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF INDUSTRY COMMON STOCKS SHARES HELD VALUE NET ASSETS -------- ------------------------------------ ----------- ------------- ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS Other Securities $ 7,269,774 1.0% ENERGY EQUIPMENT & SERVICES Other Securities 2,133,717 0.3 FOOD & STAPLES RETAILING Tesco Plc 654,003 3,405,414 0.5 Other Securities 12,865,885 1.8 ------------- 16,271,299 2.3 ------------- FOOD PRODUCTS Nestle SA Registered Shares 324,020 12,830,590 1.8 Unilever NV 134,383 3,257,169 0.5 Other Securities 9,752,645 1.4 ------------- 25,840,404 3.7 ------------- GAS UTILITIES Other Securities 3,474,775 0.5 HEALTH CARE EQUIPMENT & SUPPLIES Other Securities 4,559,824 0.6 HEALTH CARE PROVIDERS & SERVICES Other Securities 1,682,555 0.2 HOTELS, RESTAURANTS & LEISURE Other Securities 5,154,618 0.7 HOUSEHOLD DURABLES Other Securities 5,955,129 0.8 HOUSEHOLD PRODUCTS Other Securities 3,740,759 0.5 IT SERVICES Other Securities 1,919,999 0.3 INDEPENDENT POWER PRODUCERS & ENERGY TRADERS Other Securities 1,509,842 0.2 INDUSTRIAL CONGLOMERATES Siemens AG 71,711 5,398,644 0.8 Other Securities 5,119,223 0.7 ------------- 10,517,867 1.5 ------------- INSURANCE AXA SA 129,232 2,900,688 0.4 Allianz AG Registered Shares 36,947 3,931,184 0.5 Muenchener Rueckversicherungs 17,317 2,688,423 0.4 AG Registered Shares Other Securities 23,216,877 3.3 ------------- 32,737,172 4.6 ------------- INTERNET & CATALOG RETAIL Other Securities 643,692 0.1 INTERNET SOFTWARE & SERVICES Other Securities 600,113 0.1 LEISURE EQUIPMENT & PRODUCTS Other Securities 1,273,665 0.2 LIFE SCIENCES TOOLS & SERVICES Other Securities 421,373 0.1 MACHINERY Other Securities 12,652,601 1.8 MARINE Other Securities 2,639,730 0.4 MEDIA Vivendi SA 97,557 3,179,773 0.5 Other Securities 8,252,973 1.2 ------------- 11,432,746 1.7 ------------- METALS & MINING BHP Billiton Ltd. 280,586 5,960,817 0.8 BHP Billiton Plc 184,260 3,573,834 0.5 Other Securities 16,964,972 2.4 ------------- 26,499,623 3.7 MULTI-UTILITIES GDF Suez 90,797 4,506,895 0.6 RWE AG 37,100 3,295,108 0.5 Other Securities 5,810,506 0.8 ------------- 13,612,509 1.9 ------------- MULTILINE RETAIL Other Securities 2,003,499 0.3 OFFICE ELECTRONICS Canon, Inc. 87,300 2,766,064 0.4 Other Securities 1,366,519 0.2 ------------- 4,132,583 0.6 ------------- OIL, GAS & CONSUMABLE FUELS BG Group Plc 278,300 3,852,113 0.5 BP Plc 1,544,898 11,925,745 1.7 Eni SpA 215,550 5,186,917 0.7 Royal Dutch Shell Plc 291,305 7,653,486 1.1 Royal Dutch Shell Plc Class B 223,973 5,677,368 0.8 Total SA 177,470 9,757,146 1.4 Other Securities 9,730,837 1.4 ------------- 53,783,612 7.6 ------------- PAPER & FOREST PRODUCTS Other Securities 2,223,049 0.3 PERSONAL PRODUCTS Other Securities 2,757,703 0.4
See notes to Financial Statements 69 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
PERCENT OF INDUSTRY COMMON STOCKS SHARES HELD VALUE NET ASSETS -------- ------------------------------------ ----------- ------------- ---------- PHARMACEUTICALS AstraZeneca Plc 120,741 $ 4,939,567 0.7% Bayer AG 63,337 3,690,546 0.5 GlaxoSmithKline Plc 433,752 8,066,813 1.2 Novartis AG Registered Shares 200,847 10,058,710 1.4 Roche Holding AG 58,996 9,133,591 1.3 Sanofi-Aventis 86,580 5,537,927 0.8 Takeda Pharmaceutical Co., Ltd. 68,300 3,559,954 0.5 Other Securities 10,524,500 1.5 ------------- 55,511,608 7.9 ------------- PROFESSIONAL SERVICES Other Securities 2,217,546 0.3 REAL ESTATE INVESTMENT TRUSTS (REITS) Other Securities 7,009,570 1.0 REAL ESTATE MANAGEMENT & DEVELOPMENT Other Securities 10,260,671 1.4 ROAD & RAIL Other Securities 7,871,885 1.1 SEMICONDUCTORS & Other Securities 2,659,634 0.4 SEMICONDUCTOR EQUIPMENT SOFTWARE Nintendo Co., Ltd. 8,100 3,095,429 0.4 Other Securities 3,960,332 0.6 ------------- 7,055,761 1.0 ------------- SPECIALTY RETAIL Other Securities 5,059,225 0.7 TEXTILES, APPAREL & LUXURY GOODS Other Securities 5,332,533 0.8 TOBACCO British American Tobacco Plc 156,974 4,094,960 0.6 Other Securities 3,745,625 0.5 ------------- 7,840,585 1.1 ------------- TRADING COMPANIES & DISTRIBUTORS Other Securities 6,075,353 0.9 TRANSPORTATION INFRASTRUCTURE Other Securities 2,672,582 0.4 WATER UTILITIES Other Securities 326,778 0.0 WIRELESS TELECOMMUNICATION SERVICES Vodafone Group Plc 4,354,451 8,916,407 1.3 Other Securities 5,962,912 0.8 ------------- 14,879,319 2.1 ------------- TOTAL COMMON STOCKS 656,163,788 92.9 ------------- EXCHANGE TRADED FUNDS iShares MSCI EAFE Index Fund (c) 617,845 27,722,705 3.9 Total Exchange-Traded Funds 27,722,705 3.9 ------------- ----- PREFERRED STOCKS Automobiles Other Securities 457,206 0.1 Household Products Other Securities 460,595 0.1 Multi-Utilities Other Securities 197,995 0.0 Total Preferred Stocks 1,115,796 0.2 ------------- ----- RIGHTS Commercial Banks Other Securities 97,466 0.0 Diversified Financial Services Other Securities 3 0.0 Metals & Mining Other Securities -- 0.0 ------------- Total Rights 97,469 0.0 ------------- ----- Total Long-Term Securities (Cost - $ 865,585,207) 685,099,758
BENEFICIAL INTEREST (000) ----------- SHORT-TERM SECURITIES BlackRock Liquidity Series, LLC Cash Sweep Series, 1.64% (c)(d) $ 11,260 11,259,665 1.6 Total Short-Term Securities (Cost -- $11,259,665) 11,259,665 1.6 ------------- ----- TOTAL INVESTMENTS (COST -- $876,844,872*) 696,359,423 98.6 OTHER ASSETS LESS LIABILITIES 9,759,975 1.4 ------------- ----- NET ASSETS $ 706,119,398 100.0% ============= =====
See notes to Financial Statements 70 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 * The cost and unrealized appreciation (depreciation) of investments as of December 31, 2008, as computed for federal income tax purposes, were as follows: Aggregate cost .................. $ 895,944,370 ------------- Gross unrealized appreciation.... 44,690,983 Gross unrealized depreciation.... (244,275,930) ------------- Net unrealized depreciation ..... $(199,584,947) =============
(a) Non-income producing security. (b) All or a portion of security has been pledged as collateral in connection with open financial futures contracts. (c) Represents the current yield as of report date. (d) 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:
INTEREST AFFILIATE NET ACTIVITY INCOME --------- ------------ -------- BlackRock Liquidity Series, LLC Cash Sweep Series $(2,269,973) $347,498
- 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. These industry classifications are unaudited. - Financial futures contracts purchased as of December 31, 2008 were as follows:
UNREALIZED NUMBER OF APPRECIATION CONTRACTS ISSUE EXCHANGE EXPIRATION DATE FACE VALUE (DEPRECIATION) --------- ---------------------- ----------------- --------------- ---------- -------------- 4 Hang Seng Index Future Hong Kong January 2009 $ 364,962 $ 6,770 1 IPEX 35 Plus Eurex January 2009 $ 128,154 (1,479) 62 OMX Stock Index Future Stockholm January 2009 $ 528,796 (12,126) 1 Dax Index 25 Euro Eurex Deutschland March 2009 $ 166,557 1,448 159 DJ Euro Stoxx 50 Eurex March 2009 $5,465,643 (50,714) 69 FTSE 100 Index Future LIFFE March 2009 $4,255,013 100,083 1 S&P MIB Index Eurex March 2009 $ 136,511 (1,524) 21 SPI 200 Index Future Sydney March 2009 $1,288,532 82,615 56 TOPIX Index Future Tokyo March 2009 $5,045,773 279,324 -------- TOTAL $404,397 --------
See notes to Financial Statements 71 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 - Forward foreign exchange contracts as of December 31, 2008 were as follows:
UNREALIZED FOREIGN CURRENCY FOREIGN SETTLEMENT APPRECIATION PURCHASED CURRENCY SOLD DATE (DEPRECIATION) ----------------- ----------------- ---------- -------------- AUD 2,905,650 USD 1,889,627 2/12/09 $ 126,948 AUD 427,000 USD 294,124 2/12/09 2,222 USD 1,343,567 AUD 2,073,650 2/12/09 (95,585) CHF 698,300 USD 589,627 2/12/09 66,746 USD 584,084 CHF 698,300 2/12/09 (72,288) CHF 233,000 USD 220,812 2/12/09 (1,802) EUR 7,325,700 USD 9,176,794 2/12/09 988,533 EUR 1,047,000 USD 1,405,492 2/12/09 47,352 EUR 444,100 USD 554,487 2/12/09 61,757 USD 8,950,183 EUR 7,051,300 2/12/09 (834,380) USD 254,738 EUR 181,600 2/12/09 2,746 GBP 3,413,500 USD 5,244,862 2/12/09 (342,615) GBP 615,300 USD 912,473 2/12/09 (28,819) GBP 484,300 USD 709,222 2/12/09 (13,702) USD 457,851 GBP 307,900 2/12/09 15,665 USD 4,956,738 GBP 3,302,600 2/12/09 213,758 USD 326,195 GBP 224,000 2/12/09 4,500 JPY 521,967,400 USD 5,391,039 2/12/09 372,100 JPY 105,760,000 USD 1,131,019 2/12/09 36,697 JPY 21,045,000 USD 232,921 2/12/09 (559) USD 479,549 JPY 45,436,000 2/12/09 (22,119) USD 3,688,263 JPY 354,702,500 2/12/09 (228,074) USD 138,335 JPY 13,360,600 2/12/09 (9,181) SEK 4,806,100 USD 594,468 2/12/09 12,836 USD 398,679 SEK 3,204,300 2/12/09 (6,220) --------- TOTAL $ 296,516 ---------
* Currency Abbreviations: AUD Australian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona USD U.S. Dollar See notes to Financial Statements 72 MASTER INTERNATIONAL INDEX SERIES SUMMARY SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 - Effective January 1, 2008, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 clarifies the definition of fair value, establishes a framework for measuring fair values and requires additional disclosures about the use of fair value measurements. Various inputs are used in determining the fair value of investments, which are as follows: - Level 1 - price quotations in active markets/exchanges for identical securities - Level 2 - other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs) - Level 3 - unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Series' own assumption used in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For information about the Series' policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to the Financial Statements. The following table summarizes the inputs used as of December 31, 2008 in determining the fair valuation of the Series' investments:
INVESTMENTS VALUATION INPUTS IN SECURITIES OTHER FINANCIAL INSTRUMENTS* ---------------- ------------- ---------------------------- ASSETS ASSETS LIABILITIES ------------- ------------ ------------- Level 1 ........ $ 40,464,760 $ 470,240 $ (65,843) Level 2 ........ 655,868,163 1,951,860 (1,655,344) Level 3 ........ 26,500 -- -- ------------ ---------- ----------- TOTAL .......... $696,359,423 $2,422,100 $(1,721,187) ============ ========== ===========
* Other financial instruments are futures and foreign currency exchange contracts. The following is a reconciliation of investments for unobservable inputs (Level 3) used in determining fair value:
Investment in Securities ------------- Balance, as of January 1, 2008 ....................... -- Realized gain (loss) ................................. -- Change in unrealized appreciation (depreciation)(1)... $(661,574) Net purchase (sales) ................................. -- Net transfers in/out of Level 3 ...................... 688,074 --------- Balance, as of December 31, 2008 ..................... $ 26,500 =========
(1) Included in the related net change in unrealized appreciation/depreciation on the Statement of Operations. See notes to Financial Statements 73 MASTER INTERNATIONAL INDEX SERIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008
ASSETS: Investments at value - unaffiliated (cost-- $865,585,207) ....... $ 685,099,758 Investments at value - affiliated (cost-- $11,259,665) .......... 11,259,665 Unrealized appreciation on foreign currency exchange contracts... 1,951,860 Foreign currency at value (cost - $8,721,925) ................... 8,868,747 Dividends receivable ............................................ 3,121,399 Contributions receivable from investors ......................... 1,416,877 Investments sold receivable ..................................... 538,023 Margin variation receivable ..................................... 383,364 Prepaid expenses ................................................ 24,472 ------------- TOTAL ASSETS .................................................... 712,664,165 ------------- LIABILITIES: Unrealized depreciation on foreign currency exchange contracts... 1,655,344 Investments purchased payable ................................... 4,575,322 Withdrawls payable to investors ................................. 118,681 Investment advisory fees payable ................................ 5,532 Other affiliates payable ........................................ 2,870 Officer's and Directors' fees payable ........................... 280 Other accrued expenses payable .................................. 186,738 ------------- TOTAL LIABILITIES ............................................... 6,544,767 ------------- NET ASSETS ...................................................... $ 706,119,398 ============= NET ASSETS CONSIST OF Investors' capital .............................................. 885,713,794 Unrealized appreciation/depreciation ............................ (179,594,396) ------------- NET ASSETS ...................................................... 706,119,398 =============
See notes to Financial Statements 74 MASTER INTERNATIONAL INDEX SERIES STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 INVESTMENT INCOME: Dividends ............................................... $ 36,817,766 Foreign withholding tax ................................. (3,154,735) Income - affiliated ..................................... 347,827 ------------- TOTAL INCOME ............................................ 34,010,858 ------------- EXPENSES: Custodian ............................................... 546,663 Accounting services ..................................... 174,017 Investment advisory ..................................... 93,067 Pricing ................................................. 84,257 Professional ............................................ 82,083 Officers and Directors .................................. 28,137 Printing ................................................ 2,360 Miscellaneous ........................................... 40,583 ------------- Total expenses .......................................... 1,051,137 Less fees waived by advisor ............................. (79,741) ------------- Total expenses after waiver ............................. 971,396 ------------- NET INVESTMENT INCOME ................................... 33,039,462 ------------- REALIZED & UNREALIZED GAIN (LOSS) Net realized loss from: Investments .......................................... (33,152,715) Futures .............................................. (10,835,635) In-kind redemptions .................................. (5,277,022) Foreign currency ..................................... (3,044,473) ------------- (52,309,895) ------------- Net change in unrealized appreciation/depreciation on: Investments .......................................... (468,611,575) Futures .............................................. 265,812 Foreign currency ..................................... 249,595 ------------- (468,096,168) ------------- TOTAL REALIZED AND UNREALIZED LOSS ...................... (520,406,063) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .... $(487,366,601) =============
See notes to Financial Statements 75 MASTER INTERNATIONAL INDEX SERIES STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, ---------------------------------- 2008 2007 ---------------- --------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income ............................................. $ 33,039,462 $ 32,702,640 Net realized gain (loss) .......................................... (52,309,895) 21,342,720 Net change in unrealized appreciation/depreciation ................ (468,096,168) 60,461,397 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...... (487,366,601) 114,506,757 --------------- --------------- CAPITAL TRANSACTIONS Proceeds from contributions ....................................... 589,551,495 740,944,038 Fair value of withdrawals ......................................... (539,237,057) (542,265,015) --------------- --------------- NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL TRANSACTIONS ......... 50,314,438 198,679,023 --------------- --------------- NET ASSETS Total increase (decrease) in net assets ........................... (437,052,168) 313,185,780 Beginning of year ................................................. 1,143,171,561 829,985,781 --------------- --------------- END OF YEAR ....................................................... $ 706,119,398 $ 1,143,171,561 =============== ===============
FINANCIAL HIGHLIGHTS
For the Year Ended December 31, ----------------------------------------------------------------- 2008 2007 2006 2005 2004 ----------- ------------ ---------- ---------- --------- TOTAL INVESTMENT RETURN ............. (41.94)% 10.80% 26.61% 13.64% 20.32% --------- ----------- --------- --------- --------- Ratios to Average Net Assets Total expenses after waiver ...... .10% .09% .10% .10% .09% --------- ----------- --------- --------- --------- Total expenses ................... .11% .10% .11% .10% .10% --------- ----------- --------- --------- --------- Net investment income ............ 3.54% 2.86% 2.70% 2.53% 2.55% --------- ----------- --------- --------- --------- Supplemental Data Net assets, end of year (000) .... $ 706,119 $ 1,143,172 $ 829,986 $ 523,155 $ 322,067 --------- ----------- --------- --------- --------- Portfolio turnover ............... 30% 30% 23% 11% 14% --------- ----------- --------- --------- ---------
See notes to Financial Statements 76 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: Master International Index Series (the "Series"), a non-diversified management investment company, is part of Quantitative Master Series LLC (the "Master LLC"). The Master LLC is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and is organized as a Delaware limited liability company. The Master LLC's Limited Liability Company Agreement permits the Directors to issue non-transferable interests in the Series subject to certain limitations. The Series' financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, 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: Valuation of investments Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid price. If no bid price is available, the prior day's price will be used, unless it is determined that such prior day's price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Short-term securities with maturities less than 60 days are valued at amortized cost, which approximates fair value. The Series values its investment in BlackRock Liquidity Series, LLC Cash Sweep Series at fair value, which is ordinarily based upon their pro-rata ownership in the net assets of the underlying fund. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by a method approved by the Board of Directors (the "Board") as reflecting fair value ("Fair Value Assets"). When determining the price for Fair Value Assets, the investment advisor and/or sub-advisor seeks to determine the price that the Series might reasonably expect to receive from the current sale of that asset in an arm's-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof. Generally, trading in foreign 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 will be 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 may be valued at their fair value as determined in good faith by the Board or by the investment advisor using a pricing service and/or procedures approved by the Board. Foreign currency exchange contracts and forward foreign currency exchange contracts are valued at the mean between the bid and ask prices. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. 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 if the value of the contract decreases due to an unfavorable change in the price of the underlying security or if the counterparty does not perform under the contract. 77 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 - Financial futures contracts -- The Series may purchase or sell financial futures contracts and options on futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. 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 margin variation 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. The use of futures transactions involves the risk of an imperfect correlation in the movements in the price of futures contracts, interest rates and the underlying assets, and the possible inability of counter-parties to meet the terms of their contracts. - Foreign currency contracts -- A forward currency contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The Series may enter into foreign currency contracts as a hedge against either specific transactions or portfolio positions. Foreign currency exchange contracts, when used by the Series, help to manage the overall exposure to the foreign currency backing some of the investments held by the Series. 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. The use of forward foreign currency contracts involves the risk that counterparties may not meet the terms of the agreement and market risk of unanticipated movements in the value of a foreign currency relative to the US dollar. - Foreign currency options and futures -- The Series may also purchase or sell listed or over-the-counter foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates. When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold. Such transactions may be effected with respect to hedges on non-US 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. Foreign currency transactions Foreign currency amounts are translated into United States dollars on the following basis: (i) market value of investment securities, assets and liabilities at the current rate of exchange; and (ii) purchases and sales of investment securities, income and expenses at the rates of exchange prevailing on the respective dates of such transactions. The Series reports foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes. Preferred Stock The Series may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element vanes inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions. 78 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Segregation and Collateralization In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission ("SEC") require that the Series segregates assets in connection with certain investments (e.g., forward foreign currency contracts and financial futures contracts), the Series will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, the Series may also be required to deliver or deposit securities as collateral for certain investments (e.g., financial futures contracts). Investment Transactions and Investment Income Investment transactions are recorded on the dates the transactions are entered into (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 dates. Upon notification from issuers some of the dividend income received from a real estate investment trust may be redesignated as of reduction of cost of the related investment and/or realized gain. Interest income is recognized on the accrual basis. 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. The Series files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Series' US federal tax returns remains open for the years ended December 31, 2005 through December 31, 2007. The statutes of limitations on the Series' state and local tax returns may remain open for an additional year depending upon the jurisdiction. Recent accounting pronouncement In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133" ("FAS 161"), was issued. FAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The impact on the Series' financial statement disclosures, if any, is currently being assessed. Other Expenses directly related to the Series are charged to the Series. Other operating expenses shared by several funds are pro-rated among those funds on the basis of relative net assets or other appropriate methods. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES: The Master LLC, on behalf of the Series, has entered into an Investment Advisory Agreement with BlackRock Advisors, LLC (the "Advisor"), an indirect, wholly owned subsidiary of BlackRock, Inc., to provide investment advisory and administration services. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. 79 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 ("PNC") are the largest stockholders of BlackRock, Inc. As of December 31, 2008, Merrill Lynch and PNC are affiliates of BlackRock, Inc. The Advisor 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 the Advisor a monthly fee at an annual rate of 0.01% of the average daily value of the Series' net assets. The Advisor has entered into a contractual arrangement with the Master LLC with respect to the Series under which the Advisor will waive its fees or reimburse expenses so that the total operating expenses incurred by the Series will not exceed 0.12% of the Series' average daily net assets. This arrangement has a one-year term and is renewable.This amount is shown on the Statement of Operations as fees waived by the advisor. The Advisor has entered into a sub-advisory agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the Advisor, under which the Advisor pays BIM for services it provides, a monthly fee that is a percentage of the investment advisory fee paid by the Series to the Advisor. For the year ended December 31,2008, the Series reimbursed the Advisor $15,835 for certain accounting services, which is included in accounting services in the Statement of Operations. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, received $41,908 in commissions on the execution of portfolio security transactions for the Series for the year ended December 31, 2008. The Series may earn income on positive cash balances in demand deposit accounts. For the year ended December 31, 2008, the Series earned $329, which is included in income -- affiliated in the Statement of Operations. Certain officers and/or directors of the Master LLC are officers and/or directors of BlackRock, Inc. or its affiliates. The Series reimburses the Advisor for compensation paid to the Master LLC's Chief Compliance Officer. 3. INVESTMENTS: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2008 were $358,428,019 and $272,733,058, respectively. 4. SHORT-TERM BORROWINGS: The Series, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement with a group of lenders, which expired November 2008 and was subsequently renewed until November 2009.The Series may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Series may borrow up to the maximum amount allowable under the Series' current Prospectus and Statement of Additional Information, subject to various other legal, regulatory or contractual limits. The Series paid its pro rata share of a 0.02% upfront fee on the aggregate commitment amount based on its net assets as of October 31, 2008. The Series pays a commitment fee of 0.08% per annum based on the Series' pro rata share of the unused portion of the credit agreement, which is included in miscellaneous in the Statement of Operations. Amounts borrowed under the credit agreement bear interest at a rate equal to the higher of the (a) federal funds effective rate and (b) reserve adjusted one month LIBOR, plus, in each case, the higher of (i) 1.50% and (ii) 50% of the CDX Index (as defined in the credit agreement) in effect from time to time. The Series did not borrow under the credit agreement during the year ended December 31, 2008. 80 MASTER INTERNATIONAL INDEX SERIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 5. MARKET AND CREDIT RISK: In the normal course of business, the Series invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (credit risk). The value of securities held by the Series may decline in response to certain events, including those directly involving the companies whose securities are owned by the Series; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to credit risk, the Series may be exposed to counterparty risk, or the risk that an entity with which the Series has unsettled or open transactions may default. Financial assets, which potentially expose the Series to credit and counterparty risks, consist principally of investments and cash due from counterparties. The extent of the Series' exposure to credit and counterparty risks with respect to these financial assets is approximated by their value recorded in the Series' Statement of Assets and Liabilities. The Series invests from time to time a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the Series concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on its investment performance. Please see the Summary Schedule of Investments for concentrations in specific countries. 6. SUBSEQUENT EVENT: On January 1, 2009, Bank of America Corporation announced that it had completed its acquisition of Merrill Lynch, one of the largest stockholders of BlackRock, Inc. 81 MASTER INTERNATIONAL INDEX SERIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Investors and Board of Directors of Quantitative Master Series LLC: 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 LLC (the "Master LLC") as of December 31, 2008, 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 Master LLC'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 Master LLC 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 Master LLC'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 31,2008, 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 Quantitative Master Series LLC as of December 31, 2008, 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 accounting principles generally accepted in the United States of America Deloitte & Touche LLP Princeton, New Jersey February 25, 2009 82 MASTER INTERNATIONAL INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
NUMBER OF LENGTH BLACKROCK- OF TIME ADVISED POSITION(S) SERVED FUNDS AND NAME, ADDRESS AND HELD WITH AS A PORTFOLIOS PUBLIC YEAR OF BIRTH MASTER LLC DIRECTOR(2) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS OVERSEEN DIRECTORSHIPS ------------------- ------------ ----------- --------------------------------------------------- ------------- ---------------- NON-INTERESTED DIRECTORS(1) RONALD W. FORBES Co-Chair of Since Professor Emeritus of Finance, School of Business, 34 Funds None 40 East 52nd Street the Board of 2007 State University of New York at Albany since 2000. 81 Portfolios New York, NY 10022 Directors 1940 and Director RODNEY D. JOHNSON Co-Chair of Since President, Fairmount Capital Advisors, Inc. since 34 Funds None 40 East 52nd Street the Board of 2007 1987; Director, Fox Chase Cancer Center since 81 Portfolios New York, NY 10022 Directors 2002; Member of the Archdiocesan Investment 1941 and Director Committee of the Archdiocese of Philadelphia since 2003; Director The Committee of Seventy (civic) since 2006. DAVID O. BEIM Director Since Professor of Finance and Economics at the 34 Funds None 40 East 52nd Street 2007 Columbia University Graduate School of Business 81 Portfolios New York, NY 10022 since 1991; Trustee of Phillips Exeter Academy 1940 since 2002; Formerly Chairman, Wave Hill Inc. (public garden and cultural center) from 1990 to 2006. DR. MATINA HORNER Director Since Formerly Executive Vice President of Teachers 34 Funds NSTAR (electric 40 East 52nd Street 2007 Insurance and Annuity Association and College 81 Portfolios and gas utility) New York, NY 10022 Retirement Equities Fund from 1989 to 2003. 1939 HERBERT I. LONDON Director Since Professor Emeritus, New York University since 2005; 34 Funds AIMS Worldwide, 40 East 52nd Street and Member 2007 John M. Olin Professor of Humanities, New York 81 Portfolios Inc. (marketing) New York, NY 10022 of the Audit University from 1993 to 2005 and Professor thereof 1939 Committee from 1980 to 2005; President, Hudson Institute (policy research organizations) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director of InnoCentive, Inc. (strategic solutions company) since 2005; Director of Cerego, LLC (software development and design) since 2005. CYNTHIA A. Director Since Professor, Harvard Business School since 34 Funds Newell MONTGOMERY 2007 1989;Director, Harvard Business School Publishing 81 Portfolios Rubbermaid, 40 East 52nd Street since 2005; Director, McLean Hospital since 2005. Inc. New York, NY 10022 (manufacturing) 1952 JOSEPH P. PLATT, JR. Director Since Director,The West Penn Allegheny Health System (a 34 Funds Greenlight 40 East 52nd Street 2007 not-for-profit health system) since 2008; Director, 81 Portfolios Capital Re, Ltd. New York, NY 10022 Jones and Brown (Canadian insurance broker) since (reinsurance 1947 1998; General Partner, Thorn Partners, LP (private company investment) since 1998; Formerly Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008. ROBERT C. ROBB, JR. Director Since Partner, Lewis, Eckert, Robb and Company 34 Funds None 40 East 52nd Street 2007 (management and financial consulting firm) since 81 Portfolios New York, NY 10022 1981. 1945 TOBY ROSENBLATT Director Since President, Founders Investments Ltd. (private 34 Funds A.P. Pharma, 40 East 52nd Street 2007 investments) since 1999; Director of Forward 81 Portfolios Inc.(speciality New York, NY 10022 Management, LLC since 2007; Director,The James Pharmaceuticals) 1938 Irvine Foundation (philanthropic foundation) since 1997; Formerly Trustee, State Street Research Mutual Funds from 1990 to 2005; Formerly Trustee, Metropolitan Series Funds, Inc. from 2001 to 2005.
83 MASTER INTERNATIONAL INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
NUMBER OF BLACKROCK- ADVISED POSITION(S) LENGTH FUNDS AND NAME, ADDRESS AND HELD WITH OF TIME PORTFOLIOS PUBLIC YEAR OF BIRTH MASTER LLC SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS OVERSEEN DIRECTORSHIPS ------------------- ------------ ----------- --------------------------------------------------- -------------- --------------- NON-INTERESTED DIRECTORS(1) (CONCLUDED) KENNETH L. URISH Director and Since Managing Partner, Urish Popeck & Co., LLC 34 Funds None 40 East 52nd Street Chairman of 2007 (certified public accountants and consultants) 81 Portfolios New York, NY 10022 the Audit since 1976; Member of External Advisory Board, The 1951 Committee Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation since 2001; Committee Member/ Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants since 2007; Formerly President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Formerly Director, Inter-Tel from 2006 to 2007. FREDERICK W. Director and Since Professor and Dean Emeritus of the Joseph M. Katz 34 Funds None WINTER 40 East 52nd Member of 2007 School of Business, University of Pittsburgh since 81 Portfolios Street New York, NY the Audit 2005 and Dean thereof from 1997 to 2005. Director, 10022 Committee Alkon Corporation (pneumatics) since 1992; 1945 Formerly Director, Indotronix International (IT services) from 2004 to 2008; Director,Tippman Sports (recreation) since 2005. (1) Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. (2) Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc. ("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007.As a result, although the chart shows directors as joining the Master LLC's board in 2007, each director first became a member of the board of directors of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim since 1998; Ronald W. Forbes since 1977; Matina Horner since 2004; Rodney D. Johnson since 1995; Herbert I. London since 1987; Cynthia A. Montgomery since 1994; Joseph P. Platt since 1999; Robert C. Robb, Jr. since 1999; Toby Rosenblatt since 2005; Kenneth L. Urish since 1999; and Frederick W. Winter since 1999. INTERESTED DIRECTORS(3) RICHARD S. DAVIS Director Since Managing Director, BlackRock, Inc. since 2005; 174 Funds None 40 East 52nd Street 2007 Formerly Chief Executive Officer, State Street 286 Portfolios New York, NY 10022 Research & Management Company from 2000 to 1945 2005; Formerly Chairman of the Board of Trustees, State Street Research Mutual Funds from 2000 to 2005; Formerly Chairman, SSR Realty from 2000 to 2004 HENRY GABBAY Director Since Formerly Consultant, BlackRock, Inc. from 2007 to 174 Funds None 40 East 52nd Street 2007 2008; Formerly Managing Director, BlackRock, Inc. 286 Portfolios New York, NY 10022 from 1989 to 2007; Formerly Chief Administrative 1947 Officer, BlackRock Advisors, LLC from 1998 to 2007; Formerly President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock Fund complex from 1989 to 2006. (3) Mr. Davis is an "interested person," as defined in the Investment Company Act of 1940, of the Master LLC based on his position with BlackRock, Inc. and its affiliates. Mr. Gabbay is an "interested person" of the Master LLC based on his former positions with BlackRock, Inc. and its affiliates, as well as his ownership of BlackRock, Inc. and PNC securities. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
84 MASTER INTERNATIONAL INDEX SERIES OFFICERS AND DIRECTORS (UNAUDITED)
POSITION(S) LENGTH NAME, ADDRESS AND HELD WITH OF TIME YEAR OF BIRTH MASTER LLC SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ------------------- -------------- ------- -------------------------------------------------------------------------------------- MASTER LLC OFFICERS(1) DONALD C. BURKE Master LLC Since Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of Merrill 40 East 52nd Street President and 2007 Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM") in New York, NY 10022 Chief 2006; First Vice President thereof from 1997 to 2005; Treasurer thereof from 1999 to 1960 Executive 2006 and Vice President thereof from 1990 to 1997. Officer ANNE F. ACKERLEY Vice President Since Managing Director of BlackRock, Inc. since 2000 Chief Operating Officer of BlackRock's 40 East 52nd Street 2007 US Retain Group since 2006; Formerly Head of BlackRock's Mutual Fund Group from 2000 New York, NY 10022 to 2006. 1962 NEAL J. ANDREWS Chief Since Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice President and 40 East 52nd Street Financial 2007 Line of Business Head of Fund Accounting and Administration at PNC Global Investment New York, NY 10022 Officer Servicing (US) Inc. (formerly PFPC Inc.) from 1992 to 2006. 1966 JAY M. FIFE Treasurer Since Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly 40 East 52nd Street 2007 Assistant Treasurer of the MLIM/FAM advised funds from 2005 to 2006; Director of MLIM New York, NY 10022 Fund Services Group from 2001 to 2006. 1970 BRIAN P. KINDELAN Chief Since Chief Compliance Officer of the BlackRock-advised Funds since 2007; Managing Director 40 East 52nd Street Compliance 2007 and Senior Counsel of BlackRock, Inc. since 2005; Formerly Director and Senior Counsel New York, NY 10022 Officer of BlackRock Advisors, Inc. from 2001 to 2004. 1959 HOWARD SURLOFF Secretary Since Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at BlackRock, 40 East 52nd Street 2007 Inc. since 2006; Formerly General Counsel (US) of Goldman Sachs Asset Management, L.P. New York, NY 10022 from 1993 to 2006. 1965 (1) Officers of the Master LLC serve at the pleasure of the Board of Directors. Further information about the Master LLC's Officers and Directors is available in the Master LLC's Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.
INDEPENDENT REGISTERED PUBLIC CUSTODIAN ACCOUNTING AGENT ACCOUNTING FIRM LEGAL COUNSEL --------- --------------------- ----------------------------- ------------------ JP Morgan Chase Bank, N.A. State Street Bank and Deloitte & Touche LLP Sidley Austin LLP Brooklyn, NY 11245 Trust Company Princeton, NJ 08540 New York, NY 10019 Princeton, NJ 08540
85 (AMERICAN BEACON 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: Institutional Class American Beacon Funds Call (800) 658-5811 P.O. Box 219643 PlanAhead Class(R) Kansas City, MO 64121 (800) 388-3344
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES In addition to the Schedule of Investments provided in each semi-annual and annual report, each Fund files a complete schedule of its portfolio holdings with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first and third fiscal quarters. The Fund's Forms N-Q are available on the SEC's website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information regarding the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A complete schedule of the Fund's portfolio holdings is also available on the Funds' website (www.americanbeaconfunds.com) approximately thirty days after the end of each fiscal quarter. AVAILABILITY OF PROXY VOTING POLICY AND RECORDS A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available in each Fund's Statement of Additional Information, which may be obtained free of charge by calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. Each Fund's proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund's Forms N-PX are available on the SEC's website at www.sec.gov. The Fund's proxy voting record may also be obtained by calling 1-800-967-9009. FUND SERVICE PROVIDERS: CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES SERVICES Portland, Maine Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP 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 SMALL CAP INDEX FUND AND AMERICAN BEACON INTERNATIONAL EQUITY INDEX FUND ARE SERVICE MARKS OF AMERICAN BEACON ADVISORS, INC. AR 12/08 00065948 GUIDANCE | VISION | EXPERIENCE (AMERICAN BEACON FUNDS(SM) LOGO) Annual Report (GRAPHIC) December 31, 2008 TREASURY INFLATION PROTECTED SECURITIES FUND About American Beacon Advisors Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. Contents President's Message ............................................... 1 Market and Performance Overview ................................... 2 Schedule of Investments ........................................... 7 Financial Highlights .............................................. 17 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, 2008 (PHOTO OF WILLIAM F. QUINN) FELLOW SHAREHOLDERS, Enclosed is the Annual Report for the American Beacon Treasury Inflation Protected Securities Fund for the twelve months ended December 31, 2008. Growing unemployment, low consumer confidence, rising foreclosures and bank failures all contributed to a growing uncertainty that permeated every aspect of the economy in 2008. The Federal Reserve Board ("Fed") lowered the Fed Funds rate on December 16th to a record low target range of 0.00-0.25% and noted that "weak economic conditions are likely to warrant exceptionally low levels of the Fed Funds rate for some time." Even with the government bailouts and liquidity programs, short-term credit markets were under great strain as banks continued to report substantial losses. A weak economic environment limited the Fed's ability to raise interest rates. In this environment of low inflation expectations, the American Beacon Treasury Inflation Protected Securities Fund reported a very competitive return of -2.09% for the period compared to the Lipper TIPS Index return of -4.08%. Please review the enclosed market overview, portfolio listings, and detailed financial data. As always, we welcome the opportunity to serve your financial needs. 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 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, 2008 (UNAUDITED) Treasury yields plunged in 2008. On December 31, 2008, the 30-year Treasury yielded a remarkably low 2.69%, while the 3-month Treasury bill yielded an equally remarkable 0.08%. Credit spreads widened significantly throughout 2008, ending the year over 300 basis points (3.00%) wider than their year-ago level. Equity markets posted their worst annual returns since the 1930's. Energy prices plummeted in the second half of 2008, after skyrocketing in the first half. The nearly 50% increase in crude oil prices the first six months of the year was followed by a 68% decline over the second half. Inflation, as measured by the Consumer Price Index ("CPI"), had a bumpy ride, increasing in the first half of the year and then sharply moving downward in the second half of 2008. The prices of crude oil, agricultural and other commodities fell sharply in the second half of 2008 on concerns about rapidly slowing demand. For example, in December, the CPI increased at a 0.1% year-over-year pace (vs. 5.0% in June), while the Core CPI (CPI excluding food and energy) increased at a 1.8% year-over-year pace (vs. 2.4% in June). Increasing real Treasury interest rates and lower-than-expected CPI readings contributed to negative total returns for Treasury Inflation Protected Securities ("TIPS"). The Barclays Capital U.S. TIPS Index returned -2.35% in 2008, while the Intermediate (1-10 year maturity) TIPS Index returned -2.43%. Inflation expectations as evidenced by breakeven inflation rates (the spread between similar maturity nominal and inflation-protected securities) ranged approximately 300 basis points (3.00%) from their high to low in 2008. In early July, breakevens peaked for the year at 2.6%, while in late November, they troughed at -0.30%. At year-end, 10-year breakevens were approximately -0.06%. The U.S. Treasury appears committed to the TIPS market, with $56 billion of new supply auctioned in 2008. At year-end, the total outstanding market value of TIPS was approximately $479 billion. 2 PERFORMANCE OVERVIEW AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM) DECEMBER 31, 2008 (UNAUDITED) The Institutional Class of the Fund returned -2.09% for the period from January 1, 2008 through December 31, 2008, leading the Barclays Capital 1-10 Year U.S. TIPS Index (the "Index") return of -2.43%. The Fund also outperformed the Lipper TIPS Index return of -4.08% for the same time period. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT FOR THE PERIOD FROM 6/30/04 THROUGH 12/31/08 (PERFORMANCE GRAPH) (PLOT POINTS TO COME) ANNUALIZED TOTAL RETURNS PERIODS ENDED 12/31/2008
VALUE OF SINCE $10,000 INCEPTION 6/30/04- 1 YEAR 3 YEARS 6/30/04 12/31/08 ------ ------- --------- -------- Institutional Class(1, 3) ...................... -2.09% 3.24% 3.45% $11,650 Barclays Capital 1-10 Yr. U.S. TIPS Index(2) ... -2.43% 3.37% 3.76% $11,810 Barclays Capital U.S. TIPS Index(2) ............ -2.35% 3.06% 4.10% $11,982 Lipper TIPS Funds Index(2) ..................... -4.08% 1.94% 3.42% $11,631
(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 Barclays Capital 1-10 Yr. U.S. TIPS Index is an unmanaged market index comprising U.S. Treasury inflation-indexed securities with maturities between one and ten years while the Barclays Capital U.S. TIPS Index includes all maturities. The Lipper TIPS Funds 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. (3.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus was 0.43%. After contractual expense reimbursements through February 28, 2008, the net expense ratio disclosed in the most recent prospectus was 0.35%. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. The Fund outperformed the Index for the twelve-month period by 34 basis points (0.34%). While the Fund outperformed the Index on a relative basis, the Fund posted a negative absolute return for the year as a result of market activity in the 3rd and 4th quarters. The fall in oil and commodity prices contributed to deflation over the last part of 2008, which led investors away from TIPS, causing real yields to rise sharply. For the one-year period, the Fund maintained a duration neutral position relative to the Index, and from a yield curve positioning standpoint, the Fund was underweight the 2010-2014 maturities and overweight the 2015-2018 maturities. As the real yield curve flattened during the period, the Fund's overweight in the longer maturity TIPS allowed the Fund's holdings to outperform relative to the Index. The Fund remains focused on investing primarily in TIPS to provide inflation protection and income to its shareholders. 3 PERFORMANCE OVERVIEW AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM) DECEMBER 31, 2008 (UNAUDITED) TOP TEN HOLDINGS
% OF NET ASSETS ------ U.S. Treasury Note, 0.875%, Due 4/15/2010 ... 9.7% U.S. Treasury Note, 3.000%, Due 7/15/2012 ... 7.7% U.S. Treasury Note, 1.625%, Due 1/15/2015 ... 7.2% U.S. Treasury Note, 2.000%, Due 1/15/2014 ... 7.0% U.S. Treasury Note, 1.875%, Due 7/15/2013 ... 6.4% U.S. Treasury Note, 2.500%, Due 7/15/2016 ... 5.9% U.S. Treasury Note, 2.000%, Due 1/15/2016 ... 5.5% U.S. Treasury Note, 2.375%, Due 4/15/2011 ... 5.3% U.S. Treasury Note, 2.000%, Due 7/15/2014 ... 4.7% U.S. Treasury Note, 2.375%, Due 1/15/2017 ... 4.7%
PORTFOLIO DIVERSIFICATION
% OF FIXED INCOME ------------ A ..... 0.0% AA .... 0.0% AAA ... 100.0%
(PERFORMANCE GRAPH) U.S. Government Treasury Obligations 99.8% Short-Term Investments 0.2%
4 FUND EXPENSES AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND(SM) DECEMBER 31, 2008 (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, 2008 through December 31, 2008. ACTUAL EXPENSES The "Actual" line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Shareholders of the Institutional Class that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in 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" line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Beginning Ending Account Account Expenses Paid Value Value During Period* 7/1/08 12/31/08 7/1/08-12/31/08 --------- --------- --------------- INSTITUTIONAL CLASS Actual $1,000.00 $ 924.30 $0.82 Hypothetical $1,000.00 $1,024.28 $0.87 (5% return before expenses)
* Expenses are equal to the Fund's annualized expense ratio for the six-month period of 0.17% 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 (366) to reflect the half year period. 5 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Trustees of American Beacon Treasury Inflation Protected Securities Fund: We have audited the accompanying statement of assets and liabilities of American Beacon Treasury Inflation Protected Securities Fund (the "Fund"), a separate fund comprising the American Beacon Funds, including the schedule of investments, as of December 31, 2008, and the related statement of operations for the year then ended, the statement 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, 2008, 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 Treasury Inflation Protected Securities Fund at December 31, 2008, 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, Texas February 25, 2009 See accompanying notes 6 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND SCHEDULE OF INVESTMENTS December 31, 2008
PAR AMOUNT VALUE -------- -------- (DOLLARS IN THOUSANDS) ---------------------- U.S. TREASURY OBLIGATIONS - 99.72% 4.25%, Due 1/15/2010 ++ ...................... $ 5,144 $ 5,052 0.875%, Due 4/15/2010 ++ ..................... 14,432 13,564 3.50%, Due 1/15/2011 ++ ...................... 4,749 4,661 2.375%, Due 4/15/2011 ++ ..................... 7,619 7,441 3.375%, Due 1/15/2012 ++ ..................... 2,843 2,812 2.00%, Due 4/15/2012 ++ ...................... 6,673 6,507 3.00%, Due 7/15/2012 ++ ...................... 11,037 10,817 0.625%, Due 4/15/2013 ++ ..................... 6,304 6,027 1.875%, Due 7/15/2013 ++ ..................... 9,566 9,006 2.00%, Due 1/15/2014 ++ ...................... 10,289 9,748 2.00%, Due 7/15/2014 ++ ...................... 7,022 6,641 1.625%, Due 1/15/2015 ++ ..................... 10,926 10,132 1.875%, Due 7/15/2015 ++ ..................... 6,544 6,181 2.00%, Due 1/15/2016 ++ ...................... 8,077 7,735 2.50%, Due 7/15/2016 ++ ...................... 8,287 8,222 2.375%, Due 1/15/2017 ++ ..................... 6,687 6,635 2.625%, Due 7/15/2017 ++ ..................... 6,162 6,315 1.625%, Due 1/15/2018 ++ ..................... 6,773 6,429 1.375%, Due 7/15/2018 ++ ..................... 6,279 5,872 -------- TOTAL U.S. TREASURY OBLIGATIONS .................. 139,797 --------
SHARES -------- SHORT TERM INVESTMENTS - 0.22% Columbia Government Reserve Fund ............. 304,597 305 -------- TOTAL INVESTMENTS - 99.94% (COST $147,290) ....... $140,102 OTHER ASSETS, NET OF LIABILITIES - 0.06% ......... 87 -------- TOTAL NET ASSETS - 100.00% ....................... $140,189 ========
Percentages are stated as a percent of net assets. ++ Inflation-Indexed Note. See accompanying notes 7 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS: Investments in unaffiliated securities, at value (A) ......... $ 140,102 Dividends and interest receivable ............................ 1,269 Receivable for fund shares sold .............................. 64 Receivable for expense reimbursement ......................... 13 Prepaid expenses ............................................. 4 ----------- TOTAL ASSETS .............................................. 141,452 ----------- LIABILITIES: Payable for fund shares redeemed ............................. 1,162 Management and investment advisory fees payable (Note 2) ..... 48 Administrative service and service fees payable .............. 18 Other liabilities ............................................ 35 ----------- TOTAL LIABILITIES ......................................... 1,263 ----------- NET ASSETS ...................................................... $ 140,189 =========== ANALYSIS OF NET ASSETS: Paid-in-capital .............................................. 171,128 Undistributed net investment income .......................... 45 Accumulated net realized loss ................................ (23,795) Unrealized depreciation of investments, futures contracts, and foreign currency .......................................... (7,189) ----------- NET ASSETS ...................................................... $ 140,189 =========== SHARES OUTSTANDING (NO PAR VALUE): Institutional Class .......................................... 15,241,067 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Institutional Class .......................................... $ 9.20 =========== ---------- A- Cost of investments in unaffiliated securities $ 147,290
See accompanying notes 8 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 (IN THOUSANDS) INVESTMENT INCOME: Dividend income from affiliated securities ...................... $ 75 Interest income ................................................. 18,469 -------- TOTAL INVESTMENT INCOME ................................... 18,544 -------- EXPENSES: Management and investment advisory fees (Note 2) ................ 489 Administrative service fees (Note 2): Institutional Class .......................................... 374 Transfer agent fees: Institutional Class .......................................... 13 Custody and fund accounting fees ................................ 41 Professional fees ............................................... 30 Prospectus and shareholder reports .............................. 11 Other expenses .................................................. 22 -------- TOTAL EXPENSES ............................................ 980 -------- Net fees waived and expenses reimbursed by Manager (Note 2) ..... (136) -------- NET EXPENSES .............................................. 844 -------- NET INVESTMENT INCOME .............................................. 17,700 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from: Investments .................................................. (22,281) Change in net unrealized appreciation or depreciation of: Investments .................................................. (8,833) -------- NET LOSS ON INVESTMENTS ................................... (31,114) -------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $(13,414) ========
See accompanying notes 9 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
Year Ended Year Ended December December 31, 2008 31, 2007 ---------- ---------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ................................................... $ 17,700 $ 2,643 Net realized loss on investments, futures contracts, and foreign currency transactions ......................................................... (22,281) (72) Change in net unrealized appreciation or (depreciation) of investments, futures contracts, and foreign currency translations ................. (8,833) 1,889 --------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...... (13,414) 4,460 --------- -------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Institutional Class .................................................. (17,654) (2,630) Net realized gain on investments: Institutional Class .................................................. -- (19) --------- -------- NET DISTRIBUTIONS TO SHAREHOLDERS .................................... (17,654) (2,649) --------- -------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares ........................................... 406,774 207,597 Reinvestment of dividends and distributions ............................. 17,654 2,649 Cost of shares redeemed ................................................. (476,868) (22,152) --------- -------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ...................................................... (52,440) 188,094 --------- -------- NET INCREASE (DECREASE) IN NET ASSETS ...................................... (83,508) 189,905 --------- -------- NET ASSETS: Beginning of period ..................................................... 223,697 33,792 --------- -------- END OF PERIOD * ......................................................... $ 140,189 $223,697 ========= ======== * Includes undistributed net investment income of .......................... $ 45 $ -- ========= ========
See accompanying notes 10 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES American Beacon Funds (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, (the "Act") 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. Effective September 12, 2008, American Beacon Advisors, Inc. (the "Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which is indirectly owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P., two private equity firms. Prior to September 12, the Manager was a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. which retained a minority interest in the parent company of Lighthouse Holdings, Inc. Valuation of Investments 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 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"). The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Fund's fiscal year. 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. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3 - Prices determined using significant unobservable inputs. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. A summary of the inputs used to value the Fund's investments as of December 31, 2008 is as follows (in thousands): 11 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008
Investments in Valuation Inputs Securities ---------------- -------------- Level 1 - Quoted Prices ...................................... $140,102 Level 2 - Other significant observable inputs ................ -- Level 3 - Significant unobservable inputs .................... -- -------- Total ........................................................ $140,102
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. 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. Dividends to Shareholders Dividends from net investment income of the Fund normally will be declared and paid at least semi-annually. Distributions, if any, of net realized capital gains are generally paid at least 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. 12 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimated. Other Under the Trust's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Trust. In the normal course of business, the Trust enters into contracts that provide indemnification to the other party or parties against potential costs or liabilities. The Trust's maximum exposure under these arrangements is dependent on claims that may be made in the future and, therefore, cannot be estimated. The Trust has had no prior claims or losses pursuant to any such agreement. 2. TRANSACTIONS WITH AFFILIATES Management Agreement The Trust and the Manager are parties to a Management Agreement that obligates the Manager to provide or oversee the provision of all administrative, investment advisory, and fund management. Investment assets of the Fund are managed by a sub-advisor which has entered into a separate investment advisory agreement 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 the amount paid by the Manager to the sub-advisor hired by the Manager plus, through September 11, 2008, 0.10% of the average daily net assets, and from September 12, 2008, 0.05% of the average daily net assets. Management fees paid during the year ended December 31, 2008 were as follows:
AMOUNT PAID NET AMOUNT MANAGEMENT MANAGEMENT TO INVESTMENT RETAINED BY FEE RATE FEE SUB-ADVISOR MANAGER ---------- ---------- ------------- ----------- 0.15%-0.19% $488,851 $307,620 $181,231
Administrative Services Agreement The Manager and the Trust entered into an Administrative Services Agreement which obligates the Manager to provide or oversee administrative services to the Fund. As compensation for performing the duties required under the Administrative Services Agreement, the Manager received through September 11, 2008, an annualized fee of 0.10% of the average daily net assets of the Fund. From September 12, 2008, the Manager receives an annualized fee of 0.15% 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 up to 0.10% of the Select Fund's average daily net assets. During the year ended December 31, 2008, fees earned by the Manager from the Select Fund were $2,203. 13 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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, 2008, the Fund did not utilize the credit facility. Reimbursement of Expenses The Manager contractually agreed to reimburse the Fund to the extent that total annual fund operating expenses exceeded the Fund's expense cap of 0.35%. Expenses totaling $1,279 were reimbursed under the contractual agreement. Subsequently the expense ratio of the Fund decreased below the expense cap. Beginning July 1, the Manager voluntarily agreed to waive a portion of its Management and Administrative Service fees. The Manager waived fees of $135,078 from July 1 to December 31, 2008. The Fund has 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's average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed the previously agreed upon contractual expense limit. The Fund has not recorded a liability for potential reimbursement, due to the current assessment that a reimbursement is unlikely. 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. For FASB Interpretation No. 48, "Accounting for Uncertainties in Income Taxes" ("FIN 48") purposes, there are no unrecognized tax benefits as of December 31, 2008 included in the accompanying financial statements. Each of the tax years in the four year period ended December 31, 2008, remains subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statement of Operations. For the year ended December 31, 2008, the Fund recognized $0 in interest and penalties. Dividends are categorized in accordance with 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 Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. 14 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 The tax character of distributions paid during the fiscal years ended December 31, 2008 and December 31, 2007 were as follows (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2008 2007 ------------ ------------ DISTRIBUTIONS PAID FROM: Ordinary income* ............................................. $17,654 $2,630 Tax return of capital ........................................ -- 19 ------- ------ TOTAL TAXABLE DISTRIBUTIONS ..................................... $17,654 $2,649 ======= ======
* For tax purposes, short-term capital gains distributions are considered ordinary income distributions. As of December 31, 2008, the components of distributable earnings on a tax basis were as follows (in thousands): Cost basis of investments for federal income tax purposes ....... $148,491 Unrealized appreciation ......................................... 514 Unrealized depreciation ......................................... (8,903) -------- Net unrealized appreciation/(depreciation) ...................... (8,389) Undistributed ordinary income ................................... 45 Undistributed long-term gain/(loss) ............................. (15,241) -------- Distributable earnings .......................................... $(23,585) ========
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. 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, 2008 (in thousands): Paid-in-capital ...................................... $ 1 Undistributed net investment income .................. (1) Accumulated net realized gain (loss) ................. -- Unrealized appreciation (depreciation) of investments, futures contracts and foreign currency ............ --
At December 31, 2008, the capital loss carry forward positions for federal income tax purposes were (in thousands) $144, $974, $111 and $14,012, expiring in 2013, 2014, 2015 and 2016 respectively. 4. INVESTMENT TRANSACTIONS Purchases and proceeds from sales of Investment transactions for the year ended December 31, 2008, excluding short-term investments, were $413,160,474 and $468,944,899, respectively. The Fund had purchases and sales of U.S. Government securities of $413,160,474 and $468,944,899, respectively. A summary of the Fund's transactions in the Select Fund for the year ended December 31, 2008 is set forth below:
DECEMBER 31, 2007 DECEMBER 31, 2008 SHARES/MARKET SHARES/MARKET AFFILIATE VALUE PURCHASES SALES VALUE --------- ----------------- ----------- ----------- ----------------- Select Fund .................... $4,476,103 $72,717,221 $77,193,324 $--
15 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 5. CAPITAL SHARE TRANSACTIONS The tables below summarize the activity in capital shares (dollars and shares in thousands): Year Ended December 31, 2008
INSTITUTIONAL CLASS ------------------- SHARES AMOUNT ------ --------- Shares sold ............................. 38,729 $ 406,774 Reinvestment of dividends ............... 1,772 17,654 Shares redeemed ......................... (47,232) (476,868) ------- --------- Net (decrease) in shares outstanding .... (6,731) $ (52,440) ======= =========
Year Ended December 31, 2007
INSTITUTIONAL CLASS ------------------- SHARES AMOUNT ------ -------- Shares sold ............................. 20,422 $207,597 Reinvestment of dividends ............... 271 2,649 Shares redeemed ......................... (2,267) (22,152) ------ -------- Net increase in shares outstanding ...... 18,426 $188,094 ====== ========
16 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Institutional Class ------------------------------------------------------------ June Year Ended December 31, 30 to --------------------------------------------- December 2008 2007(B) 2006 2005 31, 2004(A) -------- -------- ------- ------- ----------- Net asset value, beginning of period ................. $ 10.18 $ 9.53 $ 9.75 $ 10.16 $ 10.00 -------- -------- ------- ------- ------- Income from investment operations: Net investment income ............................. 0.80 0.45 0.29 0.56(C) 0.18(C) Net gains (losses) on securities (both realized and unrealized) .................................... (0.98) 0.59 (0.19) (0.37) 0.21 -------- -------- ------- ------- ------- Total income (loss) from investment operations ....... (0.18) 1.04 0.10 0.19 0.39 -------- -------- ------- ------- ------- Less distributions: Dividends from net investment income .............. (0.80) (0.39) (0.29) (0.55) (0.23) Distributions from net realized gains on securities ..................................... -- -- -- (0.05) 0.00(D) Tax return of capital ............................. -- 0.00(D, E) (0.03)(E) -- -- -------- -------- ------- ------- ------- Total distributions .................................. (0.80) (0.39) (0.32) (0.60) (0.23) -------- -------- ------- ------- ------- Net asset value, end of period ....................... $ 9.20 $ 10.18 $ 9.53 $ 9.75 $ 10.16 ======== ======== ======= ======= ======= Total return ......................................... (2.09)% 11.22% 1.05% 1.86% 3.94%(F) Ratios and supplemental data: Net assets, end of period (in thousands) .......... $140,189 $223,697 $33,792 $30,584 $20,943 Ratios to average net assets (annualized): Expenses, after expense reimbursements (recoupments) ............................... 0.25% 0.43% 0.49% 0.44% 0.46% Expenses, before expense reimbursements (recoupments) ............................... 0.29% 0.43% 0.49% 0.39% 0.62% Net investment income, after expense reimbursements (recoupements) ............... 5.19% 4.74% 2.94% 5.45% 3.34% Net investment income, before expense reimbursements (recoupments) ................ 5.15% 4.74% 2.94% 5.50% 3.18% Portfolio turnover rate .............................. 128% 139% 259% 355% 190%(F)
(A) The American Beacon Treasury Inflation Protected Securities Fund commenced active operations on June 30, 2004. (B) Brown Brothers Harriman & Co. was removed as an investment advisor to the Treasury Inflation Protected Securities Fund on November 30, 2007. (C) Based on average shares outstanding. (D) Amount represents less than $0.01 per share. (E) The tax return of capital is calculated based on outstanding shares at the time of distribution. (F) Not annualized. 17 AMERICAN BEACON TREASURY INFLATION PROTECTED SECURITIES FUND PRIVACY POLICY & FEDERAL TAX INFORMATION (UNAUDITED) 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. FEDERAL TAX INFORMATION We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those in other areas of this report because of differences between tax and financial reporting requirements. 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, 2008, 99.62% were derived from U.S. Treasury Obligations. 18 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-three 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* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-2008); Trustee, CenterPoint Properties (1994-2006); Member, Board of Trustees, Southern Methodist University; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; American Beacon Mileage Funds (1996-Present); American Beacon Master Trust (1996-Present); American Beacon Select Funds (1999-Present) NON-INTERESTED TRUSTEES Term W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); 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); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) Brenda A. Cline (48) 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) (2001-2006); Director, Christian Church Foundation (1999-2007); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994-Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001- Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008-Present); American Beacon Select Funds (2008-Present) Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (1998-2008) and Chief Executive Officer (1998-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-Present); Immediate Past Chairman and Board Member (2003-Present), Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-Present); Vice Chair, State Fair of Texas (1987-Present); Board Member, Southwestern Medical Foundation (1994-Present); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008-Present); American Beacon Select Funds (2008-Present)
19 TRUSTEE 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.) Richard A. Massman (65) Richard A. Massman Senior Vice President and General Counsel, Hunt (65) Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-Present). Chairman (2007-Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) R. Gerald Turner (63) 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. (1996-Present); Dallas, Texas 75275 Director, California Federal Preferred Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Healthcare Advisory Board; Co- Chair, Knight Commission on Intercollegiate Athletics; American Beacon Mileage Funds (2001-Present); American Beacon Master Trust (2001-Present); American Beacon Select Funds (2001-Present) Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002-present); Director, Torchmark Corporation (life and health insurance products) (2002-present); Director, National Kidney Foundation serving North Texas (2003-Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008-Present); American Beacon Select Funds (2008-Present) OFFICERS Term One Year William F. Quinn (60) President from Chairman (2006-Present) and CEO (2006-2007), President 1987 to 2007 and (1986-2006) and Director (2003-Present), American 2008 to Present Beacon Advisors, Inc.; Chairman (1989-2003) and Executive Vice Director (1979-1989, 2003-Present), American Airlines President from Federal Credit Union; Director, Crescent Real Estate 2007 to 2008 Equities, Inc.(1994-2007); Director, Pritchard, Hubble Trustee from & Herr, LLC (investment advisor) (2001-2006); Director 1987 to 2008 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 (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008). Rosemary K. Behan (49) VP, Secretary and Vice President, Legal and Compliance, American Beacon Chief Legal Advisors, Inc. (2006-Present); Assistant General Officer since 2006 Counsel, First Command Financial Planning, Inc. (2004-2006); Enforcement Attorney (2002-2004) and Branch Chief (2000-2002), Securities and Exchange Commission. Brian E. Brett (48) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004).
20 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 --------------------- ------------------ ------------------------------------------------------ Wyatt Crumpler (42) VP since 2007 Vice President, Trust Investments, American Beacon Advisors, Inc. (2007-Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, 1995 Inc. (1995-Present). Christina E. Sears (37) 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
* 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, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trust, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's s sub-advisors. 21 RESULTS OF SHAREHOLDER MEETING (UNAUDITED) A special meeting of shareholders of each of the portfolios of the American Beacon Funds (the "Trust") was held on August 22, 2008. The shareholders of the Treasury Inflation Protected Securities Fund (the "Fund") approved a new investment management agreement between American Beacon Advisors, Inc. and the Fund. This proposal required a majority of shareholders of the Fund to achieve a quorum. The following are the results of the shareholder votes for this proposal:
FUND FOR AGAINST ABSTAIN NON-VOTING ---- --------------- ---------- ------- ------------- Treasury Inflation Protected Securities Fund 298,651,456.304 15,976.759 -0- 1,631,132.257
The shareholders of the Trust also approved the re-election of five of the current Trustees to the Board of the Trust and the election of three additional Trustees to the Board. This proposal required a majority of the shareholders of the Trust to vote to achieve a quorum. The following are the results of the election of each Trustee: ALAN D. FELD Affirmative ...... 12,634,553,751.62 Withhold ......... 519,818,259.90 W. HUMPHREY BOGART Affirmative ...... 12,999,746,162.82 Withhold ......... 154,625,848.70 BRENDA A. CLINE Affirmative ...... 13,009,050,779.42 Withhold ......... 145,321,232.10 RICHARD A. MASSMAN Affirmative ...... 13,004,756,096.42 Withhold ......... 149,615,915.10 R. GERALD TURNER Affirmative ...... 13,004,259,224.92 Withhold ......... 150,112,786.60 THOMAS M. DUNNING Affirmative ...... 13,003,350,236.48 Withhold ......... 151,021,775.04 EUGENE J. DUFFY Affirmative ...... 12,985,296,316.39 Withhold ......... 169,075,695.13 PAUL J. ZUCCONI Affirmative ...... 12,983,378,136.76 Withhold ......... 170,993,874.76
22 [This page intentionally left blank] 23 [This page intentionally left blank] 24 [This page intentionally left blank] 25 (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 PORTFOLIO AVAILABILITY OF PROXY VOTING POLICY AND SCHEDULES RECORDS In addition to the Schedule of A description of the policies and Investments provided in each procedures the Fund uses to determine semi-annual and annual report, the how to vote proxies relating to Fund files a complete schedule of its portfolio securities is available in the portfolio holdings with the Fund's Statement of Additional Securities and Exchange Commission Information, is available free of charge ("SEC") on Form N-Q as of the first on the Fund's website and third fiscal quarters. The Fund's (www.americanbeaconfunds.com) and by Forms N-Q are available on the SEC's calling 1-800-967-9009 or by accessing website at www.sec.gov. The Forms N-Q the SEC's website at www.sec.gov. The may also be reviewed and copied at Fund's proxy voting record for the most the SEC's Public Reference Room, 450 recent year ended June 30 is filed Fifth Street, NW, Washington, DC annually with the SEC on Form N-PX. The 20549. Information regarding the Fund's Forms N-PX are available on the operation of the SEC's Public SEC's website at www.sec.gov. The Fund's Reference Room may be obtained by proxy voting record may also be obtained calling 1-800-SEC-0330. A complete by calling 1-800-967-9009. 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 FORESIDE FUND SERVICES TRUST SERVICES FIRM Portland, Maine Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP 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 and the American Beacon Treasury Inflation Protected Securities Fund are service marks of American Beacon Advisors, Inc. AR 12/08 00065962 GUIDANCE | VISION | EXPERIENCE (GRAPHIC)(AMERICAN BEACON FUNDS(SM) LOGO) Annual Report December 31, 2008 MONEY MARKET FUND U.S. GOVERNMENT MONEY MARKET FUND ABOUT AMERICAN BEACON ADVISORS Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management. Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company. CONTENTS President's Message ............................................... 1 Financial Highlights Money Market Fund .............................................. 16 U.S. Government Money Market Fund .............................. 19 Schedule of Investments Money Market Portfolio ......................................... 22 U.S. Government Money Market Portfolio ......................... 254 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 each Fund's portfolio composition will change depending on economic and market conditions. This report is not a complete analysis of market conditions and therefore, should not be relied upon as investment advice. Although economic and market information has been compiled from reliable sources, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein. American Beacon Funds December 31, 2008 (GRAPHIC) Fellow Shareholders, Enclosed is the Annual Report for the American Beacon Money Market Fund and the U.S. Government Money Market Fund for the twelve months ended December 31, 2008. Growing unemployment, low consumer confidence, rising foreclosures and bank failures all contributed to a growing uncertainty that permeated every aspect of the economy in 2008. The Federal Reserve Board ("Fed") lowered the Fed Funds rate on December 16th to a record low target range of 0.00-0.25% and noted that "weak economic conditions are likely to warrant exceptionally low levels of the Fed Funds rate for some time." Even with the government bailouts and liquidity programs, short-term credit markets were under great strain as banks continued to report substantial losses. A weak economic environment limited the Fed's ability to raise interest rates resulting in lower yields for fixed income investments. These conditions prompted the most extreme "flight to quality" seen in decades. Even with portfolio holdings of the highest quality, on September 19th, the impact of those events in the securities markets and concerns regarding limited marketability of securities held by many money market funds caused the American Beacon Money Market Fund to temporarily suspend the practice of providing payments for redemption of shares entirely in cash. This procedure was implemented to prevent redemptions from forcing the sale of securities in an unfavorable market that may have had an adverse impact on the Fund and its shareholders. This redemption-in-kind policy was successful in protecting the Fund and was lifted on December 12th. Since that time all redemptions have been made in cash. Despite this unprecedented environment, the American Beacon Money Market Fund reported a 2008 total return of 2.68% and 2.71% for the Institutional and Cash Management classes, respectively. Both classes outperformed the Lipper Institutional Money Market Average of 2.50%. The American Beacon U.S. Government Money Market Fund - Cash Management Class reported a total return of 2.29% for the same period, outperforming the Lipper Institutional U.S. Government Money Market Average of 2.10%. Please review the enclosed market overview, portfolio listings, and detailed financial data. As always, we welcome the opportunity to serve your financial needs. 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 1 PERFORMANCE OVERVIEW AMERICAN BEACON MONEY MARKET FUND(SM) DECEMBER 31, 2008 (UNAUDITED) 2008 was a year marked by highs and lows, none of which were good. The year ended with the highest unemployment rate in sixteen years and the lowest consumer confidence levels since records began in 1967. The supply of homes for sale hit a two-decade high during the year even as home prices fell to the lowest levels they've been in four years. Flight to quality resulted in record lows for short-term Treasuries, while corporate spreads widened to Depression era highs. The U.S. economy is in the midst of the longest recession in a quarter-century, and further contraction is expected as tight credit conditions, declining home prices and cutbacks in consumer and business spending continue unabated. 2008 was also a year marked by unprecedented government bailouts and liquidity programs. Under the Troubled Asset Relief Program alone, the U.S. Treasury has already channeled $350 billion in funds to recapitalize banks and rescue companies like AIG and Citigroup. Despite these actions, short-term funding markets remained strained and banks continued to report massive write downs. As a result, Bernanke stated, "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets." With the pace of economic deterioration accelerating, the Federal Reserve Board ("Fed") pulled out all stops and adopted a Zero Interest Rate Policy at the December 16th meeting. In an unprecedented move, the Federal Open Market Committee ("FOMC") cut rates to the lowest levels ever, announcing a target range for the Federal Funds rate of 0.00-0.25%. The Fed noted that "weak economic conditions are likely to warrant exceptionally low levels of the Federal Funds rate for some time." In addition, the FOMC announced that it would purchase Government Sponsored Enterprises debt and agency-guaranteed Mortgage-Backed Securities to provide support to the mortgage and housing markets. The Fed declared that it will "employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability." As the economy showed signs of weakness during the year, the Fed continued its series of easing monetary policy that started in September 2007. The Fed reduced the Fed Funds target by 400 basis points (4.00%) during 2008, resulting in a 0% to 0.25% fed funds target by year end. With credit quality a priority, the American Beacon Money Market Fund's primary strategy for the year was to buy high-quality, short-dated commercial paper, certificates of deposit and overnight investments. This strategy was implemented in an effort to improve liquidity as well as credit quality. The strategies implemented during the year enabled the Fund to outperform its Lipper peer group. For the twelve months ended December 31, 2008, the total return of the Cash Management Class of the American Beacon Money Market Fund was 2.71%. The Fund outperformed the Lipper Institutional Money Market Average return of 2.50% by 21 basis points (0.21%). Based on annualized total returns, Lipper Analytical Services ranked the Cash Management Class of the Fund 140 among 375, 66 among 338 and 36 among 275 Institutional Money Market Funds for the one-year, three-year, and five-year periods ended December 31, 2008, 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. (BAR CHART)
ANNUALIZED TOTAL RETURNS AS OF 12/31/2008 --------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Cash Mgmt Class(1, 2, 4) ........ 2.71% 3.50% 3.60% Institutional Class (1, 3, 4) ... 2.68% 3.42% 3.54% PlanAhead Class (1, 4) .......... 2.35% 3.14% 3.25%
2 PERFORMANCE OVERVIEW AMERICAN BEACON MONEY MARKET FUND(SM) DECEMBER 31, 2008 (UNAUDITED) (1.) Performance shown is historical and may not be indicative of future returns. Investment returns will vary, and shares may be worth more or less at redemption than at original purchase. An investment in this Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share it is possible to lose money by investing in the Fund. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2.) Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 1/1/99 to 12/1/01, the inception date of the Cash Management Class, and the returns of the Cash Management Class thereafter. 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 1/1/99. A portion of the fees charged to the Cash Management Class 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 since 2006. (4.) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Cash Management, Institutional, and PlanAhead Class shares was 0.20%, 0.23%, and 0.48%, respectively. After expense reimbursement, the net expense ratio set forth in the most recent Fund prospectus for the Cash Management and Institutional Class shares was 0.15% and 0.18%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. PORTFOLIO STATISTICS AS OF DECEMBER 31, 2008
CASH MANAGEMENT INSTITUTIONAL PLANAHEAD CLASS CLASS CLASS ---------- ------------- --------- 7-day Current Yield* .... 0.73% 0.70% 0.28% 7-day Effective Yield* .. 0.73% 0.70% 0.28% 30-day Yield* ........... 0.74% 0.71% 0.30% Weighted Avg. Maturity .. 25 Days 25 Days 25 Days S&P Rating .............. AAAm N/A N/A
* Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven-day yield. Yield is a more accurate reflection of the Fund's current earnings than total returns. TOP TEN ISSUERS AS OF DECEMBER 31, 2008
% OF NET ASSETS** ------------ Societe Generale N.Y. ................ 5.2% Bank of Nova Scotia N.Y. ............. 4.7% Variable Funding Capital Co. LLC ..... 4.7% Dexia Credit Local S.A. .............. 4.2% Commonwealth Bank of Australia N.Y. .. 3.1% DNB NOR Bank ASA N.Y. ................ 3.1% Lloyds Bank N.Y. ..................... 3.1% Surrey Funding Corp. ................. 3.1% Svenska Handelsbanken AB N.Y. ........ 3.1% Toyota Motor Credit Corp. ............ 3.1%
** Percent of net assets of American Beacon Master Money Market Portfolio. ASSET ALLOCATION AS OF DECEMBER 31, 2008
% OF NET ASSETS** ------------ Commercial Paper ..................... 38.91% Repurchase Agreements ................ 29.27% Bank CDs, TDs and Notes .............. 21.83% Short Term Investments ............... 9.97% Other Assets, Net of Liabilities ..... 0.02%
** Percent of net assets of American Beacon Master Money Market Portfolio. 3 FUND EXPENSES AMERICAN BEACON MONEY MARKET FUND(SM) DECEMBER 31, 2008 (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, 2008 through December 31, 2008. ACTUAL EXPENSES The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in these lines, 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" for the applicable Class to estimate the expenses you paid on your account during this period. Shareholders of the PlanAhead Class that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the PlanAhead Class that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Beginning Ending Expenses Paid Account Account During Value Value Period* 7/1/08 12/31/08 7/1/08-12/31/08 --------- --------- --------------- CASH MANAGEMENT CLASS Actual .............. $1,000.00 $1,010.45 $0.76 Hypothetical (5% return before expenses) ........ $1,000.00 $1,024.38 $0.76 INSTITUTIONAL CLASS Actual .............. $1,000.00 $1,010.30 $0.86 Hypothetical (5% return before expenses) ........ $1,000.00 $1,024.28 $0.87 PLANAHEAD CLASS Actual .............. $1,000.00 $1,008.61 $2.47 Hypothetical (5% return before expenses) ........ $1,000.00 $1,022.67 $2.49
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.15%, 0.17%,and 0.49% for the Cash Management, Institutional, and PlanAhead Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (366) to reflect the half-year period. 4 PERFORMANCE OVERVIEW AND FUND EXPENSES AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM) DECEMBER 31, 2008 (UNAUDITED) As the economy showed signs of weakness during the year, the Federal Reserve Board ("Fed") continued its series of easing monetary policy that started in September 2007. The Fed reduced the Fed Funds target by 400 basis points (4.00%) during 2008, resulting in a 0% to 0.25% Fed Funds target by year end. In response to the events that caused the Fed to ease, the American Beacon U.S. Government Money Market Fund's primary strategy for the year was to buy short-dated agencies and overnight investments. This strategy was implemented in an effort to maintain a high level of liquidity during volatile market conditions. The strategies implemented during the year enabled the Fund to outperform its Lipper peer group. For the twelve months ended December 31, 2008, the total return of the Cash Management Class of the American Beacon U.S. Government Money Market Fund was 2.29%. The Fund outperformed the Lipper Institutional U.S. Government Money Market Average return of 2.10% by 19 basis points (0.19%). Based on annualized total returns, Lipper Analytical Services ranked the Cash Management Class of the Fund 46 among 171, 12 among 121 and 7 among 76 Institutional U.S. Government Money Market Funds for the one-year, five-year, and ten-year periods ended December 31, 2008, respectively. The Lipper Institutional U.S. Government Money Market Funds Average is calculated by taking the arithmetic average of the returns of the mutual funds in the Lipper Institutional U.S. Government 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. (BAR CHART)
ANNUALIZED TOTAL RETURNS AS OF 12/31/2008 --------------------------- 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Cash Management Class (1, 2, 4) ... 2.29% 3.34% 3.48% PlanAhead Class (1, 3, 4) ......... 1.90% 2.91% 3.08%
(1) Performance shown is historical and may not be indicative of future returns. Investment returns will vary, and shares may be worth more or less at redemption than at original purchase. An investment in this Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share it is possible to lose money by investing in the Fund. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. (2) 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 since 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 since 2003. (4) The total annual Fund operating expense ratio set forth in the most recent Fund prospectus for the Cash Management and the PlanAhead Class shares was 0.60% and 1.20%, respectively. After expense reimbursement, the net expense ratio set forth in the most recent Fund prospectus for the Cash Management and PlanAhead shares was 0.15% and 0.65%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. PORTFOLIO STATISTICS AS OF DECEMBER 31, 2008
CASH MANAGEMENT PLANAHEAD CLASS CLASS ---------- ---------- 7-day Current Yield* .......... 0.67% 1.00% 7-day Effective Yield* ........ 0.67% 1.00% 30-day Yield* ................. 0.88% 1.08% Weighted Avg. Maturity ........ 38 Days 38 Days Moody's Rating ................ Aaa N/A S&P Rating .................... AAAm N/A
* 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. 5 PERFORMANCE OVERVIEW AND FUND EXPENSES AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND(SM) DECEMBER 31, 2008 (UNAUDITED) ASSET ALLOCATION AS OF DECEMBER 31, 2008
% OF NET ASSETS** ------------ Repurchase Agreements ....................... 49.47% Government Securities ....................... 40.83% Short Term Investments ...................... 9.63% Net Other Assets ............................ 0.07%
** Percent of net assets of the American Beacon Master U.S. Government Money Market Portfolio. FUND EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, administrative service fees, and other Fund expenses. The examples below are intended to help you understand the ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2008 through December 31, 2008. ACTUAL EXPENSES The "Actual" lines of the table provide information about actual account values and actual expenses. You may use the information in these lines, 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" for the applicable Class to estimate the expenses you paid on your account during this period. Shareholders of the PlanAhead Class that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The "Hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the Fund's actual return). You may compare the ongoing costs of investing in the Fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Shareholders of the PlanAhead Class that invest in the Fund through an IRA may be subject to a custodial IRA fee of $12 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $12 higher. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs charged by the Fund. Similarly, the expense examples for other funds do not reflect any transaction costs charged by those funds, such as sales charges (loads), redemption fees or exchange fees. Therefore, the "Hypothetical" lines of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If you were subject to any transaction costs during the period, your costs would have been higher.
Beginning Ending Expenses Paid Account Account During Value Value Period* 7/1/08 12/31/08 7/1/08-12/31/08 --------- --------- --------------- CASH MANAGEMENT CLASS Actual.................... $1,000.00 $1,008.63 $0.76 Hypothetical (5% return before expenses).............. $1,000.00 $1,024.38 $0.76 PLANAHEAD CLASS Actual.................... $1,000.00 $1,007.24 $2.98 Hypothetical (5% return before expenses).............. $1,000.00 $1,022.17 $3.00
* Expenses are equal to the Fund's annualized expense ratios for the six-month period of 0.15% and 0.59% for the Cash Management and PlanAhead Classes respectively, multiplied by the average account value over the period, multiplied by the number derived by dividing the number of days in the most recent fiscal half-year (184) by days in the year (366) to reflect the half-year period. 6 AMERICAN BEACON FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Trustees 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 and the American Beacon U.S. Government Money Market Fund (collectively, the "Funds"), as of December 31, 2008, 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, 2008, 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, Texas February 25, 2009 7 AMERICAN BEACON FUNDS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2008 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
U.S. GOVERNMENT MONEY MARKET MONEY MARKET ------------ --------------- ASSETS: Investment in Portfolio, at value ........................ $ 114,484 $ 19,769 Receivable for fund shares sold .......................... 29 -- Receivable from Manager for expense reimbursement (Note 2) 85 68 Prepaid expenses ......................................... 15 8 ------------ ----------- TOTAL ASSETS .......................................... 114,613 19,845 ------------ ----------- LIABILITIES: Payable for fund shares redeemed ......................... 3 -- Dividends payable ........................................ 8 17 Administrative service and service fees payable (Note 2).. 47 2 Other liabilities ........................................ 85 18 ------------ ----------- TOTAL LIABILITIES ..................................... 143 37 ------------ ----------- NET ASSETS ............................................... $ 114,470 $ 19,808 ============ =========== ANALYSIS OF NET ASSETS: Paid-in-capital ....................................... 114,470 19,808 ------------ ----------- NET ASSETS .................................................. $ 114,470 $ 19,808 ============ =========== SHARES OUTSTANDING (NO PAR VALUE): Cash Management Class .................................... 104,847,002 19,371,675 ============ =========== Institutional Class ...................................... 3,317,148 N/A ============ =========== PlanAhead Class .......................................... 6,306,014 435,924 ============ =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE: Cash Management Class .................................... $ 1 .00 $ 1 .00 ============ =========== Institutional Class ...................................... $ 1 .00 N/A ============ =========== PlanAhead Class .......................................... $ 1 .00 $ 1 .00 ============ ===========
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolios 8 AMERICAN BEACON FUNDS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2008 (IN THOUSANDS)
U.S. GOVERNMENT MONEY MARKET MONEY MARKET ------------ --------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO: Dividend income .................................... $ 6,599 $ 48 Interest income .................................... $64,144 617 Portfolio expenses ................................. (2,566) (32) ------- ---- NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO .. 68,177 633 ------- ---- FUND EXPENSES: Administrative service fees (Note 2): Cash Management Class ........................... 428 19 Institutional Class ............................. 305 -- PlanAhead Class ................................. 82 2 BBH ComSet Class ................................ 1,105 -- Transfer agent fees: Cash Management Class ........................... 21 2 Institutional Class ............................. 20 -- PlanAhead Class ................................. 7 3 BBH ComSet Class ................................ 57 -- Professional fees .................................. 28 8 Registration fees and expenses ..................... 50 41 Service fees - PlanAhead Class (Note 2) ............ 204 5 Prospectus and shareholder reports ................. 18 2 Treasury Guaranty Program Insurance ................ 171 6 Other expenses ..................................... 129 16 ------- ---- TOTAL FUND EXPENSES ............................. 2,625 104 ------- ---- Less waiver and reimbursement of expenses (Note 2) .... (1,281) (83) ------- ---- NET FUND EXPENSES ............................... 1,344 21 ------- ---- NET INVESTMENT INCOME ................................. 66,833 612 ------- ---- REALIZED GAIN ALLOCATED FROM PORTFOLIO: Net realized gain on investments ................... 46 12 ------- ---- NET GAIN ON INVESTMENTS ......................... 46 12 ------- ---- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $66,879 $624 ------- ----
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolios 9 AMERICAN BEACON FUNDS STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 2008 (IN THOUSANDS)
U.S. GOVERNMENT MONEY MARKET MONEY MARKET ---------------------------- ----------------------- Year Ended December 31, Year Ended December 31, ---------------------------- ----------------------- 2008 2007 2008 2007 ------------- ------------ --------- ---------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income ............................. $ 66,833 $ 88,036 $ 612 $ 494 Net realized gain (loss) on investments ........... 46 10 12 -- ------------- ------------ --------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................. 66,879 88,046 624 494 ------------- ------------ --------- --------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Cash Management Class .......................... (16,912) (32,696) (572) (334) Institutional Class ............................ (8,944) (13,567) -- -- PlanAhead Class ................................ (2,162) (6,183) (40) (94) Platinum Class ................................. -- (543) -- (66) BBH ComSet Class ............................... (38,815) (35,047) -- -- Net realized gain on investments: Cash Management Class .......................... (14) (6) (12) -- Institutional Class ............................ (4) (3) -- -- PlanAhead Class ................................ (1) (1) -- -- Platinum Class ................................. -- -- -- -- BBH ComSet Class ............................... (27) -- -- -- ------------- ------------ --------- --------- DISTRIBUTIONS TO SHAREHOLDERS ............... (66,879) (88,046) (624) (494) ------------- ------------ --------- --------- CAPITAL SHARE TRANSACTIONS: Proceeds from sales of shares .................... 12,096,832 11,962,330 138,859 145,717 Reinvestment of dividends and distributions ....... 17,438 44,661 271 157 Cost of shares redeemed ........................... (14,338,576) (10,878,697) (137,383) (137,451) ------------- ------------ --------- --------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............... (2,224,306) 1,128,294 1,747 8,423 ------------- ------------ --------- --------- NET INCREASE (DECREASE) IN NET ASSETS ................ (2,224,306) 1,128,294 1,747 8,423 ------------- ------------ --------- --------- NET ASSETS: Beginning of period ............................... 2,338,776 1,210,482 18,061 9,638 ------------- ------------ --------- --------- END OF PERIOD ..................................... $ 114,470 $ 2,338,776 $ 19,808 $ 18,061 ============= ============ ========= =========
See accompanying notes See accompanying Financial Statements of the American Beacon Master Portfolios 10 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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 (the "Money Market Fund") and American Beacon U.S. Government Money Market (the "Government Fund") Funds (each a "Fund" and collectively, the "Funds"). The BBH Comset Class of the Money Market Fund commenced operations on April 2, 2007 and fully liquidated on December 15, 2008. The Platinum Class of the Funds was fully liquidated effective May 31, 2007. Effective September 12, 2008, American Beacon Advisors, Inc. (the "Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which is indirectly owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P., two private equity firms. Prior to September 12, the Manager was a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. which retained a minority interest in the parent company of Lighthouse Holdings, Inc. 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: (ARROW) INVEST ASSETS IN (ARROW) AMERICAN BEACON MASTER TRUST: ---------------- -------------------------------------- Money Market Fund Money Market Portfolio U.S. Government Money Market Fund U.S. Government Money Market Portfolio
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 (11.9% and 5.0% at December 31, 2008 of the American Beacon Master Trust Money Market and U.S. Government 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. The following is a summary of the significant accounting policies followed by the Funds. Class Disclosure Each Fund has multiple classes of shares designed to meet the needs of different groups of investors. Please note that not all Funds offer all classes. The following table sets forth the differences amongst the classes:
CLASS: OFFERED TO: ------ -------------------------------------------------------- CASH MANAGEMENT CLASS Investors making an initial investment of $10 million for Money Market and $2 million for U.S. Government Money Market, or investors investing through an intermediary INSTITUTIONAL CLASS Investors making an initial investment of $2 million PLANAHEAD CLASS General public and investors investing through an intermediary
Administrative service fees, service fees and distribution fees vary amongst the classes as described more fully in Note 2. 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. 11 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 The Portfolios adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Portfolios' fiscal year. 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. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3- Prices determined using significant unobservable inputs. Unobservable inputs reflect the Portfolio's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. The summary of inputs used to value the Portfolios' investments as of December 31, 2008 is discussed in the Portfolios' Notes to Financial Statements, which are included elsewhere in this report. Redemption in Kind Beginning September 19, 2008, proceeds from redemption requests exceeding $250,000 were made in pro rata payments of cash and in-kind distributions of securities held by the Money Market Portfolio. The Money Market Portfolio, and the Beacon Fund implemented this procedure to prevent redemptions from forcing the sale of securities below their economic value, which would have resulted in a material adverse impact on the Money Market Portfolio and the remaining shareholders. The policy was lifted on December 12, 2008. During this time redemptions by class were as follows (in thousands):
Pro rata One time Total securities cash Distribution and cash distribution ------------ ---------- ------------ Institutional Class..... $90,307 $89,807 $500 Cash Management Class... 18,952 18,452 500 BBH Comset Class........ 23,989 23,885 104
Investment Income and Dividends to Shareholders Each Fund records its share of net investment income (loss) and realized gain (loss) in its corresponding 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. 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. 12 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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 As compensation for providing administrative services to the Funds, the Manager receives an annualized fee of 0.10% of the average daily net assets of each of the Institutional and PlanAhead Classes of the Funds, and 0.07% of the Cash Management Class of the Funds. Distribution Plan The Trust 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. 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 an annual fee of 0.25% based on the daily net assets of the PlanAhead Class. Reimbursement and Waiver of Expenses The Manager contractually agreed to reimburse the following Funds for distribution and other expenses through February 28, 2009 to the extent total annual fund operating expenses exceed the following amounts. The following amounts have been waived through December 31, 2008:
EXPENSE FUND CLASS CAP AMOUNT ---- --------------- ------- -------- Money Market Fund.................... Institutional 0.18% $177,487 Money Market Fund.................... Cash Management 0.15% 295,662 Money Market Fund.................... BBH ComSet* 0.15% 808,104 U.S. Government Money Market Fund.... Cash Management 0.15% 77,808 U.S. Government Money Market Fund.... PlanAhead 0.65% 4,722
* Class closed December 15, 2008. 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 table below excludes amounts previously reimbursed to the Platinum Classes of the Funds. The following waived fees or reimbursed expenses are subject to potential recovery expiring in: 13 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008
U.S. GOVERNMENT MONEY MONEY YEAR MARKET MARKET ---- --------- ---------- 2009..... 260,591 65,678 2010..... 769,055 7,577 2011..... 1,281,253 82,530
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 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 or excise tax provision is required. For FASB Interpretation No. 48, "Accounting for Uncertainties in Income Taxes" ("FIN 48") purposes, there are no unrecognized tax benefits as of December 31, 2008 included in the accompanying financial statements. Each of the tax years in the four year period ended December 31, 2008, remains subject to examination by the Internal Revenue Service. If applicable, the Funds recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statements of Operations. For the year ended December 31, 2008, the Funds recognized $0 in interest and penalties. Dividends are categorized in accordance with 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 for the years ended December 31, 2008 and December 31, 2007 were as follows (in thousands):
MONEY MARKET U.S. GOVERNMENT MONEY MARKET ---------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2008 2007 2008 2007 ------------- ------------ ------------ ------------ DISTRIBUTIONS PAID FROM ORDINARY INCOME:* Cash Management Class............. $16,925 $32,702 $584 $334 Institutional Class............... 8,949 13,570 -- -- PlanAhead Class................... 2,163 6,184 40 94 Platinum Class.................... -- 543 -- 66 BBH ComSet Class.................. 38,842 35,047 -- -- ------- ------- ---- ---- TOTAL DISTRIBUTIONS PAID............. $66,879 $88,046 $624 $494 ======= ======= ==== ====
* For tax purposes short-term capital gains distributions are considered ordinary income distributions. As of December 31, 2008, 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 carry forwards as of December 31, 2008. 14 AMERICAN BEACON FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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, 2008
Cash Management Institutional PlanAhead Class Class Class ---------- ------------- ----------- Money Market Beacon Fund Shares sold ............................ 2,264,926 1,825,044 486,450 Reinvestment of dividends .............. 14,139 2,487 812 Shares redeemed ........................ (2,523,467) (2,274,876) (593,234) ---------- ---------- -------- Net (decrease) in shares outstanding ... (244,402) (447,345) (105,972) ========== ========== ========
BBH ComSet Class ---------- Money Market Beacon Fund Shares sold ............................ 7,520,412 Reinvestment of dividends .............. -- Shares redeemed ........................ (8,946,999) ---------- Net (decrease) in shares outstanding ... (1,426,587) ==========
Cash Management PlanAhead Class Class ---------- --------- U.S. Government Money Market Beacon Fund Shares sold ..................................... 124,678 14,181 Reinvestment of dividends ....................... 264 7 Shares redeemed ................................. (122,002) (15,381) -------- ------- Net increase (decrease) in shares outstanding ... 2,940 (1,193) ======== =======
Year Ended December 31, 2007
Cash Management Institutional PlanAhead Platinum Class Class Class Class ---------- ------------- --------- -------- Money Market Beacon Fund Shares sold ........................... 4,891,367 1,043,210 631,312 14,014 Reinvestment of dividends ............. 28,101 12,166 3,889 502 Shares redeemed ....................... (5,072,125) (1,109,117) (693,440) (48,172) ---------- ---------- -------- ------- Net (decrease) in shares outstanding .. (152,657) (53,741) (58,239) (33,656) ========== ========== ======== =======
BBH ComSet Class ---------- Money Market Beacon Fund Shares sold ...................................... 5,382,427 Reinvestment of dividends ........................ 3 Shares redeemed .................................. (3,955,843) ---------- Net increase in shares outstanding ............... 1,426,587 ==========
Cash Management PlanAhead Platinum Class Class Class ---------- --------- -------- U.S. Government Money Market Beacon Fund Shares sold .................................... 132,887 8,531 4,299 Reinvestment of dividends ...................... 81 14 62 Shares redeemed ................................ (120,104) (8,974) (8,373) -------- ------ ------ Net increase (decrease) in shares outstanding .. 12,864 (429) (4,012) ======== ====== ======
15 AMERICAN BEACON MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Cash Management Class Year Ended December 31, ---------------------------------------------------- 2008 2007 2006 2005 2004 -------- -------- -------- -------- -------- Net asset value, beginning of period ........... $ 1 .00 $ 1 .00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- Income from investment operations: Net investment income(A) .................... 0 .03 0 .05 0.05 0.03 0.01 Net realized gain on investments(B) ......... -- -- -- -- -- -------- -------- -------- -------- -------- Total income from investment operations ........ 0 .03 0 .05 0.05 0.03 0.01 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income ........ (0 .03) (0 .05) (0.05) (0.03) (0.01) Distributions from net realized gains on investments (B)........................... -- -- -- -- -- -------- -------- -------- -------- -------- Total distributions ............................ (0 .03) (0 .05) (0.05) (0.03) (0.01) -------- -------- -------- -------- -------- Net asset value, end of period ................. $ 1 .00 $ 1 .00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total return ................................... 2.71% 5.28% 5.05% 3.19% 1.30% ======== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) .... $104,847 $349,249 $501,905 $200,010 $434,587 Ratios to average net assets (annualized):(A) Expenses, net of waivers ................. 0.15% 0.15% 0.15% 0.15% 0.15% Expenses, before waivers ................. 0.20% 0.19% 0.20% 0.23% 0.23% Net investment income, net of waivers .... 2.77% 5.18% 5.04% 3.08% 1.34% Net investment income, before waivers .... 2.72% 5.14% 4.99% 3.00% 1.26%
---------- (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 corresponding American Beacon Master Portfolio. (B) Amount is less than $0.01 per share. 16 AMERICAN BEACON MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Institutional Class Year Ended December 31, --------------------------------------------- 2008 2007 2006 2005 2004 ------- -------- -------- ------- ------- Net asset value, beginning of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- -------- -------- ------- ------- Income from investment operations: Net investment income(A) ...................... 0.03 0.05 0.05 0.03 0.01 Net realized gain on investments(B) ........... -- -- -- -- -- ------- -------- -------- ------- ------- Total income from investment operations .......... 0.03 0.05 0.05 0.03 0.01 ------- -------- -------- ------- ------- Less distributions: Dividends from net investment income .......... (0.03) (0.05) (0.05) (0.03) (0.01) Distributions from net realized gains on investments(B) ................................ -- -- -- -- -- ------- -------- -------- ------- ------- Total distributions .............................. (0.03) (0.05) (0 .05) (0 .03) (0 .01) ------- -------- -------- ------- ------- Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======== ======== ======= ======= Total return ..................................... 2.68% 5.24% 4.99% 3.06% 1.20% ======= ======== ======== ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ...... $ 3,317 $450,662 $504,403 $36,421 $34,146 Ratios to average net assets (annualized):(A) Expenses, net of waivers ................... 0.17% 0.18% 0.19% 0.28% 0.24% Expenses, before waivers ................... 0.23% 0.22% 0.23% 0.28% 0.24% Net investment income, net of waivers ...... 2.93% 5.13% 5.06% 3.07% 1.05% Net investment income, before waivers ...... 2.87% 5.10% 5.02% 3.07% 1.05%
---------- (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 corresponding American Beacon Master Portfolio. (B) Amount is less than $0.01 per share. 17 AMERICAN BEACON MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
PlanAhead Class Year Ended December 31, --------------------------------------------------- 2008 2007 2006 2005 2004 ------- -------- -------- -------- -------- 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 0.05 0.05 0.03 0.01 Net realized gain on investments(B) ........... -- -- -- -- -- ------ -------- -------- -------- -------- Total income from investment operations .......... 0.02 0.05 0.05 0.03 0.01 ------ -------- -------- -------- -------- Less distributions: Dividends from net investment income .......... (0.02) (0.05) (0.05) (0.03) (0.01) Distributions from net realized gains on investments(B) ............................. -- -- -- -- -- ------ -------- -------- -------- -------- Total distributions .............................. (0.02) (0.05) (0.05) (0.03) (0.01) ------ -------- -------- -------- -------- Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ======== ======== ======== ======== Total return ..................................... 2.35% 4.94% 4.69% 2.82% 0.93% ====== ======== ======== ======== ======== Ratios and supplemental data: Net assets, end of period (in thousands) ...... $6,306 $112,278 $170,518 $236,903 $132,438 Ratios to average net assets (annualized):(A) Expenses, net of waivers ................... 0.48% 0.47% 0.49% 0.51% 0.51% Expenses, before waivers ................... 0.48% 0.47% 0.49% 0.51% 0.51% Net investment income, net of waivers ...... 2.65% 4.85% 4.59% 2.83% 0.94% Net investment income, before waivers ...... 2.65% 4.84% 4.59% 2.83% 0.94%
(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 corresponding American Beacon Master Portfolio. (B) Amount is less than $0.01 per share. 18 AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
Cash Management Class Year Ended December 31, ---------------------------------------------- 2008 2007 2006 2005 2004 ------- ------- ------ ------- ------- 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 0.05 0.05 0.03 0.01 Net realized gain on investments(B) ........... -- -- -- -- -- ------- ------- ------ ------- ------- Total income from investment operations .......... 0.02 0.05 0.05 0.03 0.01 ------- ------- ------ ------- ------- Less distributions: Dividends from net investment income .......... (0.02) (0.05) (0.05) (0.03) (0.01) Distributions from net realized gains on investments (B) ............................ -- -- -- -- -- ------- ------- ------ ------- ------- Total distributions .............................. (0.02) (0.05) (0.05) (0.03) (0.01) ------- ------- ------ ------- ------- Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ====== ======= ======= Total return ..................................... 2.29% 5.13% 4.97% 3.12% 1.22% ======= ======= ====== ======= ======= Ratios and supplemental data: Net assets, end of period (in thousands) ...... $19,372 $16,433 $3,568 $22,518 $28,591 Ratios to average net assets (annualized):(A) Expenses, net of waivers ................... 0.15% 0.15% 0.19% 0.19% 0.19% Expenses, before waivers ................... 0.44% 0.60% 0.64% 0.38% 0.29% Net investment income, net of waivers ...... 2.10% 4.87% 4.60% 2.99% 1.21% Net investment income, before waivers ...... 1.81% 4.42% 4.16% 2.80% 1.11%
(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 corresponding American Beacon Master Portfolio. (B) Amount is less than $0.01 per share. 19 AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET FUND FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
PlanAhead Class Year Ended December 31, ------------------------------------------ 2008 2007 2006 2005 2004 ------ ------ ------ ------ ------ 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 0.05 0.04 0.03 0.00(B) Net realized gain on investments(B) ........... -- -- -- -- -- ------ ------ ------ ------ ------ Total income from investment operations .......... 0.02 0.05 0.04 0.03 0.00 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income .......... (0.02) (0.05) (0.04) (0.03) 0.00(B) Distributions from net realized gains on investments(B) ............................. -- -- -- -- -- ------ ------ ------ ------ ------ Total distributions .............................. (0.02) (0.05) (0.04) (0.03) 0.00 ------ ------ ------ ------ ------ Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== Total return ..................................... 1.90% 4.65% 4.51% 2.71% 0.85% ====== ====== ====== ====== ====== Ratios and supplemental data: Net assets, end of period (in thousands) ...... $ 436 $1,628 $2,058 $1,933 $5,370 Ratios to average net assets (annualized):(A) Expenses, net of waivers ................... 0.61% 0.61% 0.63% 0.58% 0.56% Expenses, before waivers ................... 0.85% 1.20% 1.02% 0.61% 0.57% Net investment income, net of waivers ...... 2.02% 4.56% 4.39% 2.47% 0.68% Net investment income, before waivers ...... 1.79% 3.97% 4.00% 2.44% 0.67%
(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 corresponding American Beacon Master Portfolio. (B) Amount is less than $0.01 per share. 20 AMERICAN BEACON MASTER TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Trustees of American Beacon Master Trust: We have audited the accompanying statements of assets and liabilities of American Beacon Master Trust, comprised of the American Beacon Money Market Portfolio and the American Beacon U.S. Government Money Market Portfolio (collectively, the "Portfolios"), including the schedules of investments, as of December 31, 2008, 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, 2008, 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 as of December 31, 2008, 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, Texas February 25, 2009 21 AMERICAN BEACON MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS December 31, 2008
PAR AMOUNT VALUE ------------ ----------- (DOLLARS IN THOUSANDS) CERTIFICATES OF DEPOSIT AND BANK NOTES - 17.67% Commonwealth Bank of Australia N.Y., 0.90%, Due 2/18/2009 ................... $ 30,000 $ 30,000 DNB NOR Bank ASA N.Y., 0.73%, Due 2/20/2009 ................................. 30,000 30,000 Lloyds TSB Bank N.Y., 1.60%, Due 2/10/2009 .................................. 30,000 30,000 Societe Generale N.Y., 0.85%, Due 3/12/2009 ++ .............................. 50,000 50,000 Svenska Handelsbanken AB N.Y., 1.50%, Due 2/9/2009 .......................... 30,000 30,000 ----------- TOTAL CERTIFICATES OF DEPOSIT AND BANK NOTES ................................ 170,000 ----------- COMMERCIAL PAPER - 38.91% Alpine Securitization Corp., 0.95%, Due 1/28/2009 # ......................... 30,000 29,979 Bank of Nova Scotia N.Y., 0.50%, Due 2/12/2009 .............................. 45,000 44,960 BNP Paribas Finance Inc., 1.25%, Due 2/17/2009 .............................. 30,000 29,951 Danske Corp., 1.49%, Due 2/17/2009 # ........................................ 30,000 29,942 Gemini Securitization Corp. LLC, 1.25%, Due 3/11/2009 # ..................... 30,000 29,928 National Australia Funding (Del) Inc., 1.25%, Due 2/13/2009 # ............... 30,000 29,955 Nordea North America, Inc., 1.10%, Due 3/9/2009 ............................. 30,000 29,938 Surrey Funding Corp., 1.50%, Due 1/12/2009 # ................................ 30,000 29,986 Toyota Motor Credit Corp., 0.55%, Due 1/14/2009 ..................................................... 15,000 14,997 0.95%, Due 1/15/2009 ..................................................... 30,000 29,989 Variable Funding Capital Co. LLC, 1.60%, Due 3/26/2009 # .................... 45,000 44,832 Windmill Funding Corp., 1.20%, Due 3/9/2009 # ............................... 30,000 29,933 ----------- TOTAL COMMERCIAL PAPER ...................................................... 374,390 ----------- TIME DEPOSITS - 4.16% Dexia Credit Local S.A., 0.35%, Due 1/2/2009 ................................ 40,000 40,000 -----------
SHARES ------------ SHORT TERM INVESTMENTS - 9.97% OTHER SHORT-TERM INVESTMENTS - 9.97% Goldman Sachs Financial Square Government Fund .............................. 48,000,000 48,000 JP Morgan U.S. Government Money Market Fund ................................. 48,000,000 48,000 ----------- TOTAL SHORT TERM INVESTMENTS ................................................ 96,000 -----------
PAR AMOUNT ------------ REPURCHASE AGREEMENTS - 29.27% Bank of America, NA, 0.24%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by Mortgage Obligations valued at $51,360, 2/23/2036) ..... $ 48,000 48,000 Barclays Capital, Inc., 0.29%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by Equity Securities valued at $50,400) ................... 48,000 48,000 Credit Suisse Securities (USA) LLC, 0.29%, Due 1/2/2009 (Held at JPMorgan Chase, Collateralized by Equity Securities valued at $49,500) ............ 45,000 45,000 Deutsche Bank Securities, Inc., 0.24%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by Equity Securities valued at $52,800) ........... 48,000 48,000
See accompanying notes 22 AMERICAN BEACON MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS December 31, 2008
PAR AMOUNT VALUE ------------ ----------- (DOLLARS IN THOUSANDS) Goldman Sachs & Co., 0.04%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by U.S. Government Agency Obligations valued at $2,711, 4.0% - 10.5%, 3/1/2010 - 11/1/2036) ...................................... $ 2,658 $ 2,658 JP Morgan Chase & Co., 0.29%, Due 1/2/2009 (Held at JPMorgan Chase, Collateralized by Equity Securities valued at $47,249) ................... 45,000 45,000 Morgan Stanley & Co., 0.39%, Due 1/2/2009 (Held at JPMorgan Chase, Collateralized by Equity Securities valued at $49,500) ................... 45,000 45,000 ----------- TOTAL REPURCHASE AGREEMENTS ................................................. 281,658 ----------- TOTAL INVESTMENTS - 99.98% (COST $962,048) ..................................... $ 962,048 OTHER ASSETS, NET OF LIABILITIES - 0.02% ....................................... 240 ----------- TOTAL NET ASSETS - 100.00% ..................................................... $ 962,288 ===========
Percentages are stated as a percent of net assets. ++ Obligation is subject to an unconditional put back to the issuer with one business day notice. # 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 $224,555 or 23.34% of net assets. The Fund has no right to demand registration of these securities. See accompanying notes 23 AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS December 31, 2008
PAR AMOUNT VALUE ------------ ----------- (DOLLARS IN THOUSANDS) U.S. AGENCY OBLIGATIONS - 40.83% FEDERAL HOME LOAN BANK - 12.67% 4.12%, Due 1/9/2009 ...................................................... $ 25,000 $ 25,001 3.346%, Due 1/28/2009 .................................................... 25,000 25,000 ----------- 50,001 ----------- FEDERAL HOME LOAN MORTGAGE CORPORATION - 18.96% 0.22%, Due 2/13/2009 ..................................................... 6,700 6,698 1.80%, Due 3/3/2009 ...................................................... 10,000 9,970 1.75%, Due 3/6/2009 ...................................................... 5,000 4,984 1.75%, Due 3/16/2009 ..................................................... 10,000 9,964 1.65%, Due 4/1/2009 ...................................................... 10,000 9,959 0.35%, Due 4/14/2009 ..................................................... 13,335 13,322 1.405%, Due 6/2/2009 ..................................................... 5,000 4,970 1.05%, Due 6/24/2009 ..................................................... 10,000 9,949 1.05%, Due 7/10/2009 ..................................................... 5,000 4,972 ----------- 74,788 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 9.20% 1.60%, Due 3/13/2009 ..................................................... 6,500 6,480 1.20%, Due 5/5/2009 ...................................................... 5,000 4,979 1.49%, Due 5/13/2009 ..................................................... 5,000 4,973 1.28%, Due 6/22/2009 ..................................................... 5,000 4,969 0.35%, Due 7/1/2009 ...................................................... 5,000 4,991 1.08%, Due 10/1/2009 ..................................................... 10,000 9,918 ----------- 36,310 ----------- TOTAL U.S. AGENCY OBLIGATIONS ............................................... 161,099 -----------
SHARES ------------ SHORT TERM INVESTMENTS - 9.63% OTHER SHORT-TERM INVESTMENTS - 9.63% Goldman Sachs Financial Square Government Fund .............................. 19,000,000 19,000 JP Morgan U.S. Government Money Market Fund ................................. 19,000,000 19,000 ----------- TOTAL SHORT TERM INVESTMENTS ................................................ 38,000 -----------
PAR AMOUNT ------------ REPURCHASE AGREEMENTS - 49.47% Banc of America Securities LLC, 0.10%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by U.S. Government Agency Obligations valued at $91,800, 5.0%, 1/1/2035) ................................................. $ 90,000 90,000 Barclays Capital, Inc., 0.03%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by U.S. Government Agency Obligations valued at $45,900, 4.0% - 5.5%, 9/1/2023 - 2/1/2038) ........................................ 45,000 45,000 Credit Suisse Securities (USA) LLC, 0.07%, Due 1/2/2009 (Held at JPMorgan Chase, Collateralized by U.S. Government Agency Obligations valued at $51,002, 4.0% - 8.5%, 8/1/2009 - 1/1/2039) ............................... 50,000 50,000
See accompanying notes 24 AMERICAN BEACON U.S. GOVERNMENT MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS December 31, 2008
PAR AMOUNT VALUE ------------ ----------- (DOLLARS IN THOUSANDS) Goldman Sachs & Co., 0.04%, Due 1/2/2009 (Held at Bank of New York Mellon, Collateralized by U.S. Government Agency Obligations valued at $10,425, 4.0% - 11.5%, 12/1/2011 - 11/1/2038) ..................................... $ 10,221 $ 10,221 ----------- TOTAL REPURCHASE AGREEMENTS ................................................. 195,221 ----------- TOTAL INVESTMENTS - 99.93% (COST $394,320) ..................................... $ 394,320 OTHER ASSETS, NET OF LIABILITIES - 0.07% ....................................... 284 ----------- TOTAL NET ASSETS - 100.00% ..................................................... $ 394,604 ===========
Percentages are stated as a percent of net assets. See accompanying notes 25 AMERICAN BEACON MASTER TRUST PORTFOLIOS STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2008 (IN THOUSANDS)
U.S. GOVERNMENT MONEY MARKET MONEY MARKET ------------ --------------- ASSETS: Investment in securities at value (cost - $680,390 and $199,099, respectively) ................................................. $680,390 $199,099 Repurchase agreements (cost - $281,658 and $195,221, respectively) ................................................. 281,658 195,221 Dividends and interest receivable ................................ 432 429 Prepaid expenses ................................................. 160 9 -------- -------- TOTAL ASSETS .................................................. 962,640 394,758 -------- -------- LIABILITIES: Management and investment advisory fees payable (Note 2) ......... 230 33 Other liabilities ................................................ 122 121 -------- -------- TOTAL LIABILITIES ............................................. 352 154 -------- -------- NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ............ $962,288 $394,604 ======== ========
STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2008 (IN THOUSANDS)
U.S. GOVERNMENT MONEY MARKET MONEY MARKET --------------- --------------- INVESTMENT INCOME: Dividend income .................................... $ 31,989 $ 1,475 Interest income .................................... $310,930 $19,060 -------- ------- TOTAL INVESTMENT INCOME ......................... 342,919 20,535 -------- ------- EXPENSES: Management and investment advisory fees (Note 2) ... 11,068 725 Custodian fees ..................................... 383 25 Professional fees .................................. 100 27 Other expenses ..................................... 534 51 -------- ------- TOTAL EXPENSES .................................. 12,085 828 -------- ------- Less reimbursement of fund expense (Note 2) ........ -- (20) -------- ------- NET EXPENSES .................................... 12,085 808 -------- ------- NET INVESTMENT INCOME ................................. 330,834 19,727 -------- ------- REALIZED GAIN ON INVESTMENTS: Net realized gain on investments ................... 197 132 -------- ------- NET GAIN ON INVESTMENTS ......................... 197 132 -------- ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $331,031 $19,859 ======== =======
See accompanying notes 26 AMERICAN BEACON MASTER TRUST PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
U.S. GOVERNMENT MONEY MONEY MARKET MARKET Year Ended December 31, Year Ended December 31, ----------------------------- ------------------------- 2008 2007 2008 2007 ------------- ------------- ----------- ----------- INCREASE IN NET ASSETS: OPERATIONS: Net investment income ................... $ 330,834 $ 824,823 $ 19,727 $ 47,203 Net realized gain on investments ........ 197 127 132 3 ------------- ------------- ----------- ----------- TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... 331,031 824,950 19,859 47,206 ------------- ------------- ----------- ----------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Contributions ........................... 125,022,264 202,886,002 6,267,108 8,639,093 Withdrawals (137,575,006) (203,255,122) (7,274,347) (7,867,711) ------------- ------------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS ...... (12,552,742) (369,120) (1,007,239) 771,382 ------------- ------------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS ... (12,221,711) 455,830 (987,380) 818,588 ------------- ------------- ----------- ----------- NET ASSETS: Beginning of period ..................... 13,183,999 12,728,169 1,381,984 563,396 ------------- ------------- ----------- ----------- END OF PERIOD ........................... $ 962,288 $ 13,183,999 $ 394,604 $ 1,381,984 ============= ============= =========== ===========
FINANCIAL HIGHLIGHTS
Money Market Year Ended December 31, ------------------------------------ 2008 2007 2006 2005 2004 ----- ----- ----- ----- ---- Total return ............................. 2.75% 5.33% 5.09% 3.25% 1.34% Ratios to average net assets (annualized): Expenses .............................. 0.11% 0.11% 0.11% 0.11% 0.11% Net investment income ................. 2.94% 5.19% 5.03% 3.20% 1.30%
U.S. Government Money Market Year Ended December 31, ------------------------------------ 2008 2007 2006 2005 2004 ----- ----- ----- ----- ---- Total return ............................. 2.34% 5.18% 5.04% 3.19% 1.30% Ratios to average net assets (annualized): Expenses .............................. 0.11% 0.11% 0.12% 0.12% 0.11% Net investment income ................. 2.68% 4.98% 4.97% 3.15% 1.30%
See accompanying notes 27 AMERICAN BEACON MASTER TRUST PORTFOLIOS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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. 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 and American Beacon Master U.S. Government 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. Effective September 12, 2008, American Beacon Advisors, Inc. (the "Manager") became a wholly-owned subsidiary of Lighthouse Holdings, Inc., which is indirectly owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, L.P., two private equity firms. Prior to September 12, the Manager was a wholly-owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc. which retained a minority interest in the parent company of Lighthouse Holdings, Inc. The following is a summary of the significant accounting policies followed by the Portfolios. Valuation of Investments 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. The Portfolios adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective with the beginning of the Portfolios' fiscal year. 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. The three levels of the hierarchy under FAS 157 are described below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. Level 3- Prices determined using significant unobservable inputs. Unobservable inputs reflect the Portfolio's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. A summary of the inputs used to value the Portfolios' investments as of December 31, 2008 is as follows (in thousands): 28 AMERICAN BEACON MASTER TRUST PORTFOLIOS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008
Investments in Securities ------------------------------ U.S. Government Valuation Inputs Money Market Money Market ---------------- ------------ --------------- Level 1 - Quoted Prices ........................ $ 96,000 $ 38,000 Level 2 - Other significant observable inputs .. 866,048 356,320 Level 3 - Significant unobservable inputs ...... -- -- -------- -------- Total $962,048 $394,320
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the Investment Company Act of 1940. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. 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. Redemption in Kind Beginning September 19, 2008, proceeds from redemption requests exceeding $250,000 were made in pro rata payments of cash and in-kind distributions of securities held by the Money Market Portfolio. The Money Market Portfolio and feeder funds of the Money Market Portfolio implemented this procedure to prevent redemptions from forcing the sale of securities below their economic value, which would have resulted in a material adverse impact on the Money Market Portfolio and the remaining shareholders. The policy was lifted on December 12, 2008. During this time, beneficial interests of the Portfolio totaling 938,602 (in thousands) were redeemed. 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. For FASB Interpretation No. 48, "Accounting for Uncertainties in Income Taxes" ("FIN 48") purposes, there are no unrecognized tax benefits as of December 31, 2008 included in the accompanying financial statements. Each of the tax years in the four year period ended December 31, 2008, remains subject to examination by the Internal Revenue Service. If applicable, the Portfolios recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in "Other expenses" on the Statements of Operations. For the year ended December 31, 2008, the Portfolios recognized $0 in interest and penalties. 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 29 AMERICAN BEACON MASTER TRUST PORTFOLIOS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 government securities or non-government securities. All collateral is valued at cost, which approximates market value and 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. 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. Certain prior year amounts have been reclassed in order to be consistent with current year presentation. 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 investment advisory and portfolio management services. The Manager serves as the sole investment advisor to the Portfolios. As compensation for performing the duties required under the Management Agreement, the Manager received from each Portfolio 0.10% of its average daily net assets through September 11, 2008. From September 12, 2008 the Manager receives 0.09% of the average daily net asset of each Portfolio. Administrative Services Agreement Beginning September 12, 2008, 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 Portfolios. As compensation for performing the duties required under the Administrative Services Agreement, the Manager receives an annualized fee of 0.01% of the average daily net assets of each Portfolio. Interfund Lending Program Pursuant to an exemptive order by the Securities and Exchange Commission, the Portfolios, along with other registered investment companies having management contracts with the Manager, may participate in an interfund lending program. This program provides an alternative credit facility allowing the Money Market Portfolio to lend money to other participating series managed by the Manager. For the year ended December 31, 2008, the credit facility was not utilized. Reimbursement of Expenses The Manager voluntarily waived a portion of its fee for the U.S. Government Portfolio. Fees totaling $19,659 were waived for the year ended December 31, 2008. 30 AMERICAN BEACON FUNDS PRIVACY POLICY & FEDERAL TAX INFORMATION DECEMBER 31, 2008 (UNAUDITED) 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. FEDERAL TAX INFORMATION We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those in other areas of this report because of differences between tax and financial reporting requirements. The distributions to shareholders during the tax year ended December 31, 2008 include short-term capital gains of $45,566 and $11,938 for the Money Market Fund and U.S. Government Money Market Fund, respectively. 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, 2008. For purposes of preparing your annual federal income tax returns, you should report the amounts reflected on your Form 1099-DIV, Box 1a. Of the ordinary dividends paid to shareholders of the U.S. Government Money Market Fund during the tax year ended December, 2008, 29.4% were derived from U.S. Treasury Obligations. 31 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-three 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* Alan D. Feld** (72) Trustee since 1996 Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present); Director, Clear Channel Communications (1984-2008); Trustee, CenterPoint Properties (1994- 2006); Member, Board of Trustees, Southern Methodist University ; Member, Board of Visitors, M.D. Anderson Hospital; Board of Visitors, Zale/Lipshy Hospital; American Beacon Mileage Funds (1996-Present); American Beacon Master Trust (1996-Present); American Beacon Select Funds (1999-Present) NON-INTERESTED TRUSTEES Term W. Humphrey Bogart (64) Trustee since 2004 Board Member, Baylor University Medical Center Foundation (1992-2004); Consultant, New River Canada Ltd. (mutual fund servicing company) (1998-2003); 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); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) Brenda A. Cline (48) 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) (2001-2006); Director, Christian Church Foundation (1999-2007); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) Eugene J. Duffy (54) Trustee since 2008 Principal and Executive Vice President, Paradigm Asset Management (1994- Present); Director, Sunrise Bank of Atlanta (2008-Present); Chairman, Special Contributions Fund Board of Trustees, National Association for the Advancement of Colored People (2007-Present); Trustee, National Association for the Advancement of Colored People (2000-Present); Board of Visitors, Emory University (2006-Present); Trustee, Atlanta Botanical Garden (2006-Present); Board Member, Willie L. Brown Jr. Institute on Politics and Public Service (2001- Present); Chair, National Association of Securities Professionals (2000-2002); Deputy Chief Administrative Officer, City of Atlanta (1985-1990); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008- Present); American Beacon Select Funds (2008-Present) Thomas M. Dunning (65) Trustee since 2008 Consultant, (2008-Present); Chairman (1998-2008) and Chief Executive Officer (1998-2007), Lockton Dunning Benefits (consulting firm in employee benefits); Director, Oncor Electric Delivery Company LLC (2007-Present); Immediate Past Chairman and Board Member (2003-Present), Dallas Citizens Council; Director, Baylor Health Care System Foundation (2007-Present); Vice Chair, State Fair of Texas (1987-Present); Board Member, Southwestern Medical Foundation (1994- Present); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008-Present); American Beacon Select Funds (2008-Present)
32 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.) Richard A. Massman (65) Trustee since 2004 Senior Vice President and General Counsel, Hunt Chairman since 2008 Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (1994-Present). Chairman (2007- Present) and Director (2005-Present), The Dallas Opera Foundation; Chairman (2006-Present) and Director (2005-Present), Temple Emanu-El Foundation; Trustee, Presbyterian Hospital Foundation (2006-Present); American Beacon Mileage Funds (2004-Present); American Beacon Master Trust (2004-Present); American Beacon Select Funds (2004-Present) R. Gerald Turner (63) 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. (1996-Present); Dallas, Texas 75275 Director, California Federal Preferred Capital Corp. (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Director, First Broadcasting Investment Partners, LLC (2003-2007); Member, Salvation Army of Dallas Board of Directors; Member, Methodist Healthcare Advisory Board; Co- Chair, Knight Commission on Intercollegiate Athletics; American Beacon Mileage Funds (2001-Present); American Beacon Master Trust (2001-Present); American Beacon Select Funds (2001-Present) Paul J. Zucconi,CPA (67) Trustee since 2008 Director, Affirmative Insurance Holdings, Inc. (producer of nonstandard automobile insurance) (2004-present); Director, Titanium Metals Corporation (producer of titanium melted and mill products and sponge) (2002- present); Director, Torchmark Corporation (life and health insurance products) (2002- present); Director, National Kidney Foundation serving North Texas (2003- Present); Director, Dallas Chapter of National Association of Corporate Directors (2004-Present); Partner, KPMG (1976-2001); American Beacon Mileage Funds (2008-Present); American Beacon Master Trust (2008-Present); American Beacon Select Funds (2008-Present) OFFICERS Term One Year William F. Quinn (60) President from Chairman (2006-Present) and CEO (2006-2007), 1987 to 2007 President (1986-2006) and Director (2003-Present), and 2008 to Present American Beacon Advisors, Inc.; Chairman (1989-2003) Executive Vice and Director (1979-1989, 2003-Present), American President from Airlines Federal Credit Union; Director, Crescent 2007 to 2008 Real Estate Equities, Inc.(1994-2007); Director, Trustee from Pritchard, Hubble & Herr, LLC (investment advisor) 1987 to 2008 (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 (2004-2007), Committee for the Investment of Employee Benefits; Director, United Way of Metropolitan Tarrant County (1988-2000, 2004-Present); Trustee, American Beacon Mileage Funds (1995-2008); Trustee, American Beacon Select Funds (1999-2008); Trustee, American Beacon Master Trust (1995-2008). Rosemary K. Behan (49) 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 (48) VP since 2004 Vice President, Director of Sales and Marketing, American Beacon Advisors, Inc. (2004-Present); Regional Vice President, Neuberger Berman, LLC (investment advisor) (1996-2004).
33 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 --------------------- ------------------ ---------------------------------------------------- Wyatt Crumpler (42) VP since 2007 Vice President, Trust Investments, American Beacon Advisors, Inc. (2007- Present); Managing Director of Corporate Accounting (2004-2007), Director of IT Strategy and Finance (2002-2004), American Airlines, Inc. Michael W. Fields (54) VP since 1989 Vice President, Fixed Income Investments, American Beacon Advisors, Inc. (1988-Present). Rebecca L. Harris (42) Treasurer since Vice President, Finance, American Beacon Advisors, 1995 Inc. (1995-Present). Christina E. Sears (37) 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
* 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, provided, however, that the Board may determine to grant one or more annual exemptions to this requirement. ** Mr. Feld is deemed to be an "interested person" of the Trust, as defined by the 1940 Act. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to the Manager and one or more of the Trust's sub-advisors. 34 RESULTS OF SHAREHOLDER MEETING (UNAUDITED) A special meeting of shareholders of each of the portfolios of the American Beacon Funds (the "Beacon Trust"), the American Beacon Select Funds (the "Select Trust"), and the American Beacon Mileage Funds (the "Mileage Trust") was held on August 22, 2008. The shareholders of the Money Market and the U.S. Government Money Market Funds (the "Funds") approved a new investment management agreement between American Beacon Advisors, Inc. and the Funds. This proposal required a majority of shareholders of each Fund to achieve a quorum. The following are the results of the shareholder votes for this proposal:
FUND FOR AGAINST ABSTAIN NON-VOTING ---- ----------------- ------------- ------------- --------------- Money Market Fund 1,476,635,057.525 3,700.000 3,828,338.210 759,108,024.320 U.S. Govt. Money Market Fund 30,926,226.210 -0- -0- -0- Money Market Select fund 4,647,553,318.330 -0- 301,904.000 990,879,183.230 U.S. Govt. Select Fund 376,578,304.880 86,995.210 -0- -0- Money Market Mileage Fund 31,003,631.310 6,775,050.300 456,806.870 -0-
The shareholders of the Beacon Trust, Select Trust, and Mileage Trust (collectively, the "Trusts") also approved the re-election of five of the current Trustees to the Board of the Trusts and the election of three additional Trustees to the Board. This proposal required a majority of the shareholders of the Trusts to vote to achieve a quorum. The following are the results of the election of each Trustee:
BEACON TRUST SELECT TRUST MILEAGE TRUST ----------------- ---------------- ------------- ALAN D. FELD Affirmative ......... 12,634,553,751.62 5,579,522,662.80 30,648,100.70 Withhold ............ 519,818,259.90 435,877,042.85 7,587,387.78 W. HUMPHREY BOGART Affirmative ......... 12,999,746,162.82 6,013,838,886.28 30,717,064.11 Withhold ............ 154,625,848.70 1,560,819.37 7,518,424.37 BRENDA A. CLINE Affirmative ......... 13,009,050,779.42 6,015,104,773.65 31,044,304.34 Withhold ............ 145,321,232.10 294,932.00 7,191,184.14 RICHARD A. MASSMAN Affirmative ......... 13,004,756,096.42 5,971,204,773.65 30,618,827.22 Withhold ............ 149,615,915.10 44,194,932.00 7,616,661.26 R. GERALD TURNER Affirmative ......... 13,004,259,224.92 6,015,104,773.65 30,262,464.39 Withhold ............ 150,112,786.60 294,932.00 7,973,024.09 THOMAS M. DUNNING Affirmative ......... 13,003,350,236.48 6,013,838,886.28 30,548,724.44 Withhold ............ 151,021,775.04 1,560,819.37 7,686,764.04 EUGENE J. DUFFY Affirmative ......... 12,985,296,316.39 6,013,838,886.28 30,573,632.38 Withhold ............ 169,075,695.13 1,560,819.37 7,661,856.10 PAUL J. ZUCCONI Affirmative ......... 12,983,378,136.76 6,013,838,886.28 32,956,909.20 Withhold ............ 170,993,874.76 1,560,819.37 5,278,579.28
35 (GRAPHIC) (THIS PAGE INTENTIONALLY LEFT BLANK) 36 (GRAPHIC) (THIS PAGE INTENTIONALLY LEFT BLANK) 37 (AMERICAN BEACON FUNDS(SM) LOGO) DELIVERY OF DOCUMENT 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: Institutional Class American Beacon Funds Call (800) 658-5811 4151 Amon Carter Blvd., MD 2450 PlanAhead Class Fort Worth, TX 76155 Call (800) 388-3344 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 the provided in each semi-annual and annual report, Fund uses to determine how to vote proxies the Fund files a complete schedule of its relating to portfolio securities is available in portfolio holdings with the Securities and the Fund's Statement of Additional Information, is Exchange Commission ("SEC") on Form N-Q as of available free of charge on the Fund's website the first and third fiscal quarters. The Fund's (www.americanbeaconfunds.com) and by calling Forms N-Q are available on the SEC's website at 1-800-967-9009 or by accessing the SEC's website www.sec.gov. The Forms N-Q may also be reviewed at www.sec.gov. The Fund's proxy voting record for and copied at the SEC's Public Reference Room, the most recent year ended June 30 is filed 450 Fifth Street, NW, Washington, DC 20549. annually with the SEC on Form N-PX. The Fund's Information regarding the operation of the Forms N-PX are available on the SEC's website at SEC's Public Reference Room may be obtained by www.sec.gov. The Fund's proxy voting record may calling 1-800-SEC-0330. A complete schedule of also be obtained by calling 1-800-967-9009. 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 FORESIDE FUND SERVICES TRUST SERVICES FIRM Portland, Maine Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP 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, PlanAhead Class, American Beacon Money Market Fund, and American Beacon U.S. Government Money Market Fund are service marks of American Beacon Advisors, Inc. AR 12/08 00065945 42 ITEM 2. CODE OF ETHICS. The Trust did not amend the code of ethics that applies to its principal executive and financial officers (the "Code") nor did it grant any waivers to the provisions of the Code during the period covered by the shareholder report presented in Item 1. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Trust's Board of Trustees has determined that Mr. Paul J. Zucconi, CPA, a member of the Trust's Audit and Compliance Committee, is an "audit committee financial expert" as defined in Form N-CSR. Mr. Paul J. Zucconi is "independent" as defined in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a)
Audit Fees Fiscal Year Ended ---------- ----------------- $280,229 10/31/2007 $85,006 12/31/2007 $294,836 10/31/2008 $88,878 12/31/2008
(b)
Audit-Related Fees Fiscal Year Ended ------------------ ----------------- $8,750 10/31/2007 $6,250* 12/31/2007 (revised) $0 10/31/2008 $0 12/31/2008 * Review of N-1A filings
(c)
Tax Fees Fiscal Year Ended -------- ----------------- $29,199** 10/31/2007 $11,141 12/31/2007 $12,698* 10/31/2008 $6,095 12/31/2008 * For review of 2007 tax returns **2005 and 2006 tax compliance and tax advice related to International Equity Fund reorganization
(d)
All Other Fees Fiscal Year Ended -------------- ----------------- $0 10/31/2007 $0 12/31/2007 $0 10/31/2008 $0 12/31/2008
(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)
Aggregate Non-Audit Fees for Services Rendered to the: ------------------------------------------------------ Adviser's Affiliates Providing Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended ---------- ------- ------------------------------ ----------------- $37,949 $0 N/A 10/31/2007 $11,141 $0 N/A 12/31/2007 $12,698 $0 N/A 10/31/2008 $6,095 $0 N/A 12/31/2008
(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 LLC. A complete schedule of investments for each of these two series follows. MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ADVERTISING AGENCIES - 0.3% DG FastChannel, Inc. (a) 6,800 $ 84,864 Harte-Hanks, Inc. 15,200 94,848 inVentiv Health, Inc. (a) 13,700 158,098 Marchex, Inc. Class B 9,800 57,134 National CineMedia, Inc. 17,370 176,132 R.H. Donnelley Corp. (a)(b) 28,000 10,360 Valassis Communications, Inc. (a) 19,700 26,004 ValueClick, Inc. (a) 36,480 249,523 --------------- 856,963 --------------- AEROSPACE - 1.1% AeroVironment, Inc. (a) 4,400 161,964 Argon ST, Inc. (a) 5,400 101,844 Ascent Solar Technologies, Inc. (a) 3,200 12,032 Curtiss-Wright Corp. 18,468 616,647 Ducommun, Inc. 4,600 76,820 Heico Corp. (b) 9,326 362,129 LMI Aerospace, Inc. (a) 3,600 40,932 Ladish Co., Inc. (a) 6,000 83,100 Moog, Inc. Class A (a) 17,613 644,107 Orbital Sciences Corp. (a) 24,635 481,122 Teledyne Technologies, Inc. (a) 14,634 651,945 TransDigm Group, Inc. (a) 13,700 459,909 --------------- 3,692,551 --------------- AGRICULTURE, FISHING & AgFeed Industries, Inc. (a) 10,100 16,261 RANCHING - 0.1% Alico, Inc. 1,500 61,485 The Andersons, Inc. 7,700 126,896 Cadiz, Inc. (a) 4,900 61,299 Calavo Growers, Inc. 4,300 49,450 HQ Sustainable Maritime Industries, Inc. (a) 2,800 21,924 --------------- 337,315 --------------- AIR TRANSPORT - 1.1% AAR Corp. (a)(c) 16,368 301,335 AirTran Holdings, Inc. (a)(b) 49,420 219,425 Alaska Air Group, Inc. (a) 15,098 441,616 Allegiant Travel Co. (a) 5,800 281,706 Atlas Air Worldwide Holdings, Inc. (a) 5,600 105,840 Bristow Group, Inc. (a) 10,185 272,856 Hawaiian Holdings, Inc. (a) 18,500 118,030 JetBlue Airways Corp. (a) 72,700 516,170 PHI, Inc. (a) 5,600 78,456 Republic Airways Holdings, Inc. (a) 14,400 153,648 SkyWest, Inc. 24,100 448,260 UAL Corp. 52,800 581,856 US Airways Group, Inc. (a)(b) 48,000 371,040 --------------- 3,890,238 --------------- ALUMINUM - 0.0% Kaiser Aluminum Corp. 6,200 139,624 --------------- AUTO PARTS: AFTER MARKET - 0.1% ATC Technology Corp. (a)(c) 8,743 127,910 Commercial Vehicle Group, Inc. (a) 8,850 8,231
1 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Dorman Products, Inc. (a) 5,300 $ 69,960 Superior Industries International, Inc. (b) 9,799 103,085 --------------- 309,186 --------------- AUTO PARTS: American Axle & Manufacturing Holdings, Inc. 19,000 54,910 ORIGINAL EQUIPMENT - 0.2% Amerigon Inc. (a) 9,200 29,992 ArvinMeritor, Inc. 31,500 89,775 Dana Holding Corp. (a) 40,900 30,266 Fuel Systems Solutions, Inc. (a) 5,100 167,076 Hayes Lemmerz International, Inc. (a) 41,700 18,765 Lear Corp. (a) 20,580 29,018 Quantum Fuel Systems Technologies Worldwide, Inc. (a) 28,600 24,310 Sauer-Danfoss, Inc. 4,473 39,139 Stoneridge, Inc. (a) 6,000 27,360 Tenneco, Inc. (a) 20,500 60,475 Visteon Corp. (a) 53,900 18,865 Wonder Auto Technology, Inc. (a) 6,100 23,912 --------------- 613,863 --------------- AUTO, TRUCKS & PARTS - 0.1% Force Protection, Inc. (a) 29,000 173,420 Modine Manufacturing Co. 13,294 64,742 Spartan Motors, Inc. 13,400 63,382 Wabash National Corp. 12,645 56,903 --------------- 358,447 --------------- BANKS: NEW YORK CITY - 0.1% Signature Bank (a) 14,800 424,612 --------------- BANKS: NON U.S. BANKS - 0.0% Banco Latinoamericano de Exportaciones, SA 'E' 11,300 162,268 --------------- BANKS: 1st Source Corp. 5,684 134,313 OUTSIDE NEW YORK CITY - 7.4% Abington Bancorp, Inc. 10,080 93,240 Amcore Financial, Inc. 9,525 34,480 Ameris Bancorp 6,400 75,840 Ames National Corp. 3,100 82,274 Arrow Financial Corp. 3,800 95,532 BancTrust Financial Group, Inc. 8,100 119,556 Bancfirst Corp. 2,990 158,231 Bank of the Ozarks, Inc. 5,300 157,092 BankFinancial Corp. 8,100 82,539 Banner Corp. 6,013 56,582 Beneficial Mutual Bancorp, Inc. (a) 13,500 151,875 Boston Private Financial Holdings, Inc. 23,233 158,914 Bryn Mawr Bank Corp. 3,000 60,300 CVB Financial Corp. 27,965 332,783 Camden National Corp. 3,200 86,336 Capital City Bank Group, Inc. 4,721 128,600 Capitol Bancorp Ltd. 5,900 46,020 Cardinal Financial Corp. 10,000 56,900 Cascade Bancorp (b) 9,225 62,269 Cathay General Bancorp (b) 20,744 492,670 Centerstate Banks of Florida, Inc. 4,200 71,358
2 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Central Pacific Financial Corp. 12,248 $ 122,970 Chemical Financial Corp. 9,848 274,562 Citizens & Northern Corp. 4,300 84,925 Citizens Banking Corp. 48,787 145,385 City Holding Co. 6,893 239,739 CityBank 5,698 29,630 Clifton Savings Bancorp, Inc. 3,100 36,766 CoBiz Financial, Inc. 8,726 84,991 The Colonial BancGroup, Inc. (b) 84,500 174,915 Columbia Banking System, Inc. 7,441 88,771 Community Bank System, Inc. 13,800 336,582 Community Trust Bancorp, Inc. 6,223 228,695 Corus Bankshares, Inc. (b) 15,504 17,209 East-West Bancorp, Inc. 26,700 426,399 Encore Bancshares, Inc. (a) 2,800 30,800 Enterprise Financial Services Corp. (b) 4,200 64,008 Farmers Capital Bank Corp. 2,700 65,934 Financial Institutions, Inc. 4,500 64,575 First BanCorp, Puerto Rico 29,400 327,516 First Bancorp, Inc. 3,800 75,582 First Bancorp, North Carolina 5,236 96,081 First Busey Corp. (b) 10,514 191,775 First Commonwealth Financial Corp. 35,740 442,461 First Community Bancshares, Inc. 3,794 132,297 First Financial Bancorp 15,487 191,884 First Financial Bankshares, Inc. 8,753 483,253 First Financial Corp. 4,644 190,358 First Merchants Corp. 7,546 167,597 First Midwest Bancorp, Inc. 20,400 407,388 First South Bancorp, Inc. (b) 3,800 47,728 FirstMerit Corp. 34,000 700,060 Fox Chase Bancorp, Inc. (a) 2,500 27,500 Frontier Financial Corp. (b) 19,466 84,872 Glacier Bancorp, Inc. 25,564 486,227 Greene County Bancshares, Inc. 5,450 73,793 Guaranty Bancorp (a) 21,100 42,200 Hancock Holding Co. 10,854 493,423 Hanmi Financial Corp. 17,004 35,028 Harleysville National Corp. 17,636 254,664 Heartland Financial USA, Inc. 4,800 98,832 Heritage Commerce Corp. 5,100 57,324 Home Bancshares, Inc. 5,060 136,367 Independent Bank Corp./MA 6,945 181,681 Integra Bank Corp. 8,574 11,746 International Bancshares Corp. 21,310 465,197 Investors Bancorp, Inc. (a) 18,200 244,426
3 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Lakeland Bancorp, Inc. 7,605 $ 85,632 Lakeland Financial Corp. 5,100 121,482 MB Financial, Inc. 14,383 402,005 MainSource Financial Group, Inc. 7,719 119,645 Midwest Banc Holdings, Inc. 10,380 14,532 NBT Bancorp, Inc. 13,213 369,435 Nara Bancorp, Inc. 9,400 92,402 National Penn Bancshares, Inc. (b) 32,865 476,871 Northfield Bancorp, Inc. 7,000 78,750 Old National Bancorp 27,895 506,573 Old Second Bancorp, Inc. (b) 5,722 66,375 Oriental Financial Group 10,618 64,239 PacWest Bancorp 10,311 277,366 Pacific Capital Bancorp (b) 19,462 328,519 Pacific Continental Corp. 4,700 70,359 Park National Corp. (b) 4,515 323,951 Peapack-Gladstone Financial Corp. 3,400 90,576 Pennsylvania Commerce Bancorp, Inc. (a) 2,600 69,316 Peoples Bancorp, Inc. 4,210 80,537 Pinnacle Financial Partners, Inc. (a) 9,300 277,233 Piper Jaffray Cos. (a) 7,900 314,104 Premierwest Bancorp 9,300 62,217 PrivateBancorp, Inc. 9,096 295,256 Prosperity Bancshares, Inc. 16,500 488,235 Provident Bankshares Corp. 14,024 135,472 Renasant Corp. 8,698 148,127 Republic Bancorp, Inc. Class A 3,454 93,949 S&T Bancorp, Inc. 10,063 357,237 SCBT Financial Corp. 4,263 147,074 SVB Financial Group (a) 12,600 330,498 SY Bancorp, Inc. 5,530 152,075 Sandy Spring Bancorp, Inc. 6,814 148,750 Santander BanCorp 1,203 15,025 Seacoast Banking Corp. of Florida 6,358 41,963 Shore Bancshares, Inc. 4,000 95,960 Sierra Bancorp 3,500 73,500 Simmons First National Corp. Class A 5,700 167,979 Smithtown Bancorp, Inc. 4,100 65,723 The South Financial Group, Inc. 30,100 130,032 Southside Bancshares, Inc. 5,049 118,652 Southwest Bancorp, Inc. 6,000 77,760 State Bancorp, Inc. 5,900 57,466 StellarOne Corp. 9,300 157,170 Sterling Bancshares, Inc. 31,114 189,173 Suffolk Bancorp 4,000 143,720 Sun Bancorp, Inc. (a) 5,728 42,903
4 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Susquehanna Bancshares, Inc. 36,056 $ 573,651 Texas Capital Bancshares, Inc. (a) 11,761 157,127 Tompkins Trustco, Inc. 2,440 141,398 Towne Bank 8,600 213,194 Trico Bancshares 5,778 144,277 TrustCo Bank Corp. NY 31,261 297,292 Trustmark Corp. 20,827 449,655 UCBH Holdings, Inc. 46,600 320,608 UMB Financial Corp. 13,052 641,375 Umpqua Holdings Corp. (b) 25,280 365,802 Union Bankshares Corp. 5,200 128,960 United Bankshares, Inc. 16,000 531,520 United Community Banks, Inc. (b) 16,856 228,900 United Financial Bancorp, Inc. 7,700 116,578 United Security Bancshares (b) 2,828 32,748 Univest Corp. of Pennsylvania 5,050 162,307 Washington Trust Bancorp, Inc. 5,000 98,750 WesBanco, Inc. 10,963 298,303 West Bancorp., Inc. 7,600 93,100 West Coast Bancorp 7,400 48,766 Westamerica Bancorp. 12,183 623,160 Western Alliance Bancorp (a)(b) 8,000 80,720 Wilshire Bancorp, Inc. 8,300 75,364 Wintrust Financial Corp. 10,000 205,700 Yardkin Valley Financial Corp. 5,500 78,375 --------------- 25,475,268 --------------- BEVERAGE: Boston Beer Co., Inc. Class A (a) 3,500 99,400 --------------- BREWERS (WINERIES) - 0.0% BEVERAGE: SOFT DRINKS - 0.2% Coca-Cola Bottling Co. Consolidated 1,687 77,535 Farmer Bros. Co. 2,310 57,611 Green Mountain Coffee Roasters, Inc. (a)(b) 7,300 282,510 National Beverage Corp. (a) 3,308 29,772 Peet's Coffee & Tea, Inc. (a) 5,900 137,175 --------------- 584,603 --------------- BIOTECHNOLOGY RESEARCH & AMAG Pharmaceuticals, Inc. (a)(c) 7,160 256,686 PRODUCTION - 3.6% Acadia Pharmaceuticals, Inc. (a) 13,500 12,150 Accelrys, Inc. (a) 13,400 58,424 Acorda Therapeutics, Inc. (a)(c) 15,600 319,956 Albany Molecular Research, Inc. (a) 9,687 94,351 Alexion Pharmaceuticals, Inc. (a)(c) 32,160 1,163,870 Allos Therapeutics, Inc. (a) 21,900 134,028 Alnylam Pharmaceuticals, Inc. (a)(b) 15,000 370,950 American Oriental Bioengineering, Inc. (a) 26,100 177,219 Amicus Therapeutics, Inc. (a) 2,300 18,354 Arena Pharmaceuticals, Inc. (a) 31,400 130,938 Ariad Pharmaceuticals, Inc. (a) 30,419 25,856
5 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Arqule, Inc. (a) 18,800 $ 79,336 Array Biopharma, Inc. (a) 19,600 79,380 ArthroCare Corp. (a)(b) 11,120 53,042 Biodel, Inc. (a) 5,100 24,582 Caliper Life Sciences, Inc. (a) 23,200 22,504 Celera Corp. (a) 33,000 367,290 Cell Genesys, Inc. (a) 35,324 7,771 Celldex Therapeutics, Inc. (a) 6,200 49,104 Cougar Biotechnology, Inc. (a) 6,200 161,200 Cubist Pharmaceuticals, Inc. (a) 23,667 571,795 Cypress Bioscience, Inc. (a) 16,100 110,124 Cytokinetics, Inc. (a) 11,900 33,915 Cytori Therapeutics, Inc. (a) 8,200 29,602 Discovery Laboratories, Inc. (a) 41,900 46,928 Dyax Corp. (a) 22,900 83,356 Enzon Pharmaceuticals, Inc. (a)(b) 19,200 111,936 Exelixis, Inc. (a)(b) 44,418 222,978 Facet Biotech Corp. (a) 9,980 95,708 Genomic Health, Inc. (a) 5,900 114,932 Geron Corp. (a)(b) 33,129 154,712 Halozyme Therapeutics, Inc. (a) 25,100 140,560 Human Genome Sciences, Inc. (a) 58,100 123,172 Idenix Pharmaceuticals, Inc. (a) 10,300 59,637 Idera Pharmaceuticals, Inc. (a) 8,500 65,280 Immunomedics, Inc. (a) 27,400 46,580 Incyte Corp. (a) 32,624 123,645 Integra LifeSciences Holdings Corp. (a) 7,500 266,775 InterMune, Inc. (a)(b) 13,414 141,920 Kendle International, Inc. (a) 5,500 141,460 Kensey Nash Corp. (a) 3,200 62,112 Lexicon Genetics, Inc. (a) 33,100 46,340 Life Sciences Research, Inc. (a) 3,600 33,840 MannKind Corp. (a)(b) 21,150 72,545 Marshall Edwards, Inc. (a) 6,400 4,480 Martek Biosciences Corp. (a) 13,800 418,278 Maxygen, Inc. (a) 10,801 96,345 Medivation, Inc. (a) 10,700 155,899 Metabolix, Inc. (a)(b) 8,100 103,032 Momenta Pharmaceuticals, Inc. (a) 10,900 126,440 Myriad Genetics, Inc. (a) 18,700 1,239,062 NPS Pharmaceuticals, Inc. (a) 20,200 125,442 Nabi Biopharmaceuticals (a) 21,454 71,871 Nanosphere, Inc. (a) 5,500 26,180 Neurocrine Biosciences, Inc. (a) 16,700 53,440 OSI Pharmaceuticals, Inc. (a) 24,000 937,200 Opko Health, Inc. (a)(b) 19,700 31,914
6 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Orexigen Therapeutics, Inc. (a) 8,300 $ 46,314 Osiris Therapeutics, Inc. (a)(b) 5,700 109,212 PDL BioPharma, Inc. 49,900 308,382 PharmaNet Development Group, Inc. (a) 8,650 7,872 Progenics Pharmaceuticals, Inc. (a) 11,300 116,503 Protalix BioTherapeutics, Inc. (a) 4,560 8,390 RTI Biologics, Inc. (a) 22,200 61,272 Repligen Corp. (a) 12,800 48,384 Rexahn Pharmaceuticals, Inc. (a) 12,400 11,036 Rigel Pharmaceuticals, Inc. (a) 15,570 124,560 Sangamo Biosciences, Inc. (a)(b) 16,200 56,376 Savient Pharmaceuticals, Inc. (a) 23,128 133,911 Seattle Genetics, Inc. (a) 25,000 223,500 Sequenom, Inc. (a) 25,500 505,920 Sucampo Pharmaceuticals, Inc. Class A (a) 4,200 24,150 Synta Pharmaceuticals Corp. (a) 6,900 42,228 Targacept, Inc. (a) 7,500 26,700 VNUS Medical Technologies, Inc. (a) 5,600 90,832 ViroPharma, Inc. (a) 33,100 430,962 XOMA Ltd. (a) 54,500 33,790 ZymoGenetics, Inc. (a) 15,400 46,200 --------------- 12,352,920 --------------- BUILDING MATERIALS - 0.6% Ameron International Corp. 3,900 245,388 LSI Industries, Inc. 7,712 52,981 NCI Building Systems, Inc. (a) 8,368 136,398 Quanex Building Products Corp. 15,310 143,455 Simpson Manufacturing Co., Inc. 15,332 425,616 Texas Industries, Inc. (b) 9,805 338,273 Trex Co., Inc. (a)(b) 6,509 107,138 Watsco, Inc. 9,865 378,816 Zoltek Cos., Inc. (a)(b) 11,800 106,082 --------------- 1,934,147 --------------- BUILDING: CEMENT - 0.0% U.S. Concrete, Inc. (a) 16,200 54,432 --------------- BUILDING: HEATING & Aaon, Inc. 5,750 120,060 PLUMBING - 0.1% Interline Brands, Inc. (a) 13,400 142,442 --------------- 262,502 --------------- BUILDING: MISCELLANEOUS - 0.2% Builders FirstSource, Inc. (a)(b) 6,600 10,098 Comfort Systems USA, Inc. 16,900 180,154 Drew Industries, Inc. (a) 8,100 97,200 Griffon Corp. (a) 18,555 173,118 Orion Marine Group, Inc. (a) 8,900 85,974 --------------- 546,544 --------------- BUILDING: Beacon Roofing Supply, Inc. (a)(b) 18,650 258,862 ROOFING & WALLBOARD - 0.1% China Architectural Engineering, Inc. (a) 7,700 18,942 --------------- 277,804 ---------------
7 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- CABLE TELEVISION SERVICES - 0.1% Charter Communications, Inc. Class A (a) 168,400 $ 13,775 Crown Media Holdings, Inc. Class A (a) 4,498 12,819 Mediacom Communications Corp. Class A (a) 16,300 70,090 TiVo, Inc. (a) 42,994 307,837 --------------- 404,521 --------------- CASINOS & GAMBLING - 0.5% Ameristar Casinos, Inc. 10,500 90,720 Bally Technologies, Inc. (a)(c) 23,000 552,690 Churchill Downs, Inc. 3,932 158,931 Dover Downs Gaming & Entertainment, Inc. 5,805 18,460 Elixir Gaming Technologies, Inc. (a)(b) 38,000 4,940 Isle of Capri Casinos, Inc. (a)(b) 6,475 20,720 Monarch Casino & Resort, Inc. (a) 5,200 60,580 Pinnacle Entertainment, Inc. (a) 24,794 190,418 Riviera Holdings Corp. (a) 4,100 12,300 Shuffle Master, Inc. (a) 20,000 99,200 WMS Industries, Inc. (a) 18,418 495,444 --------------- 1,704,403 --------------- CHEMICALS - 1.3% Aceto Corp. 10,100 101,101 American Vanguard Corp. 7,533 88,136 Arch Chemicals, Inc. (c) 10,256 267,374 Balchem Corp. 7,500 186,825 Cabot Microelectronics Corp. (a) 9,900 258,093 Calgon Carbon Corp. (a) 22,801 350,223 Cambrex Corp. (a) 12,685 58,605 China BAK Battery, Inc. (a) 12,500 20,250 EnerSys (a) 11,700 128,700 Energy Conversion Devices, Inc. (a)(b) 18,964 478,082 Exide Technologies (a) 31,100 164,519 ICO Inc. (a) 11,400 36,024 Innophos Holdings, Inc. 4,500 89,145 Innospec, Inc. 9,700 57,133 LSB Industries, Inc. (a) 7,600 63,232 Landec Corp. (a) 9,300 61,194 Medis Technologies Ltd. (a)(b) 10,641 4,788 NL Industries, Inc. 2,834 37,976 NewMarket Corp. 5,600 195,496 OM Group, Inc. (a) 12,900 272,319 Penford Corp. 3,800 38,456 PolyOne Corp. (a) 38,567 121,486 Polypore International, Inc. (a) 6,600 49,896 Quaker Chemical Corp. 4,700 77,315 Rockwood Holdings, Inc. (a) 17,200 185,760 Schulman A, Inc. 11,506 195,602 ShengdaTech, Inc. (a)(b) 12,300 43,296 Solutia, Inc. (a) 37,700 169,650 Stepan Co. 2,655 124,758
8 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Ultralife Batteries, Inc. (a) 5,400 $ 72,414 Valence Technology, Inc. (a)(b) 20,800 37,856 W.R. Grace & Co. (a) 29,800 177,906 Westlake Chemical Corp. 7,900 128,691 Zep, Inc. 8,880 171,473 --------------- 4,513,774 --------------- COAL - 0.1% International Coal Group, Inc. (a)(b) 52,500 120,750 James River Coal Co. (a) 11,600 177,828 National Coal Corp. (a)(b) 12,200 15,494 Westmoreland Coal Co. (a) 3,900 43,290 --------------- 357,362 --------------- COMMERCIAL INFORMATION Arbitron, Inc. 11,658 154,818 SERVICES - 0.1% HSW International, Inc. (a) 11,600 4,408 infoGROUP, Inc. 12,261 58,117 LECG Corp. (a) 10,600 71,126 LoopNet, Inc. (a) 12,500 85,250 --------------- 373,719 --------------- COMMUNICATIONS & MEDIA - 0.0% Entravision Communications Corp. Class A (a) 24,500 38,220 Knology, Inc. (a) 11,700 60,372 --------------- 98,592 --------------- COMMUNICATIONS 3Com Corp. (a) 166,500 379,620 TECHNOLOGY - 2.5% Acme Packet, Inc. (a) 11,200 58,912 Adtran, Inc. 23,600 351,168 Anaren, Inc. (a) 6,322 75,548 Anixter International, Inc. (a) 12,472 375,657 Aruba Networks, Inc. (a) 21,600 55,080 Atheros Communications, Inc. (a) 25,000 357,750 Avanex Corp. (a) 5,320 5,586 Avocent Corp. (a) 18,850 337,603 Bel Fuse, Inc. 4,859 103,011 BigBand Networks, Inc. (a) 14,200 78,384 Black Box Corp. 7,188 187,751 CPI International, Inc. (a) 3,700 32,042 CSG Systems International, Inc. (a) 14,800 258,556 Cbeyond Communications, Inc. (a) 10,200 162,996 Cogent Communications Group, Inc. (a)(b) 19,700 128,641 Cogo Group, Inc. (a) 11,200 54,432 Comtech Telecommunications Corp. (a) 10,225 468,510 Digi International, Inc. (a) 10,600 85,966 EMS Technologies, Inc. (a) 6,400 165,568 Echelon Corp. (a) 12,213 99,536 Entrust, Inc. (a) 25,200 39,816 Extreme Networks, Inc. (a) 41,100 96,174 Finisar Corp. (a) 163,819 62,251 GeoEye, Inc. (a) 7,700 148,071 Globecomm Systems Inc. (a) 8,300 45,567
9 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Harmonic, Inc. (a) 39,396 $ 221,012 Harris Stratex Networks, Inc. Class A (a) 10,250 52,890 Hughes Communications, Inc. (a) 3,000 47,820 Infinera Corp. (a)(b) 38,300 343,168 InterDigital, Inc. (a) 19,100 525,250 Ixia (a) 17,329 100,162 j2 Global Communications, Inc. (a) 18,300 366,732 Loral Space & Communications Ltd. (a) 4,400 63,932 NETGEAR, Inc. (a) 14,900 170,009 Nextwave Wireless, Inc. (a) 19,900 1,791 Novatel Wireless, Inc. (a) 13,900 64,496 Oplink Communications, Inc. (a) 8,602 73,977 SeaChange International, Inc. (a) 13,200 95,172 Shoretel, Inc. (a) 17,900 80,371 Sonus Networks, Inc. (a) 84,100 132,878 Standard Microsystems Corp. (a) 9,310 152,125 Starent Networks Corp. (a) 12,300 146,739 Switch and Data Facilities Co., Inc. (a) 8,900 65,771 Sycamore Networks, Inc. (a) 78,900 212,241 Syniverse Holdings, Inc. (a) 21,500 256,710 TIBCO Software, Inc. (a) 78,400 406,896 Tekelec (a) 27,300 364,182 Terremark Worldwide, Inc. (a) 21,830 84,919 UTStarcom, Inc. (a) 45,600 84,360 Viasat, Inc. (a) 10,501 252,864 Vonage Holdings Corp. (a)(b) 24,300 16,038 --------------- 8,596,701 --------------- COMPUTER SERVICES SOFTWARE & 3PAR, Inc. (a) 11,200 85,456 SYSTEMS - 5.1% ACI Worldwide, Inc. (a) 14,485 230,311 Actuate Corp. (a) 25,000 74,000 Acxiom Corp. 25,200 204,372 American Reprographics Co. (a) 15,000 103,500 American Software Class A 11,600 54,520 ArcSight, Inc. (a) 1,600 12,816 Ariba, Inc. (a) 35,280 254,369 Art Technology Group, Inc. (a) 53,100 102,483 AsiaInfo Holdings, Inc. (a) 14,400 170,496 Blackbaud, Inc. 18,426 248,751 Blackboard, Inc. (a) 13,000 340,990 Blue Coat Systems, Inc. (a) 14,200 119,280 Bottomline Technologies, Inc. (a) 9,100 64,610 CACI International, Inc. Class A (a)(c) 12,700 572,643 COMSYS IT Partners, Inc. (a) 6,000 13,440 Callidus Software Inc. (a) 13,400 40,066 China Fire & Security Group, Inc. (a) 5,800 39,498 China Information Security Technology, Inc. (a) 9,500 34,200
10 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Chordiant Software, Inc. (a) 12,440 $ 33,090 Ciber, Inc. (a) 22,102 106,311 ComScore, Inc. (a) 7,400 94,350 CommVault Systems, Inc. (a) 18,100 242,721 Compellent Technologies, Inc. (a) 5,800 56,434 Comverge, Inc. (a) 9,600 47,040 Concur Technologies, Inc. (a) 18,100 594,042 Constant Contact, Inc. (a)(b) 8,400 111,300 DealerTrack Holdings, Inc. (a) 17,300 205,697 Delrek, Inc. (a) 4,100 19,024 DemandTec, Inc. (a) 8,100 65,367 Digimarc Corp. (a) 2,657 26,623 Digital River, Inc. (a) 15,600 386,880 DivX, Inc. (a) 11,000 57,530 Double-Take Software, Inc. (a) 7,500 67,275 EPIQ Systems, Inc. (a) 14,617 244,250 Ebix, Inc. (a) 2,600 62,140 Electronics for Imaging, Inc. (a) 21,939 209,737 Ener1, Inc. (a)(b) 15,700 112,255 Epicor Software Corp. (a) 24,500 117,600 Gartner, Inc. Class A (a) 24,579 438,244 Guidance Software, Inc. (a) 3,800 15,504 The Hackett Group, Inc. (a) 17,000 49,640 i2 Technologies, Inc. (a) 6,500 41,535 iGate Corp. (a) 8,000 52,080 Informatica Corp. (a) 37,000 508,010 Integral Systems, Inc. (a) 7,282 87,748 Interactive Intelligence, Inc. (a) 5,700 36,537 Internet Brands, Inc. Class A (a) 9,200 53,544 Internet Capital Group, Inc. (a) 16,700 91,015 Interwoven, Inc. (a) 19,225 242,235 JDA Software Group, Inc. (a) 10,608 139,283 Kenexa Corp. (a) 9,800 78,204 Keynote Systems, Inc. (a) 5,700 43,947 Lawson Software, Inc. (a) 51,100 242,214 Limelight Networks, Inc. (a) 9,200 22,540 MSC.Software Corp. (a) 18,600 124,248 Macrovision Solutions Corp. (a) 34,708 439,056 Magma Design Automation, Inc. (a) 19,200 19,584 Manhattan Associates, Inc. (a) 10,539 166,622 Mantech International Corp. Class A (a) 8,600 466,034 Mentor Graphics Corp. (a) 37,500 193,875 Mercadolibre, Inc. (a)(b) 10,800 177,228 Mercury Computer Systems, Inc. (a) 9,356 59,036 MicroStrategy, Inc. Class A (a) 3,800 141,094 Micros Systems, Inc. (a) 33,996 554,815
11 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Moduslink Global Solutions, Inc. (a) 20,280 $ 58,609 Monotype Imaging Holdings, Inc. (a) 6,200 35,960 Ness Technologies, Inc. (a) 16,200 69,336 NetScout Systems, Inc. (a) 12,200 105,164 NetSuite, Inc. (a) 2,500 21,100 Netezza Corp. (a) 16,300 108,232 Omniture, Inc. (a) 26,202 278,789 OpenTV Corp. (a) 41,200 50,676 Opnet Technologies, Inc. (a) 5,400 53,244 PC-Tel, Inc. 8,600 56,502 PROS Holdings, Inc. (a) 5,300 30,475 Parametric Technology Corp. (a) 48,360 611,754 Pegasystems, Inc. 5,200 64,272 Progress Software Corp. (a) 17,108 329,500 QAD, Inc. 3,400 14,246 Quest Software, Inc. (a) 30,500 383,995 Rackspace Hosting, Inc. (a) 5,700 30,666 RealNetworks, Inc. (a) 37,400 132,022 RightNow Technologies, Inc. (a) 11,500 88,895 SAVVIS, Inc. (a) 15,480 106,657 SPSS, Inc. (a) 7,589 204,599 SRA International, Inc. Class A (a) 17,600 303,600 SYKES Enterprises, Inc. (a) 13,961 266,934 SYNNEX Corp. (a) 7,200 81,576 Sapient Corp. (a) 36,292 161,136 Sigma Designs, Inc. (a)(b) 11,400 108,300 Smith Micro Software, Inc. (a) 12,600 70,056 Solera Holdings, Inc. (a) 21,700 522,970 SonicWALL, Inc. (a) 23,741 94,489 Sourcefire, Inc. (a) 8,700 48,720 Stanley, Inc. (a) 3,600 130,392 SuccessFactors, Inc. (a) 9,400 53,956 SupportSoft, Inc. (a) 19,000 42,370 Sybase, Inc. (a) 33,300 824,841 Synchronoss Technologies, Inc. (a) 9,100 97,006 Syntel, Inc. 5,283 122,143 Taleo Corp. Class A (a) 11,000 86,130 TechTarget, Inc. (a) 5,700 24,624 TeleCommunication Systems, Inc. Class A (a) 14,400 123,696 Tyler Technologies, Inc. (a) 16,200 194,076 Ultimate Software Group, Inc. (a) 10,400 151,840 Unica Corp. (a) 4,600 25,208 VASCO Data Security International, Inc. (a) 11,100 114,663 VeriFone Holdings, Inc. (a) 28,900 141,610 Vignette Corp. (a) 10,580 99,558 Virtusa Corp. (a) 3,600 20,304
12 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Web.Com Group, Inc. (a) 11,400 $ 41,724 Websense, Inc. (a) 19,102 285,957 Wind River Systems, Inc. (a) 29,300 264,579 Zoran Corp. (a) 21,408 146,217 --------------- 17,592,707 --------------- COMPUTER TECHNOLOGY - 0.9% Adaptec, Inc. (a) 49,900 164,670 Advanced Analogic Technologies, Inc. (a) 18,900 57,078 Cray, Inc. (a) 15,300 31,824 Data Domain, Inc. (a)(b) 14,000 263,200 Emulex Corp. (a) 34,300 239,414 FalconStor Software, Inc. (a) 15,809 43,949 Hutchinson Technology, Inc. (a) 10,717 37,295 Imation Corp. 11,700 158,769 Immersion Corp. (a) 13,200 77,748 Intermec, Inc. (a) 25,409 337,432 Isilon Systems, Inc. (a) 11,400 37,506 NCI, Inc. Class A (a) 2,800 84,364 Palm, Inc. (a)(b) 45,688 140,262 Perot Systems Corp. Class A (a) 35,700 488,019 Phoenix Technologies Ltd. (a) 11,400 39,900 Quantum Corp. (a) 84,800 30,528 Rackable Systems, Inc. (a)(b) 13,100 51,614 Radiant Systems, Inc. (a) 11,400 38,418 Radisys Corp. (a) 9,742 53,873 Rimage Corp. (a) 4,600 61,686 Riverbed Technology, Inc. (a) 23,700 269,943 STEC, Inc. (a) 13,200 56,232 Safeguard Scientifics, Inc. (a) 45,100 31,119 Stratasys, Inc. (a) 8,900 95,675 Synaptics, Inc. (a)(b) 14,400 238,464 Trident Microsystems, Inc. (a) 26,900 50,841 --------------- 3,179,823 --------------- CONSTRUCTION - 0.6% Brookfield Homes Corp. 3,851 16,636 EMCOR Group, Inc. (a) 28,472 638,627 Granite Construction, Inc. 13,871 609,353 Great Lakes Dredge & Dock Corp. 16,400 68,060 Perini Corp. (a) 21,100 493,318 Sterling Construction Co., Inc. (a) 5,000 92,700 --------------- 1,918,694 --------------- CONSUMER ELECTRONICS - 0.5% DTS, Inc. (a) 7,600 139,460 EarthLink, Inc. (a) 46,000 310,960 InfoSpace, Inc. 14,200 107,210 Internap Network Services Corp. (a) 20,790 51,975 Midway Games, Inc. (a)(b) 7,774 1,477 NIC, Inc. 16,500 75,900 NetFlix, Inc. (a)(b) 17,000 508,130
13 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ParkerVision, Inc. (a)(b) 9,500 $ 23,465 Protection One, Inc. (a) 1,200 5,736 THQ, Inc. (a) 27,937 117,056 Take-Two Interactive Software, Inc. (a) 32,100 242,676 United Online, Inc. 32,128 195,017 Universal Electronics, Inc. (a) 6,086 98,715 --------------- 1,877,777 --------------- CONSUMER PRODUCTS - 0.5% American Greetings Corp. Class A 19,800 149,886 Blyth, Inc. 10,100 79,184 CSS Industries, Inc. 3,191 56,608 Citi Trends, Inc. (a) 6,100 89,792 Mannatech, Inc. (b) 7,600 18,620 Matthews International Corp. Class A 12,873 472,182 Nautilus, Inc. (a) 9,363 20,692 RC2 Corp. (a) 7,513 80,164 Smith & Wesson Holding Corp. (a) 17,000 38,590 Tupperware Corp. 25,974 589,610 USANA Health Sciences, Inc. (a)(b) 3,000 102,720 --------------- 1,698,048 --------------- CONTAINERS & PACKAGING: Bway Holding Co. (a) 3,500 27,860 METALS & GLASS - 0.2% Mobile Mini, Inc. (a) 14,342 206,812 Silgan Holdings, Inc. 10,400 497,224 --------------- 731,896 --------------- CONTAINERS & PACKAGING: AEP Industries, Inc. (a) 2,500 43,950 PAPER & PLASTIC - 0.1% Graphic Packaging Holding Co. (a) 59,600 67,944 Myers Industries, Inc. 11,652 93,216 --------------- 205,110 --------------- COSMETICS - 0.2% Elizabeth Arden, Inc. (a) 10,293 129,795 Helen of Troy Ltd. (a) 12,500 217,000 Inter Parfums, Inc. 5,850 44,928 Nu Skin Enterprises, Inc. Class A 20,426 213,043 Ulta Salon Cosmetics & Fragrance, Inc. (a) 8,400 69,552 --------------- 674,318 --------------- DIVERSIFIED FINANCIAL BGC Partners, Inc. 12,023 33,183 SERVICES - 0.7% Broadpoint Securities Group, Inc. (a) 9,100 27,027 Cardtronics, Inc. (a) 3,800 4,902 China Direct, Inc. (a) 2,600 3,770 Doral Financial Corp. (a) 2,200 16,500 Duff & Phelps Corp. (a) 4,600 87,952 Euronet Worldwide, Inc. (a) 19,950 231,620 Evercore Partners, Inc. Class A 4,400 54,956 F.N.B. Corp. 36,097 476,480 FCStone Group, Inc. (a) 10,300 45,629 Greenhill & Co., Inc. (b) 7,300 509,321 Huron Consulting Group, Inc. (a) 8,700 498,249 Interactive Brokers Group, Inc. Class A (a) 17,100 305,919
14 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Oritani Financial Corp. (a) 4,900 $ 82,565 --------------- 2,378,073 --------------- DIVERSIFIED MATERIALS & Acuity Brands, Inc. (c) 17,060 595,565 PROCESSING - 1.0% Barnes Group, Inc. 19,714 285,853 Brady Corp. 20,994 502,806 Clarcor, Inc. 20,810 690,476 Hexcel Corp. (a) 39,662 293,102 Koppers Holdings, Inc. 8,600 185,932 Olin Corp. 31,314 566,157 Tredegar Corp. 9,945 180,800 --------------- 3,300,691 --------------- DRUG & GROCERY STORE Arden Group, Inc. Class A 432 54,432 CHAINS - 0.7% Casey's General Stores, Inc. 21,407 487,437 The Great Atlantic & Pacific Tea Co., Inc. (a) 15,127 94,846 Ingles Markets, Inc. Class A 5,164 90,835 Nash Finch Co. 5,377 241,374 Ruddick Corp. 17,369 480,253 Spartan Stores, Inc. 9,300 216,225 Susser Holdings Corp. (a) 3,200 42,528 Village Super Market, Inc. Class A 1,100 63,129 Weis Markets, Inc. 4,600 154,698 Winn-Dixie Stores, Inc. (a) 22,300 359,030 --------------- 2,284,787 --------------- DRUGS & PHARMACEUTICALS - 2.7% Acura Pharmaceuticals, Inc. (a) 3,400 24,956 Adolor Corp. (a) 19,900 33,034 Affymax, Inc. (a) 4,300 42,957 Akorn, Inc. (a) 23,300 53,590 Alexza Pharmaceuticals, Inc. (a) 9,700 30,749 Alkermes, Inc. (a) 40,200 428,130 Ardea Biosciences, Inc. (a) 4,500 53,865 Auxilium Pharmaceuticals, Inc. (a)(b) 17,300 492,012 BMP Sunstone Corp. (a)(b) 9,600 53,472 BioForm Medical, Inc. (a) 9,000 8,190 CV Therapeutics, Inc. (a) 25,700 236,697 Cadence Pharmaceuticals, Inc. (a) 8,400 60,732 Caraco Pharmaceutical Laboratories Ltd. (a) 3,700 21,904 Chattem, Inc. (a)(b) 7,200 515,016 China Sky One Medical, Inc. (a)(b) 3,200 51,168 Columbia Laboratories, Inc. (a) 19,300 24,511 Dendreon Corp. (a)(b) 39,500 180,910 Depomed, Inc. (a) 20,200 33,330 Durect Corp. (a) 31,300 106,107 Emergent Biosolutions, Inc. (a) 5,800 151,438 Enzo Biochem, Inc. (a) 13,295 65,013 GTx, Inc. (a)(b) 7,700 129,668
15 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ImmunoGen, Inc. (a) 18,800 $ 80,652 Indevus Pharmaceuticals, Inc. (a) 28,900 90,746 Inspire Pharmaceuticals, Inc. (a) 17,300 62,280 Isis Pharmaceuticals, Inc. (a)(b) 37,889 537,266 Javelin Pharmaceuticals, Inc. (a) 20,200 25,250 Jazz Pharmaceuticals, Inc. (a)(b) 3,100 5,983 K-V Pharmaceutical Co. Class A (a) 13,100 37,728 Ligand Pharmaceuticals, Inc. Class B (a) 42,800 117,272 MAP Pharmaceuticals, Inc. (a) 2,200 15,356 Medarex, Inc. (a) 53,800 300,204 Medicines Co. (a) 21,727 320,039 Medicis Pharmaceutical Corp. Class A 23,800 330,820 MiddleBrook Pharmaceuticals, Inc. (a)(b) 14,700 22,050 Molecular Insight Pharmaceuticals, Inc. (a) 7,700 33,110 Nektar Therapeutics (a) 39,300 218,508 Novavax, Inc. (a) 21,400 40,446 Noven Pharmaceuticals, Inc. (a) 10,531 115,841 Obagi Medical Products, Inc. (a) 7,300 54,458 Onyx Pharmaceuticals, Inc. (a) 23,320 796,611 Optimer Pharmaceuticals, Inc. (a)(b) 11,000 133,210 Pain Therapeutics, Inc. (a) 14,600 86,432 Par Pharmaceutical Cos., Inc. (a) 14,600 195,786 Pharmasset, Inc. (a) 7,100 93,081 Pozen, Inc. (a) 11,100 55,944 Questcor Pharmaceuticals, Inc. (a) 22,100 205,751 Quidel Corp. (a) 12,000 156,840 Regeneron Pharmaceuticals, Inc. (a) 25,619 470,365 Salix Pharmaceuticals Ltd. (a) 20,300 179,249 Theravance, Inc. (a) 21,800 270,102 United Therapeutics Corp. (a) 9,446 590,847 Valeant Pharmaceuticals International (a)(b) 26,700 611,430 Vivus, Inc. (a) 29,400 156,408 Xenoport, Inc. (a) 10,600 265,848 --------------- 9,473,362 --------------- EDUCATION SERVICES - 0.5% American Public Education, Inc. (a) 4,700 174,793 Capella Education Co. (a) 6,000 352,560 Corinthian Colleges, Inc. (a) 35,800 586,046 Grand Canyon Education, Inc. (a) 3,400 63,852 K12, Inc. (a) 2,300 43,125 Learning Tree International, Inc. (a) 3,700 31,524 Lincoln Educational Services Corp. (a) 900 11,925 The Princeton Review, Inc. (a) 5,500 27,115 Renaissance Learning, Inc. 3,049 27,411 Thinkorswim Group, Inc. (a) 21,540 121,055 Universal Technical Institute, Inc. (a) 9,100 156,247 --------------- 1,595,653 ---------------
16 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ELECTRICAL & ELECTRONICS - 0.4% Benchmark Electronics, Inc. (a) 27,629 $ 352,822 Coleman Cable, Inc. (a) 3,800 17,214 OSI Systems, Inc. (a) 6,500 90,025 Plexus Corp. (a) 16,998 288,116 Power Integrations, Inc. 12,900 256,452 TTM Technologies, Inc. (a) 18,100 94,301 Universal Display Corp. (a) 12,307 116,301 --------------- 1,215,231 --------------- ELECTRICAL EQUIPMENT & A.O. Smith Corp. 8,281 244,455 COMPONENTS - 0.9% AZZ Inc. (a)(c) 5,200 130,520 American Superconductor Corp. (a)(b) 17,700 288,687 Axsys Technologies, Inc. (a) 3,700 202,982 Baldor Electric Co. 19,001 339,168 Beacon Power Corp. (a)(b) 36,500 19,345 CTS Corp. 13,868 76,413 Cohu, Inc. 9,518 115,644 Franklin Electric Co., Inc. 9,460 265,921 Fushi Copperweld, Inc. (a) 6,000 31,620 GrafTech International Ltd. (a) 50,144 417,198 Littelfuse, Inc. (a) 8,960 148,736 MKS Instruments, Inc. (a) 20,600 304,674 Orion Energy Systems, Inc. (a) 2,600 14,066 Powell Industries, Inc. (a) 3,231 93,764 Power-One, Inc. (a) 35,400 42,126 Sonic Solutions, Inc. (a) 9,200 16,192 Taser International, Inc. (a) 26,600 140,448 Technitrol, Inc. 16,861 58,676 Triumph Group, Inc. 6,779 287,836 --------------- 3,238,471 --------------- ELECTRICAL: National Presto Industries, Inc. 1,950 150,150 HOUSEHOLD APPLIANCE - 0.1% Rex Stores Corp. (a) 4,400 35,508 --------------- 185,658 --------------- ELECTRONICS - 0.4% Agilysys, Inc. 9,863 42,312 Avid Technology, Inc. (a) 12,700 138,557 Daktronics, Inc. 13,498 126,341 II-VI, Inc. (a) 10,072 192,274 Kopin Corp. (a) 28,400 57,936 MRV Communications, Inc. (a) 60,666 46,713 Methode Electronics, Inc. 15,680 105,683 Multi-Fineline Electronix, Inc. (a) 3,600 42,084 Newport Corp. (a) 14,835 100,581 Park Electrochemical Corp. 8,449 160,193 Sanmina-SCI Corp. (a) 219,200 103,024 Semtech Corp. (a) 26,100 294,147 Supertex, Inc. (a) 4,767 114,456 --------------- 1,524,301 ---------------
17 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ELECTRONICS: INSTRUMENTS, GAUGES Faro Technologies, Inc. (a) 7,100 $ 119,706 & METERS - 0.1% Measurement Specialties, Inc. (a) 6,000 41,700 OYO Geospace Corp. (a) 1,700 29,699 Zygo Corp. (a) 6,300 43,533 --------------- 234,638 --------------- ELECTRONICS: Accuray, Inc. (a) 14,900 76,884 MEDICAL SYSTEMS - 1.1% Affymetrix, Inc. (a) 29,500 88,205 Analogic Corp. 5,572 152,004 Bruker BioSciences Corp. (a) 20,887 84,383 Cynosure, Inc. Class A (a) 4,300 39,259 Datascope Corp. 5,470 285,753 eResearch Technology, Inc. (a) 18,450 122,324 Greatbatch, Inc. (a) 9,700 256,662 Haemonetics Corp. (a) 10,772 608,618 Luminex Corp. (a) 16,751 357,801 Masimo Corp. (a) 19,300 575,719 Natus Medical, Inc. (a) 11,600 150,220 NxStage Medical, Inc. (a) 9,700 25,899 Quality Systems, Inc. (b) 7,400 322,788 Sirona Dental Systems, Inc. (a) 7,000 73,500 Somanetics Corp. (a) 5,200 85,852 Tomotherapy, Inc. (a) 17,700 42,126 Varian, Inc. (a) 11,935 399,942 Zoll Medical Corp. (a) 8,922 168,537 --------------- 3,916,476 --------------- ELECTRONICS: OTHER - 0.0% ICx Technologies, Inc. (a) 5,700 45,087 ELECTRONICS: SEMI- Actel Corp. (a) 10,816 126,764 CONDUCTORS/COMPONENTS - 1.4% Advanced Battery Technologies, Inc. (a) 17,400 46,284 Amkor Technology, Inc. (a) 45,000 98,100 Anadigics, Inc. (a) 27,100 40,108 Applied Micro Circuits Corp. (a) 27,800 109,254 AuthenTec, Inc. (a) 11,800 19,706 Bookham, Inc. (a) 41,500 18,675 Cavium Networks, Inc. (a)(b) 12,800 134,528 Ceva, Inc. (a) 8,300 58,100 Cirrus Logic, Inc. (a) 27,500 73,700 DSP Group, Inc. (a) 10,083 80,866 Diodes, Inc. (a) 12,512 75,823 Entropic Communications, Inc. (a) 700 350 Exar Corp. (a) 15,427 102,898 Formfactor, Inc. (a) 20,200 294,920 Hittite Microwave Corp. (a) 8,300 244,518 IPG Photonics Corp. (a) 7,900 104,122 IXYS Corp. 9,993 82,542 Lattice Semiconductor Corp. (a) 49,200 74,292 MIPS Technologies, Inc. (a) 18,200 20,202
18 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Micrel, Inc. 20,500 $ 149,855 Microsemi Corp. (a) 33,190 419,522 Microtune, Inc. (a) 21,100 43,044 Monolithic Power Systems, Inc. (a) 11,100 139,971 NVE Corp. (a) 2,000 52,260 Netlogic Microsystems, Inc. (a) 7,300 160,673 Omnivision Technologies, Inc. (a) 21,500 112,875 PLX Technology, Inc. (a) 11,600 19,952 PMC-Sierra, Inc. (a) 91,600 445,176 Pericom Semiconductor Corp. (a) 9,093 49,830 RF Micro Devices, Inc. (a) 110,384 86,100 Rubicon Technology, Inc. (a) 5,500 23,430 SiRF Technology Holdings, Inc. (a) 25,100 32,128 Silicon Image, Inc. (a) 31,176 130,939 Silicon Storage Technology, Inc. (a) 34,458 78,909 Skyworks Solutions, Inc. (a) 68,633 380,227 Spansion LLC Class A (a) 52,600 9,957 Techwell, Inc. (a) 6,300 40,950 Tessera Technologies, Inc. (a) 20,000 237,600 Transmeta Corp. (a) 5,200 94,640 TriQuint Semiconductor, Inc. (a) 59,436 204,460 Volterra Semiconductor Corp. (a) 10,800 77,220 --------------- 4,795,470 --------------- ELECTRONICS: TECHNOLOGY - 0.5% 3D Systems Corp. (a) 7,400 58,756 American Science & Engineering, Inc. 3,800 281,048 Checkpoint Systems, Inc. (a) 16,423 161,602 China Security & Surveillance Technology, Inc. (a)(b) 11,100 49,173 Cogent, Inc. (a) 17,400 236,118 Coherent, Inc. (a) 9,800 210,308 Cubic Corp. 6,452 175,494 Gerber Scientific, Inc. (a) 9,800 50,078 Herley Industries, Inc. (a) 5,600 68,768 ION Geophysical Corp. (a) 37,946 130,155 Kemet Corp. (a) 34,600 9,342 LaBarge, Inc. (a) 5,000 71,750 Maxwell Technologies, Inc. (a) 7,500 38,025 ScanSource, Inc. (a) 10,900 210,043 Smart Modular Technologies WWH, Inc. (a) 18,200 28,028 Super Micro Computer, Inc. (a) 9,100 57,603 --------------- 1,836,291 --------------- ENERGY EQUIPMENT - 0.0% Capstone Turbine Corp. (a) 62,600 52,584 GT Solar International, Inc. (a) 10,900 31,501 Plug Power, Inc. (a) 33,000 33,660 PowerSecure International, Inc. (a) 7,000 23,030 --------------- 140,775 ---------------
19 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- ENERGY MISCELLANEOUS - 0.7% Akeena Solar, Inc. (a)(b) 8,600 $ 14,792 Alon USA Energy, Inc. (b) 4,500 41,175 Approach Resources, Inc. (a) 3,500 25,585 Aventine Renewable Energy Holdings, Inc. (a) 12,140 7,891 CVR Energy, Inc. (a) 9,500 38,000 Clean Energy Fuels Corp. (a)(b) 10,700 64,628 Concho Resources, Inc. (a) 22,700 518,014 Crosstex Energy, Inc. (b) 16,600 64,740 Dawson Geophysical Co. (a) 3,400 60,554 EnerNOC, Inc. (a) 4,400 32,736 Evergreen Energy, Inc. (a)(b) 36,900 10,701 Evergreen Solar, Inc. (a)(b) 60,500 192,995 FuelCell Energy, Inc. (a)(b) 29,426 114,173 GeoMet, Inc. (a) 6,300 10,836 GreenHunter Energy, Inc. (a)(b) 1,800 8,856 Matrix Service Co. (a) 10,700 82,069 Ormat Technologies, Inc. 7,400 235,838 Pacific Ethanol, Inc. (a) 17,300 7,612 Penn Virginia Corp. 17,416 452,468 Rentech, Inc. (a)(b) 68,400 46,512 Teekay Tankers Ltd. Class A 5,900 74,930 US Geothermal, Inc. (a) 25,500 21,165 USEC, Inc. (a)(b) 45,959 206,356 --------------- 2,332,626 --------------- ENGINEERING & CONTRACTING Clean Harbors, Inc. (a) 8,300 526,552 SERVICES - 0.4% Dycom Industries, Inc. (a) 16,902 138,934 ENGlobal Corp. (a) 11,200 36,400 Furmamite Corp. (a) 15,000 80,850 Hill International, Inc. (a) 9,700 68,288 Integrated Electrical Services, Inc. (a) 3,200 28,032 Layne Christensen Co. (a) 8,100 194,481 Michael Baker Corp. (a) 3,100 114,421 VSE Corp. 1,700 66,691 --------------- 1,254,649 --------------- ENTERTAINMENT - 0.2% Cinemark Holdings, Inc. 12,200 90,646 Dover Motorsports, Inc. 8,800 11,440 Gaylord Entertainment Co. (a)(b) 16,855 182,708 Live Nation, Inc. (a) 31,300 179,662 Speedway Motorsports, Inc. 5,255 84,658 --------------- 549,114 --------------- FINANCE COMPANIES - 0.1% Credit Acceptance Corp. (a) 2,169 29,715 MVC Capital, Inc. 10,000 109,700 NewStar Financial, Inc. (a) 8,500 33,915 Riskmetrics Group, Inc. (a) 8,900 132,521 World Acceptance Corp. (a) 7,000 138,320 --------------- 444,171 ---------------
20 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- FINANCE: SMALL LOAN - 0.1% Advance America, Cash Advance Centers, Inc. 18,300 $ 34,587 Dollar Financial Corp. (a) 10,400 107,120 Encore Capital Group, Inc. (a) 5,700 41,040 The First Marblehead Corp. (a) 28,500 36,765 Nelnet, Inc. Class A 6,700 96,011 --------------- 315,523 --------------- FINANCIAL DATA PROCESSING Advent Software, Inc. (a)(b) 7,100 141,787 SERVICES & SYSTEMS - 0.7% Cass Information Systems, Inc. 2,515 76,607 CompuCredit Corp. (a)(b) 7,189 39,755 CyberSource Corp. (a) 29,064 348,477 Deluxe Corp. 21,300 318,648 ExlService Holdings, Inc. (a) 5,900 50,563 Fair Isaac Corp. 20,100 338,886 Heartland Payment Systems, Inc. (b) 10,300 180,250 Hypercom Corp. (a) 22,100 23,868 Jack Henry & Associates, Inc. 31,300 607,533 Online Resources Corp. (a) 11,900 56,406 TNS, Inc. (a) 10,100 94,839 TradeStation Group, Inc. (a) 13,300 85,785 Wright Express Corp. (a) 16,000 201,600 --------------- 2,565,004 --------------- FINANCIAL INFORMATION Bankrate, Inc. (a)(b) 5,400 205,200 SERVICES - 0.2% Interactive Data Corp. 15,100 372,366 Move, Inc. (a) 52,900 84,640 S1 Corp. (a) 20,422 161,130 TheStreet.com, Inc. 7,500 21,750 Value Line, Inc. 300 10,356 --------------- 855,442 --------------- FINANCIAL MISCELLANEOUS - 0.7% AMBAC Financial Group, Inc. (b) 121,500 157,950 Advanta Corp. Class B 15,850 33,126 Asset Acceptance Capital Corp. (a)(b) 6,200 31,682 Cash America International, Inc. 12,319 336,925 Federal Agricultural Mortgage Corp. Class B 4,500 15,750 Financial Federal Corp. 10,800 251,316 First Cash Financial Services, Inc. (a) 8,400 160,104 Global Cash Access, Inc. (a) 16,600 36,852 Harris & Harris Group, Inc. (a) 9,600 37,920 Medallion Financial Corp. 6,100 46,543 Portfolio Recovery Associates, Inc. (a)(b) 6,400 216,576 Radian Group, Inc. 34,000 125,120 Sanders Morris Harris Group, Inc. 6,700 40,133 Sterling Bancorp 7,516 105,449 Stewart Information Services Corp. 7,222 169,645 Stifel Financial Corp. (a) 10,749 492,842 WSFS Financial Corp. 2,591 124,342 Waterstone Financial, Inc. (a) 2,700 9,045 --------------- 2,391,320 ---------------
21 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- FOODS - 1.9% American Dairy, Inc. (a) 2,300 $ 34,592 B&G Foods, Inc. Class A 8,300 44,820 Cal-Maine Foods, Inc. (b) 5,500 157,850 Chiquita Brands International, Inc. (a) 18,300 270,474 Diamond Foods, Inc. 6,800 137,020 Flowers Foods, Inc. 32,476 791,115 Fresh Del Monte Produce, Inc. (a) 17,300 387,866 Hain Celestial Group, Inc. (a) 17,057 325,618 J&J Snack Foods Corp. 5,800 208,104 Lance, Inc. 11,400 261,516 Lifeway Foods, Inc. (a) 1,900 17,062 M&F Worldwide Corp. (a) 5,100 78,795 Maui Land & Pineapple Co., Inc. (a) 1,963 26,363 Omega Protein Corp. (a) 8,000 32,080 Ralcorp Holdings, Inc. (a) 23,595 1,377,948 Sanderson Farms, Inc. 8,550 295,488 Schiff Nutrition International, Inc. (a) 5,700 34,029 Seaboard Corp. 142 169,548 Sensient Technologies Corp. 20,157 481,349 Smart Balance, Inc. (a) 26,600 180,880 Synutra International, Inc. (a) 4,300 47,386 Tootsie Roll Industries, Inc. (b) 9,835 251,874 TreeHouse Foods, Inc. (a) 13,200 359,568 United Natural Foods, Inc. (a) 18,080 322,186 Zhongpin, Inc. (a) 7,600 91,200 --------------- 6,384,731 --------------- FOREST PRODUCTS - 0.1% Deltic Timber Corp. 4,309 197,137 Louisiana-Pacific Corp. 42,700 66,612 Universal Forest Products, Inc. 7,034 189,285 --------------- 453,034 --------------- FORMS & BULK PRINTING Ennis, Inc. 10,600 128,366 SERVICES - 0.1% Innerworkings, Inc. (a)(b) 13,100 85,805 The Standard Register Co. 6,145 54,875 --------------- 269,046 --------------- FUNERAL PARLORS & CEMETERIES - 0.0% Stewart Enterprises, Inc. Class A 34,524 103,917 --------------- GLASS - 0.0% Apogee Enterprises, Inc. 12,300 127,428 --------------- GOLD - 0.3% Allied Nevada Gold Corp. (a) 18,600 94,116 Coeur d'Alene Mines Corp. (a)(b) 227,500 200,200 Royal Gold, Inc. 12,300 605,283 --------------- 899,599 --------------- HEALTH CARE FACILITIES - 0.5% Assisted Living Concepts, Inc. (a) 22,700 94,205 Capital Senior Living Corp. (a) 9,200 27,416 Emeritus Corp. (a) 8,500 85,255 The Ensign Group, Inc. 3,400 56,916 Five Star Quality Care, Inc. (a) 16,300 24,939
22 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- IPC The Hospitalist Co., Inc. (a) 2,000 $ 33,660 Kindred Healthcare, Inc. (a) 11,590 150,902 MedCath Corp. (a) 6,600 68,904 National Healthcare Corp. 3,500 177,240 Psychiatric Solutions, Inc. (a) 23,300 648,905 Res-Care, Inc. (a) 10,200 153,204 Skilled Healthcare Group, Inc. Class A (a) 7,200 60,768 Sun Healthcare Group, Inc. (a) 18,100 160,185 Sunrise Senior Living, Inc. (a) 20,574 34,564 --------------- 1,777,063 --------------- HEALTH CARE MANAGEMENT AMERIGROUP Corp. (a) 22,500 664,200 SERVICES - 1.3% Amsurg Corp. (a) 13,000 303,420 athenahealth, Inc. (a) 8,700 327,294 Catalyst Health Solutions, Inc. (a) 13,800 336,030 Centene Corp. (a) 18,000 354,780 Computer Programs & Systems, Inc. 4,000 107,200 Corvel Corp. (a) 3,285 72,204 Eclipsys Corp. (a) 21,931 311,201 HMS Holdings Corp. (a) 10,500 330,960 HealthSpring, Inc. (a) 20,800 415,376 Inter Allscripts - Misys Healthcare Solutions, Inc. 59,941 594,615 Molina Healthcare, Inc. (a) 6,000 105,660 National Research Corp. 600 17,376 Omnicell, Inc. (a) 13,600 166,056 Phase Forward, Inc. (a) 17,700 221,604 Triple-S Management Corp. (a) 5,500 63,250 Vital Images, Inc. (a) 7,100 98,761 --------------- 4,489,987 --------------- HEALTH CARE SERVICES - 0.8% Alliance Imaging, Inc. (a) 10,500 83,685 Amedisys, Inc. (a) 11,166 461,602 Bio-Reference Labs, Inc. (a) 4,900 128,527 CardioNet, Inc. (a) 1,900 46,835 Emergency Medical Services Corp. (a) 4,000 146,440 Gentiva Health Services, Inc. (a) 10,712 313,433 HealthSouth Corp. (a) 36,800 403,328 Healthcare Services Group, Inc. 17,737 282,550 Healthways, Inc. (a) 14,900 171,052 LHC Group, Inc. (a) 6,200 223,200 Nighthawk Radiology Holdings, Inc. (a) 10,300 50,058 Odyssey HealthCare, Inc. (a) 13,900 128,575 PharMerica Corp. (a) 12,869 201,657 Virtual Radiologic Corp. (a) 3,100 26,288 --------------- 2,667,230 --------------- HOMEBUILDING - 0.2% Beazer Homes USA, Inc. (a)(b) 17,000 26,860 Hovnanian Enterprises, Inc. Class A (a)(b) 19,800 34,056 M/I Homes, Inc. 6,100 64,294
23 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Meritage Homes Corp. (a) 13,100 $ 159,427 Ryland Group, Inc. 17,900 316,293 Standard-Pacific Corp. (a) 46,600 82,948 --------------- 683,878 --------------- HOTEL/MOTEL - 0.1% Lodgian, Inc. (a) 6,700 14,271 Marcus Corp. 8,379 135,991 Morgans Hotel Group Co. (a) 11,100 51,726 --------------- 201,988 --------------- HOUSEHOLD FURNISHINGS - 0.2% American Woodmark Corp. 4,400 80,212 Ethan Allen Interiors, Inc. 10,400 149,448 Furniture Brands International, Inc. 17,600 38,896 Haverty Furniture Cos., Inc. 7,736 72,177 hhgregg, Inc. (a) 4,200 36,456 Hooker Furniture Corp. 4,100 31,406 La-Z-Boy, Inc. 21,200 46,004 Libbey, Inc. 6,700 8,375 Sealy Corp. (b) 17,900 44,929 Tempur-Pedic International, Inc. (b) 31,600 224,044 --------------- 731,947 --------------- IDENTIFICATION CONTROL & FILTER Advanced Energy Industries, Inc. (a) 13,912 138,424 DEVICES - 0.7% Asyst Technologies, Inc. (a) 20,541 5,135 Badger Meter, Inc. 6,200 179,924 ESCO Technologies, Inc. (a) 10,932 447,665 Energy Recovery, Inc. (a) 5,000 37,900 Flanders Corp. (a) 6,600 30,954 The Gorman-Rupp Co. 5,897 183,515 L-1 Identity Solutions, Inc. (a) 28,628 192,953 Mine Safety Appliances Co. 12,826 306,670 PMFG, Inc. (a) 5,400 51,624 Robbins & Myers, Inc. 11,624 187,960 Sun Hydraulics, Inc. 4,950 93,258 Veeco Instruments, Inc. (a) 13,727 87,029 Vicor Corp. 7,996 52,854 Watts Water Technologies, Inc. Class A 12,236 305,533 --------------- 2,301,398 --------------- INDUSTRIAL PRODUCTS - 0.0% A.M. Castle & Co. 6,800 73,644 TAL International Group, Inc. 6,000 84,600 --------------- 158,244 --------------- INSURANCE: LIFE - 0.4% American Equity Investment Life Holding Co. 22,600 158,200 Citizens, Inc. (a) 15,400 149,380 Delphi Financial Group, Inc. Class A 17,105 315,416 Kansas City Life Insurance Co. 1,642 71,181 Life Partners Holdings, Inc. (b) 2,500 109,100 National Western Life Insurance Co. Class A 933 157,836 The Phoenix Cos., Inc. 47,300 154,671 Presidential Life Corp. 8,993 88,941
24 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Universal American Financial Corp. (a) 16,200 $ 142,884 --------------- 1,347,609 --------------- INSURANCE: MULTI-LINE - 1.1% Assured Guaranty Ltd. 23,000 262,200 CNA Surety Corp. (a) 6,386 122,611 Crawford & Co. Class B (a) 10,009 145,531 EMC Insurance Group, Inc. 2,200 56,430 eHealth, Inc. (a) 10,600 140,768 FBL Financial Group, Inc. Class A 5,325 82,271 Flagstone Reinsurance Holdings Ltd. 12,400 121,148 Horace Mann Educators Corp. 16,768 154,098 Independence Holding Co. 1,440 5,198 Maiden Holdings Ltd. 20,300 63,539 Max Capital Group Ltd. 23,300 412,410 Meadowbrook Insurance Group, Inc. 22,752 146,523 Montpelier Re Holdings Ltd. 39,100 656,489 Pico Holdings, Inc. (a) 6,697 178,006 Platinum Underwriters Holdings Ltd. 20,600 743,248 Primus Guaranty Ltd. (a)(b) 12,700 14,478 Zenith National Insurance Corp. 15,355 484,757 --------------- 3,789,705 --------------- INSURANCE: AmTrust Financial Services, Inc. 6,500 75,400 PROPERTY-CASUALTY - 2.5% American Physicians Capital, Inc. 3,556 171,044 American Safety Insurance Holdings Ltd. (a) 4,400 58,124 Amerisafe, Inc. (a) 8,000 164,240 Argo Group International Holdings Ltd. (a) 12,779 433,464 Aspen Insurance Holdings Ltd. 35,800 868,150 Baldwin & Lyons, Inc. Class B 3,432 62,428 CastlePoint Holdings, Ltd. 13,800 187,128 Donegal Group, Inc. Class A 4,544 76,203 Employers Holdings, Inc. 20,380 336,270 Enstar Group Ltd. (a) 2,200 130,108 FPIC Insurance Group, Inc. (a)(b) 3,600 157,608 First Acceptance Corp. (a) 3,777 10,953 First Mercury Financial Corp. (a) 6,300 89,838 Greenlight Capital Re Ltd. (a) 11,900 154,581 Hallmark Financial Services, Inc. (a) 2,400 21,048 Harleysville Group, Inc. 5,362 186,222 IPC Holdings, Ltd. 19,800 592,020 Infinity Property & Casualty Corp. 6,200 289,726 NYMAGIC, Inc. 1,800 34,290 National Interstate Corp. 2,500 44,675 Navigators Group, Inc. (a) 5,600 307,496 Odyssey Re Holdings Corp. 9,400 487,014 PMA Capital Corp. Class A (a) 13,106 92,790 The PMI Group, Inc. 34,900 68,055 ProAssurance Corp. (a) 13,523 713,744
25 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- RLI Corp. 7,854 $ 480,351 Safety Insurance Group, Inc. 6,700 255,002 SeaBright Insurance Holdings, Inc. (a) 8,800 103,312 Selective Insurance Group, Inc. 22,008 504,643 State Auto Financial Corp. 5,612 168,697 Tower Group, Inc. 8,300 234,143 United America Indemnity, Ltd. (a) 8,300 106,323 United Fire & Casualty Co. 9,400 292,058 Validus Holdings Ltd. 26,600 695,856 --------------- 8,653,004 --------------- INVESTMENT MANAGEMENT Ampal-American Israel Corp. Class A (a) 6,000 3,480 COMPANIES - 0.5% Apollo Investment Corp. (b) 58,946 548,787 Ares Capital Corp. 40,172 254,289 Calamos Asset Management, Inc. Class A 8,300 61,420 Capital Southwest Corp. 1,200 129,792 Cohen & Steers, Inc. (b) 6,900 75,831 Epoch Holding Corp. 4,800 36,432 FBR Capital Markets Corp. (a) 11,300 54,918 Fifth Street Finance Corp. 3,000 22,650 GAMCO Investors, Inc. Class A 3,296 90,047 Kohlberg Capital Corp. 7,100 25,844 MCG Capital Corp. 31,200 22,152 NGP Capital Resources Co. 8,623 72,175 National Financial Partners Corp. 14,000 42,560 Pzena Investment Management, Inc. Class A 4,100 17,302 Resource America, Inc. Class A 4,049 16,196 U.S. Global Investors, Inc. 5,200 25,428 Westwood Holdings Group Inc. 2,200 62,502 --------------- 1,561,805 --------------- JEWELRY, WATCHES & Fossil, Inc. (a) 19,000 317,300 GEMSTONES - 0.1% Fuqi International, Inc. (a) 4,000 25,040 Movado Group, Inc. 6,600 61,974 --------------- 404,314 --------------- LEAD & ZINC - 0.0% Horsehead Holding Corp. (a) 15,200 71,440 --------------- LEISURE TIME - 0.4% Callaway Golf Co. 27,400 254,546 Great Wolf Resorts, Inc. (a) 12,800 19,712 Life Time Fitness, Inc. (a)(b) 14,600 189,070 Pool Corp. (b) 20,100 361,197 Rick's Cabaret International, Inc. (a) 3,100 12,369 Six Flags, Inc. (a) 34,500 10,695 Steinway Musical Instruments, Inc. (a) 2,800 49,028 Town Sports International Holdings, Inc. (a) 7,200 22,968 Vail Resorts, Inc. (a)(b) 12,656 336,650 --------------- 1,256,235 --------------- MACHINE TOOLS - 0.0% Hurco Companies, Inc. (a) 2,800 33,600 Thermadyne Holdings Corp. (a) 5,500 37,785 --------------- 71,385 ---------------
26 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- MACHINERY & ENGINEERING - 0.0% Applied Industrial Technologies, Inc. (c) 17,490 $ 330,911 --------------- MACHINERY: AGRICULTURAL - 0.1% Alamo Group, Inc. 2,600 38,870 Lindsay Manufacturing Co. (b) 5,013 159,363 Titan Machinery, Inc. (a) 3,200 44,992 --------------- 243,225 --------------- MACHINERY: Astec Industries, Inc. (a) 7,617 238,641 CONSTRUCTION & HANDLING - 0.1% NACCO Industries, Inc. Class A 2,487 93,039 --------------- 331,680 --------------- MACHINERY: ENGINES - 0.1% Briggs & Stratton Corp. (b) 20,800 365,872 Harbin Electric, Inc. (a)(b) 2,600 20,774 Raser Technologies, Inc. (a)(b) 18,600 69,378 --------------- 456,024 --------------- MACHINERY: Actuant Corp. Class A (c) 23,500 446,970 INDUSTRIAL/SPECIALTY - 0.8% Altra Holdings, Inc. (a) 10,900 86,219 Chart Industries, Inc. (a) 12,100 128,623 Colfax Corp. (a) 8,900 92,471 Columbus McKinnon Corp. (a) 7,800 106,470 DXP Enterprises, Inc. (a) 3,200 46,752 EnPro Industries, Inc. (a) 8,500 183,090 Graham Corp. 4,400 47,608 Kadant, Inc. (a) 5,770 77,780 Middleby Corp. (a)(b) 7,000 190,890 Nordson Corp. 13,910 449,154 Tecumseh Products Co. Class A (a) 7,128 68,286 Tennant Co. 6,874 105,860 Twin Disc, Inc. 3,600 24,804 Woodward Governor Co. 24,558 565,325 --------------- 2,620,302 --------------- MACHINERY: OIL WELL EQUIPMENT & Allis-Chalmers Energy, Inc. (a) 12,500 68,750 SERVICES - 0.7% Basic Energy Services, Inc. (a) 17,000 221,680 Bolt Technology Corp. (a) 3,900 27,144 CARBO Ceramics, Inc. 8,702 309,182 Cal Dive International, Inc. (a) 18,274 118,964 Complete Production Services, Inc. (a) 19,900 162,185 Dril-Quip, Inc. (a) 12,976 266,138 Flotek Industries, Inc. (a)(b) 9,400 23,688 Gulf Island Fabrication, Inc. 5,017 72,295 Hornbeck Offshore Services, Inc. (a) 9,840 160,786 Lufkin Industries, Inc. 6,200 213,900 Mitcham Industries, Inc. (a) 4,000 15,880 NATCO Group, Inc. Class A (a) 8,300 125,994 Natural Gas Services Group (a) 5,300 53,689 Newpark Resources, Inc. (a) 37,120 137,344 Parker Drilling Co. (a) 46,681 135,375 Precision Drilling Trust 1,428 11,984 RPC, Inc. 12,000 117,120
27 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Sulphco, Inc. (a)(b) 19,500 $ 18,330 Superior Well Services, Inc. (a) 7,100 71,000 T-3 Energy Services, Inc. (a) 5,300 50,032 Trico Marine Services, Inc. (a)(b) 5,600 25,032 Union Drilling, Inc. (a) 5,800 30,102 Willbros Group, Inc. (a) 16,500 139,755 --------------- 2,576,349 --------------- MACHINERY: SPECIALTY - 0.1% Cascade Corp. 3,700 110,482 Flow International Corp. (a) 16,400 39,688 Key Technology Inc. (a) 2,300 43,447 Semitool, Inc. (a) 8,341 25,440 TurboChef Technologies, Inc. (a) 8,600 42,226 --------------- 261,283 --------------- MANUFACTURED HOUSING - 0.1% Cavco Industries, Inc. (a) 2,700 72,603 Champion Enterprises, Inc. (a) 33,027 18,495 Palm Harbor Homes, Inc. (a)(b) 4,605 22,933 Skyline Corp. 3,001 59,990 --------------- 174,021 --------------- MANUFACTURING - 0.1% Federal Signal Corp. 19,859 163,042 Standex International Corp. 5,131 101,799 --------------- 264,841 --------------- MEDICAL & DENTAL INSTRUMENTS & Abaxis, Inc. (a)(c) 9,200 147,476 SUPPLIES - 3.3% Abiomed, Inc. (a)(c) 14,400 236,448 Align Technology, Inc. (a) 25,600 224,000 Alphatec Holdings, Inc. (a) 10,300 24,205 American Medical Systems Holdings, Inc. (a) 30,100 270,599 AngioDynamics, Inc. (a) 10,000 136,900 Atrion Corp. 600 58,260 Bio-Rad Laboratories, Inc. Class A (a)(c) 7,800 587,418 BioMimetic Therapeutics, Inc. (a) 5,400 49,788 CONMED Corp. (a) 11,828 283,162 Cantel Medical Corp. (a) 5,400 79,218 Cardiac Science Corp. (a) 8,000 60,000 Cepheid, Inc. (a) 24,000 249,120 Clinical Data, Inc. (a) 4,300 38,270 Conceptus, Inc. (a) 12,800 194,816 CryoLife, Inc. (a) 11,900 115,549 Cyberonics, Inc. (a) 10,069 166,843 DexCom, Inc. (a) 12,100 33,396 ev3, Inc. (a) 29,032 177,095 Exactech, Inc. (a) 3,300 55,572 Hansen Medical, Inc. (a) 7,000 50,540 I-Flow Corp. (a) 8,900 42,720 ICU Medical, Inc. (a) 4,750 157,415 IRIS International, Inc. (a) 7,600 105,944 Immucor, Inc. (a) 29,343 779,937
28 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Insulet Corp. (a) 8,000 $ 61,760 Invacare Corp. 13,522 209,861 Landauer, Inc. 3,878 284,257 Medical Action Industries, Inc. (a) 5,850 58,500 Mentor Corp. 14,244 440,567 Meridian Bioscience, Inc. 16,600 422,802 Merit Medical Systems, Inc. (a) 11,710 209,960 Micrus Endovascular Corp. (a) 6,700 77,787 Neogen Corp. (a) 6,100 152,378 NuVasive, Inc. (a) 14,900 516,285 OraSure Technologies, Inc. (a) 19,259 70,873 Orthofix International NV (a) 7,300 111,909 Orthovita, Inc. (a) 27,300 92,547 Owens & Minor, Inc. 17,298 651,270 PSS World Medical, Inc. (a) 26,073 490,694 Palomar Medical Technologies, Inc. (a) 7,900 91,087 SonoSite, Inc. (a) 7,215 137,662 Spectranetic Corp. (a) 13,900 36,279 Stereotaxis, Inc. (a)(b) 11,300 49,720 Steris Corp. 24,600 587,694 SurModics, Inc. (a)(b) 6,483 163,825 Symmetry Medical, Inc. (a) 14,700 117,159 Synovis Life Technologies, Inc. (a) 5,400 101,196 Thoratec Corp. (a) 22,847 742,299 Trans1, Inc. (a) 5,000 36,050 Vision-Sciences Inc. (a) 6,900 10,557 Volcano Corp. (a) 19,500 292,500 West Pharmaceutical Services, Inc. 13,376 505,212 Wright Medical Group, Inc. (a) 15,700 320,751 --------------- 11,368,132 --------------- MEDICAL SERVICES - 0.5% Air Methods Corp. (a) 4,700 75,153 Almost Family, Inc. (a)(b) 2,700 121,446 Genoptix, Inc. (a) 3,600 122,688 Hanger Orthopedic Group, Inc. (a) 12,200 177,022 Magellan Health Services, Inc. (a) 17,000 665,720 Parexel International Corp. (a) 23,994 232,982 RadNet, Inc. (a) 8,800 29,480 RehabCare Group, Inc. (a) 7,495 113,624 US Physical Therapy, Inc. (a) 5,200 69,316 --------------- 1,607,431 --------------- METAL FABRICATING - 0.9% Ampco-Pittsburgh Corp. 3,400 73,780 CIRCOR International, Inc. 6,700 184,250 Dynamic Materials Corp. 5,400 104,274 Encore Wire Corp. (b) 7,750 146,940 Gibraltar Industries, Inc. 11,334 135,328 Haynes International, Inc. (a) 5,100 125,562
29 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Insteel Industries, Inc. 7,600 $ 85,804 Kaydon Corp. 14,426 495,533 L.B. Foster Co. Class A (a) 4,600 143,888 Mueller Industries, Inc. 15,282 383,273 Mueller Water Products, Inc. Series A 48,460 407,064 NN, Inc. 6,900 15,801 Northwest Pipe Co. (a) 3,900 166,179 Omega Flex, Inc. 1,200 25,128 RBC Bearings, Inc. (a) 9,000 182,520 RTI International Metals, Inc. (a) 9,813 140,424 Trimas Corp. (a) 4,300 5,934 Worthington Industries, Inc. 27,100 298,642 --------------- 3,120,324 --------------- METALS & MINERALS AMCOL International Corp. 10,673 223,599 MISCELLANEOUS - 0.5% Apex Silver Mines Ltd. (a) 24,900 24,402 Brush Engineered Materials, Inc. (a) 8,711 110,804 Compass Minerals International, Inc. (c) 13,600 797,776 General Moly, Inc. (a) 28,400 33,512 Hecla Mining Co. (a) 71,900 201,320 Minerals Technologies, Inc. 7,953 325,278 Stillwater Mining Co. (a) 16,364 80,838 United States Lime & Minerals Inc. (a) 700 16,765 Uranium Resources, Inc. (a) 19,000 14,630 --------------- 1,828,924 --------------- MISCELLANEOUS BUSINESS & Core-Mark Holdings Co., Inc. (a) 3,900 83,928 CONSUMER DISCRETIONARY - 0.1% Sotheby's Holdings, Inc. Class A (b) 27,936 248,351 --------------- 332,279 --------------- MISCELLANEOUS CONSUMER Reddy Ice Holdings, Inc. 7,400 10,656 --------------- STAPLES - 0.0% MISCELLANEOUS MedAssets, Inc. (a) 6,900 100,740 --------------- HEALTH CARE - 0.0% MISCELLANEOUS MATERIALS & Ceradyne, Inc. (a) 11,050 224,426 COMMODITIES - 0.2% Lydall, Inc. (a) 6,900 39,675 Symyx Technologies Inc. (a) 13,879 82,441 WD-40 Co. 6,789 192,061 --------------- 538,603 --------------- MISCELLANEOUS MATERIALS & Insituform Technologies, Inc. Class A (a) 11,738 231,121 PROCESSING - 0.1% Rogers Corp. (a) 7,455 207,025 Xerium Technologies, Inc. (a) 6,700 4,422 --------------- 442,568 --------------- MISCELLANEOUS PRODUCER Blount International, Inc. (a) 15,800 149,784 DURABLES - 0.1% Park-Ohio Holdings Corp. (a) 3,400 20,978 --------------- 170,762 --------------- MISCELLANEOUS iRobot Corp. (a) 7,400 66,822 TECHNOLOGY - 0.1% Microvision, Inc. (a)(b) 23,300 39,144 TerreStar Corp. (a) 23,900 9,560
30 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Vocus, Inc. (a) 6,900 $ 125,649 --------------- 241,175 --------------- MULTI-SECTOR COMPANIES - 0.3% Brunswick Corp. 37,300 157,033 Compass Diversified Holdings 9,800 110,250 GenCorp, Inc. (a) 24,471 90,053 GenTek Inc. (a) 3,500 52,675 Kaman Corp. Class A 10,494 190,256 Lancaster Colony Corp. 8,299 284,656 Raven Industries, Inc. 6,600 159,060 United Capital Corp. (a) 600 10,884 --------------- 1,054,867 --------------- OFFICE FURNITURE & BUSINESS ACCO Brands Corp. (a) 22,200 76,590 EQUIPMENT - 0.3% HNI Corp. (b) 18,400 291,456 Herman Miller, Inc. 23,500 306,205 Kimball International, Inc. Class B 13,174 113,428 Knoll, Inc. 20,000 180,400 Presstek, Inc. (a) 11,400 36,594 --------------- 1,004,673 --------------- OIL: CRUDE PRODUCERS - 1.8% APCO Argentina, Inc. 1,600 42,608 ATP Oil & Gas Corp. (a) 11,800 69,030 Abraxas Petroleum Corp. (a) 17,300 12,456 American Oil & Gas, Inc. (a) 15,100 12,080 Arena Resources, Inc. (a)(c) 15,900 446,631 Atlas America, Inc. 14,287 212,162 BMB Munai, Inc. (a) 15,400 21,406 BPZ Resources, Inc. (a)(b) 25,400 162,560 Berry Petroleum Co. Class A 18,102 136,851 Bill Barrett Corp. (a) 15,400 325,402 Brigham Exploration Co. (a) 20,200 64,640 Bronco Drilling Co., Inc. (a) 12,000 77,520 Callon Petroleum Co. (a) 10,000 26,000 Cano Petroleum, Inc. (a) 16,100 7,084 Carrizo Oil & Gas, Inc. (a) 11,600 186,760 Cheniere Energy, Inc. (a)(b) 21,300 60,705 Clayton Williams Energy, Inc. (a) 2,200 99,968 Comstock Resources, Inc. (a)(c) 19,057 900,443 Contango Oil & Gas Co. (a) 5,500 309,650 Delek US Holdings, Inc. 4,600 24,334 Double Eagle Pete & Mining Co. (a) 3,400 23,868 EXCO Resources, Inc. (a) 62,500 566,250 Endeavour International Corp. (a) 46,900 23,450 Energy Partners Ltd. (a) 13,837 18,680 Energy XXI Bermuda Ltd. 46,200 36,498 FX Energy, Inc. (a) 16,600 46,314 Gasco Energy, Inc. (a) 38,600 15,054 GeoGlobal Resources, Inc. (a)(b) 16,300 26,080
31 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- GeoResources, Inc. (a) 2,300 $ 19,987 Geokinetics, Inc. (a) 2,600 6,422 Goodrich Petroleum Corp. (a) 9,500 284,525 Gran Tierra Energy, Inc. (a)(b) 88,500 247,800 Gulfport Energy Corp. (a) 10,800 42,660 Harvest Natural Resources, Inc. (a) 15,000 64,500 Houston American Energy Corp. 6,200 20,956 McMoRan Exploration Co. (a) 25,300 247,940 Meridian Resource Corp. (a) 31,911 18,189 Northern Oil And Gas, Inc. (a) 8,100 21,060 Oilsands Quest, Inc. (a) 68,100 49,713 Panhandle Oil & Gas Inc. 3,000 54,000 Parallel Petroleum Corp. (a) 17,100 34,371 Petroleum Development Corp. (a) 6,100 146,827 Petroquest Energy, Inc. (a)(b) 18,500 125,060 Pioneer Drilling Co. (a) 20,600 114,742 PrimeEnergy Corp. (a) 300 15,585 Quest Resource Corp. (a) 9,800 4,312 Rex Energy Corp. (a) 6,900 20,286 Rosetta Resources, Inc. (a) 21,200 150,096 Stone Energy Corp. (a) 13,298 146,544 Swift Energy Co. (a) 12,417 208,730 TXCO Resources, Inc. (a) 15,000 22,350 Toreador Resources Corp. (a) 7,000 38,430 Tri-Valley Corp. (a)(b) 9,300 16,740 Venoco, Inc. (a) 8,400 22,764 Warren Resources, Inc. (a) 24,100 47,959 Western Refining, Inc. (b) 12,800 99,328 --------------- 6,246,360 --------------- OIL: INTEGRATED DOMESTIC - 0.1% Delta Petroleum Corp. (a)(b) 25,700 122,332 GMX Resources Inc. (a) 7,100 179,772 Ram Energy Resources, Inc. (a) 15,500 13,640 --------------- 315,744 --------------- OIL: Vaalco Energy, Inc. (a) 25,100 186,744 --------------- INTEGRATED INTERNATIONAL - 0.1% PAINTS & COATINGS - 0.1% Ferro Corp. 18,376 129,551 H.B. Fuller Co. 20,680 333,155 --------------- 462,706 --------------- PAPER - 0.4% AbitibiBowater, Inc. (a)(b) 21,944 10,314 Albany International Corp. Class A 12,274 157,598 Boise, Inc. (a) 14,600 6,278 Buckeye Technologies, Inc. (a) 16,198 58,961 Clearwater Paper Corp. (a) 4,699 39,426 Kapstone Paper and Packaging Corp. (a) 7,400 17,612 Mercer International, Inc.-Sbi (a) 12,400 23,808 Multi-Color Corp. 3,950 62,489
32 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Neenah Paper, Inc. 6,000 $ 53,040 P.H. Glatfelter Co. 18,701 173,919 Rock-Tenn Co. Class A 15,980 546,196 Verso Paper Corp. 5,800 5,974 Wausau Paper Corp. 18,242 208,688 --------------- 1,364,303 --------------- PLASTICS - 0.0% Spartech Corp. 12,654 79,214 --------------- POLLUTION CONTROL & American Ecology Corp. 6,700 135,541 ENVIRONMENTAL SERVICES - 0.3% Darling International, Inc. (a) 34,500 189,405 EnergySolutions, Inc. 13,700 77,405 Fuel Tech, Inc. (a)(b) 8,200 86,838 Headwaters, Inc. (a) 17,946 121,136 Met-Pro Corp. 6,200 82,584 Metalico, Inc. (a)(b) 10,800 16,740 Team, Inc. (a) 7,800 216,060 --------------- 925,709 --------------- POWER TRANSMISSION Regal-Beloit Corp. 13,251 503,405 EQUIPMENT - 0.2% Synthesis Energy Systems, Inc. (a) 8,600 5,848 --------------- 509,253 --------------- PRINTING & COPYING Bowne & Co., Inc. 11,682 68,690 SERVICES - 0.2% Cenveo, Inc. (a) 19,800 88,110 Schawk, Inc. 5,500 63,030 VistaPrint Ltd. (a) 18,600 346,146 --------------- 565,976 --------------- PRODUCTION TECHNOLOGY ATMI, Inc. (a)(c) 13,257 204,556 EQUIPMENT - 0.9% Axcelis Technologies, Inc. (a) 44,800 22,848 Brooks Automation, Inc. (a) 26,178 152,094 Cognex Corp. 17,156 253,909 Cymer, Inc. (a) 12,800 280,448 Dionex Corp. (a) 7,731 346,735 Electro Scientific Industries, Inc. (a) 11,161 75,783 Emcore Corp. (a) 31,200 40,560 Entegris, Inc. (a) 47,199 103,366 Esterline Technologies Corp. (a) 12,190 461,879 FEI Co. (a) 15,055 283,937 Intevac, Inc. (a) 9,000 45,630 K-Tron International, Inc. (a) 1,000 79,900 Kulicke & Soffa Industries, Inc. (a) 22,156 37,665 LTX-Credence Corp. (a) 57,003 15,391 MTS Systems Corp. 7,200 191,808 Mattson Technology, Inc. (a) 21,099 29,750 Photronics, Inc. (a) 17,279 33,694 Rofin-Sinar Technologies, Inc. (a) 12,300 253,134 Rudolph Technologies, Inc. (a) 12,673 44,736 Ultra Clean Holdings, Inc. (a) 8,000 16,080 Ultratech, Inc. (a) 9,890 118,284 --------------- 3,092,187 ---------------
33 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- PUBLISHING: Consolidated Graphics, Inc. (a) 4,300 $ 97,352 MISCELLANEOUS - 0.1% Courier Corp. 3,750 67,125 Martha Stewart Living Omnimedia, Inc. Class A (a) 10,982 28,553 Playboy Enterprises, Inc. Class B (a) 10,107 21,831 Primedia, Inc. 10,300 22,351 Scholastic Corp. 10,160 137,973 --------------- 375,185 --------------- PUBLISHING: NEWSPAPERS - 0.1% AH Belo Corp. 7,980 17,396 Belo Corp. Class A 36,800 57,408 Dolan Media Co. (a) 11,100 73,149 Journal Communications, Inc. Class A 17,400 42,630 Lee Enterprises, Inc. (b) 19,500 7,995 McClatchy Co. Class A (b) 24,300 19,440 Media General, Inc. Class A (b) 9,400 16,450 --------------- 234,468 --------------- RADIO & TV BROADCASTERS - 0.2% CKX, Inc. (a) 23,500 86,245 Citadel Broadcasting Corp. (a) 74,730 11,957 Cox Radio, Inc. Class A (a) 8,800 52,888 Cumulus Media, Inc. Class A (a) 13,900 34,611 Entercom Communications Corp. 10,600 13,038 Fisher Communications, Inc. 2,800 57,792 Gray Television, Inc. 19,500 7,800 Lin TV Corp. Class A (a) 11,000 11,990 Outdoor Channel Holdings, Inc. (a) 6,600 49,434 RHI Entertainment, Inc. (a) 4,800 38,976 Sinclair Broadcast Group, Inc. Class A 21,664 67,158 World Wrestling Entertainment, Inc. 9,096 100,784 --------------- 532,673 --------------- RAILROAD EQUIPMENT - 0.3% American Railcar Industries, Inc. 3,600 37,908 Freightcar America, Inc. 5,100 93,177 Greenbrier Cos., Inc. 6,800 46,716 Westinghouse Air Brake Technologies Corp. 20,339 808,475 --------------- 986,276 --------------- RAILROADS - 0.1% Genesee & Wyoming, Inc. Class A (a) 12,875 392,688 --------------- REAL ESTATE - 0.3% AMREP Corp. (a)(b) 700 21,896 Avatar Holdings, Inc. (a) 2,500 66,300 Bluegreen Corp. (a) 5,300 16,589 Cogdell Spencer, Inc. 5,300 49,608 Consolidated-Tomoka Land Co. 2,200 84,018 FX Real Estate and Entertainment, Inc. (a) 3,220 483 Forestar Group, Inc. (a) 15,200 144,704 Griffin Land & Nurseries, Inc. 1,400 51,604 Grubb & Ellis Co. 14,200 17,608 Hilltop Holdings, Inc. (a) 18,572 180,891 Meruelo Maddux Properties, Inc. (a) 17,380 21,551 Resource Capital Corp. 8,800 33,704
34 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Stratus Properties, Inc. (a) 2,100 $ 26,166 Tejon Ranch Co. (a) 4,615 114,175 Thomas Properties Group, Inc. 9,900 25,641 --------------- 854,938 --------------- REAL ESTATE INVESTMENT TRUSTS Acadia Realty Trust 13,301 189,805 (REITS) - 5.3% Agree Realty Corp. 3,400 61,642 Alexander's, Inc. 867 220,998 American Campus Communities, Inc. 17,803 364,605 American Capital Agency Corp. 4,300 91,848 Anthracite Capital, Inc. (b)(d) 24,500 54,635 Anworth Mortgage Asset Corp. 35,800 230,194 Arbor Realty Trust, Inc. (b) 5,900 17,405 Ashford Hospitality Trust, Inc. 44,880 51,612 Associated Estates Realty Corp. 6,000 54,780 BioMed Realty Trust, Inc. 33,720 395,198 CapLease, Inc. 18,500 32,005 Capital Trust, Inc. 6,900 24,840 Capstead Mortgage Corp. 23,800 256,326 Care Investment Trust, Inc. 5,500 42,845 Cedar Shopping Centers, Inc. 15,800 111,864 Chimera Investment Corp. 54,000 186,300 Colonial Properties Trust 20,100 167,433 Corporate Office Properties Trust 17,700 543,390 Cousins Properties, Inc. (b) 18,700 258,995 DCT Industrial Trust, Inc. 72,210 365,383 DiamondRock Hospitality Co. 40,050 203,054 Dupont Fabros Technology, Inc. 4,900 10,143 Eastgroup Properties, Inc. 10,527 374,551 Education Realty Trust, Inc. 11,800 61,596 Entertainment Properties Trust 13,780 410,644 Equity Lifestyle Properties, Inc. 8,594 329,666 Equity One, Inc. (b) 13,600 240,720 Extra Space Storage, Inc. 34,550 356,556 FelCor Lodging Trust, Inc. 27,970 51,465 First Industrial Realty Trust, Inc. (b) 18,800 141,940 First Potomac Realty Trust 10,500 97,650 Franklin Street Properties Corp. 24,900 367,275 Friedman Billings Ramsey Group, Inc. Class A (a) 60,800 10,336 Getty Realty Corp. 7,200 151,632 Glimcher Realty Trust 16,456 46,241 Gramercy Capital Corp. 17,202 22,019 Hatteras Financial Corp. 6,600 175,560 Healthcare Realty Trust, Inc. 24,700 579,956 Hersha Hospitality Trust 17,100 51,300 Highwoods Properties, Inc. 26,700 730,512 Home Properties, Inc. 13,320 540,792
35 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Inland Real Estate Corp. 23,700 $ 307,626 Investors Real Estate Trust 23,700 253,827 JER Investors Trust, Inc. 9,400 8,742 Kite Realty Group Trust 8,340 46,370 LTC Properties, Inc. 9,500 192,660 LaSalle Hotel Properties (b) 17,020 188,071 Lexington Corporate Properties Trust 31,892 159,460 MFA Financial, Inc. 80,300 472,967 Maguire Properties, Inc. 17,600 25,696 Medical Properties Trust, Inc. 28,100 177,311 Mid-America Apartment Communities, Inc. 11,929 443,282 Mission West Properties, Inc. 8,100 61,965 Monmouth Real Estate Investment Corp. Class A 8,200 57,400 National Health Investors, Inc. 9,229 253,151 National Retail Properties, Inc. 32,875 565,121 Newcastle Investment Corp. 21,800 18,312 NorthStar Realty Finance Corp. (b) 23,600 92,276 Omega Healthcare Investors, Inc. 33,200 530,204 One Liberty Properties, Inc. 3,300 29,040 PS Business Parks, Inc. 6,208 277,249 Parkway Properties, Inc. 6,504 117,072 Pennsylvania Real Estate Investment Trust (b) 15,032 111,988 Post Properties, Inc. 18,586 306,669 Potlatch Corp. 16,547 430,387 RAIT Investment Trust (b) 25,610 66,586 Ramco-Gershenson Properties Trust 6,500 40,170 Realty Income Corp. (b) 42,500 983,875 Redwood Trust, Inc. (b) 13,895 207,174 Saul Centers, Inc. 3,922 154,919 Senior Housing Properties Trust 47,914 858,619 Sovran Self Storage, Inc. 9,180 330,480 Strategic Hotel Capital, Inc. 32,900 55,272 Sun Communities, Inc. 7,043 98,602 Sunstone Hotel Investors, Inc. 21,900 135,561 Tanger Factory Outlet Centers, Inc. 13,322 501,174 U-Store-It Trust 20,470 91,092 Universal Health Realty Income Trust 4,927 162,148 Urstadt Biddle Properties, Inc. Class A 7,900 125,847 Washington Real Estate Investment Trust 22,065 624,440 Winthrop Realty Trust 3,740 40,542 --------------- 18,279,058 --------------- RECREATIONAL VEHICLES & Fleetwood Enterprises, Inc. (a) 26,499 2,650 BOATS - 0.1% Marine Products Corp. 3,175 17,844 Polaris Industries, Inc. (b) 13,800 395,370 Winnebago Industries, Inc. (b) 12,590 75,918 --------------- 491,782 ---------------
36 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- RENTAL & LEASING SERVICES: Aircastle Ltd. 19,300 $ 92,254 COMMERCIAL - 0.1% Electro Rent Corp. 8,853 98,799 H&E Equipment Services, Inc. (a) 6,800 52,428 McGrath RentCorp 9,810 209,542 --------------- 453,023 --------------- RENTAL & LEASING SERVICES: Aaron Rents, Inc. (c) 19,093 508,256 CONSUMER - 0.4% Amerco, Inc. (a) 3,900 134,667 Dollar Thrifty Automotive Group, Inc. (a) 7,195 7,843 RSC Holdings, Inc. (a) 19,700 167,844 Rent-A-Center, Inc. (a) 27,900 492,435 --------------- 1,311,045 --------------- RESTAURANTS - 1.3% AFC Enterprises, Inc. (a) 10,400 48,776 BJ's Restaurants, Inc. (a) 7,300 78,621 Bob Evans Farms, Inc. 13,080 267,224 Buffalo Wild Wings, Inc. (a)(b) 7,550 193,657 CEC Entertainment, Inc. (a) 8,550 207,337 CKE Restaurants, Inc. 21,600 187,488 California Pizza Kitchen, Inc. (a) 9,050 97,016 The Cheesecake Factory, Inc. (a) 25,200 254,520 Cracker Barrel Old Country Store, Inc. 9,400 193,546 Denny's Corp. (a) 39,100 77,809 DineEquity, Inc. (b) 7,148 82,631 Domino's Pizza, Inc. (a) 16,250 76,538 Einstein Noah Restaurant Group, Inc. (a) 1,600 9,200 Jack in the Box, Inc. (a) 24,736 546,418 Krispy Kreme Doughnuts, Inc. (a)(b) 23,300 39,144 Landry's Restaurants, Inc. 5,496 63,754 Luby's, Inc. (a) 8,900 37,291 O'Charleys, Inc. 7,484 14,968 P.F. Chang's China Bistro, Inc. (a) 10,208 213,756 Papa John's International, Inc. (a) 9,296 171,325 Red Robin Gourmet Burgers, Inc. (a) 6,600 111,078 Ruby Tuesday, Inc. (a) 21,400 33,384 Ruth's Hospitality Group, Inc. (a) 9,200 12,696 Sonic Corp. (a) 25,320 308,144 The Steak n Shake Co. (a) 11,728 69,782 Texas Roadhouse, Inc. Class A (a) 21,600 167,400 Wendy's 165,652 818,321 --------------- 4,381,824 --------------- RETAIL - 2.5% 1-800-FLOWERS.COM, Inc. Class A (a) 10,824 41,348 99 Cents Only Stores (a) 19,900 217,507 America's Car Mart, Inc. (a) 4,400 60,764 Asbury Automotive Group, Inc. 13,200 60,324 Aeropostale, Inc. (a) 28,075 452,007 bebe Stores, Inc. 15,900 118,773 Bidz.com, Inc. (a)(b) 2,800 12,880
37 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Big 5 Sporting Goods Corp. 9,000 $ 46,890 Blockbuster, Inc. Class A (a)(b) 75,600 95,256 Blue Nile, Inc. (a)(b) 5,700 139,593 Borders Group, Inc. 25,000 10,000 Brown Shoe Co., Inc. 17,527 148,454 The Buckle, Inc. 9,809 214,032 Build-A-Bear Workshop, Inc. (a) 7,500 36,450 Cabela's, Inc. Class A (a)(b) 16,200 94,446 Cache, Inc. (a) 4,650 9,393 Casual Male Retail Group, Inc. (a) 14,500 7,540 The Cato Corp. Class A 11,395 172,065 Central Garden & Pet Co. Class A (a) 26,634 157,141 Charlotte Russe Holding, Inc. (a) 9,100 59,059 Charming Shoppes, Inc. (a) 48,540 118,438 Chico's FAS, Inc. (a) 74,400 310,992 The Children's Place Retail Stores, Inc. (a) 9,885 214,307 Christopher & Banks Corp. 14,928 83,597 Coldwater Creek, Inc. (a) 23,500 66,975 Collective Brands, Inc. (a) 26,700 312,924 Conn's, Inc. (a)(b) 4,000 33,920 Dillard's, Inc. Class A (b) 22,200 88,134 Dress Barn, Inc. (a) 18,890 202,879 drugstore.com, Inc. (a) 34,400 42,656 Ezcorp, Inc. (a) 16,200 246,402 FGX International Holdings Ltd. (a) 5,700 78,318 Fred's, Inc. 16,935 182,221 GSI Commerce, Inc. (a) 10,100 106,252 Gaiam, Inc. (a) 7,400 34,188 Genesco, Inc. (a) 8,238 139,387 Group 1 Automotive, Inc. 9,632 103,737 Gymboree Corp. (a) 11,958 311,984 Hibbett Sports, Inc. (a) 12,075 189,698 Hot Topic, Inc. (a) 18,581 172,246 Insight Enterprises, Inc. (a) 19,398 133,846 Jo-Ann Stores, Inc. (a) 10,805 167,369 Jos. A. Bank Clothiers, Inc. (a) 7,733 202,218 Lawson Products, Inc. 1,888 43,141 Lumber Liquidators, Inc. (a) 4,200 44,352 MarineMax, Inc. (a) 6,800 23,052 Men's Wearhouse, Inc. 21,700 293,818 New York & Co. (a) 9,300 21,576 Overstock.com, Inc. (a) 6,400 68,992 PC Connection, Inc. (a) 2,900 14,848 PC Mall, Inc. (a) 4,600 18,446 Pacific Sunwear of California, Inc. (a) 28,200 44,838 The Pantry, Inc. (a) 9,400 201,630
38 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- The Pep Boys - Manny, Moe & Jack 17,410 $ 71,903 PetMed Express, Inc. (a) 10,100 178,063 Pier 1 Imports, Inc. (a) 36,699 13,579 PriceSmart, Inc. 6,000 123,960 Retail Ventures, Inc. (a) 11,800 40,946 Rush Enterprises, Inc. Class A (a) 13,900 119,123 Russ Berrie & Co., Inc. (a) 6,147 18,257 Sally Beauty Co., Inc. (a) 39,000 221,910 School Specialty, Inc. (a) 8,154 155,904 Shutterfly, Inc. (a) 8,100 56,619 Sonic Automotive, Inc. 10,800 42,984 Stage Stores, Inc. 15,850 130,763 Stamps.com, Inc. (a) 6,303 61,958 Stein Mart, Inc. (a) 10,424 11,779 Syms Corp. (a) 2,700 23,976 Systemax, Inc. 4,600 49,542 The Talbots, Inc. (b) 10,100 24,139 Tractor Supply Co. (a) 14,000 505,960 Tuesday Morning Corp. (a) 12,390 20,196 Tween Brands, Inc. (a) 10,666 46,077 Volcom, Inc. (a) 7,800 85,020 The Wet Seal, Inc. Class A (a) 39,500 117,315 Zale Corp. (a)(b) 13,500 44,955 Zumiez, Inc. (a) 8,100 60,345 --------------- 8,696,576 --------------- SAVINGS & LOAN - 1.4% Anchor Bancorp Wisconsin, Inc. 8,337 23,010 Bank Mutual Corp. 19,938 230,085 Berkshire Hills Bancorp, Inc. 4,600 141,956 Brookline Bancorp, Inc. 24,587 261,852 Brooklyn Federal Bancorp, Inc. 2,400 33,720 Danvers Bancorp, Inc. 7,700 102,949 Dime Community Bancshares, Inc. 9,749 129,662 ESSA Bancorp, Inc. 7,400 104,562 First Financial Holdings, Inc. 4,826 97,678 First Financial Northwest, Inc. 9,400 87,796 First Niagara Financial Group, Inc. 49,853 806,123 First Place Financial Corp. 7,500 28,725 FirstFed Financial Corp. (a)(b) 5,900 10,325 Flagstar Bancorp, Inc. (a) 18,150 12,887 Flushing Financial Corp. 8,875 106,145 Guaranty Financial Group, Inc. (a)(b) 33,900 88,479 Home Federal Bancorp, Inc. 2,700 28,944 IBERIABANK Corp. 6,750 324,000 Kearny Financial Corp. 7,300 93,440 Meridian Interstate Bancorp, Inc. (a) 4,300 39,775 NASB Financial, Inc. 1,100 29,700
39 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- NewAlliance Bancshares, Inc. 45,700 $ 601,869 Northwest Bancorp, Inc. 7,067 151,092 OceanFirst Financial Corp. 3,700 61,420 Ocwen Financial Corp. (a) 13,665 125,445 Provident Financial Services, Inc. 25,258 386,447 Provident New York Bancorp 16,589 205,704 Rockville Financial, Inc. 3,000 41,910 Roma Financial Corp. 3,200 40,288 Sterling Financial Corp. 21,743 191,338 United Community Financial Corp. 9,314 8,383 ViewPoint Financial Group 4,600 73,830 W Hldg Co., Inc. 996 10,259 Westfield Financial, Inc. 13,112 135,316 --------------- 4,815,114 --------------- SECURITIES BROKERAGE & Diamond Hill Investments Group 800 52,000 SERVICES - 0.5% GFI Group, Inc. 27,300 96,642 Gladstone Investment Corp. 11,000 54,010 International Assets Holding Corp., Inc. (a) 1,700 14,586 KBW, Inc. (a)(b) 10,800 248,400 Knight Capital Group, Inc. Class A (a) 39,500 637,925 LaBranche & Co., Inc. (a) 21,100 101,069 Ladenburg Thalmann Financial Services, Inc. (a) 42,000 30,240 MarketAxess Holdings, Inc. (a) 12,800 104,448 optionsXpress Holdings, Inc. (c) 17,500 233,800 Penson Worldwide, Inc. (a) 6,900 52,578 SWS Group, Inc. 10,306 195,299 Thomas Weisel Partners Group, Inc. (a) 9,200 43,424 --------------- 1,864,421 --------------- SERVICES: COMMERCIAL - 3.4% ABM Industries, Inc. (c) 18,070 344,233 AMN Healthcare Services, Inc. (a) 14,005 118,482 Administaff, Inc. 9,161 198,610 The Advisory Board Co. (a) 7,000 156,100 Ambassadors Group, Inc. 7,900 72,680 CBIZ, Inc. (a) 18,453 159,618 CDI Corp. 5,501 71,183 CRA International, Inc. (a) 4,700 126,571 Casella Waste Systems, Inc. (a) 9,278 37,854 Chemed Corp. 9,472 376,701 CoStar Group, Inc. (a)(b) 8,250 271,755 Coinstar, Inc. (a) 11,792 230,062 Cornell Cos., Inc. (a) 4,800 89,232 Cross Country Healthcare, Inc. (a) 12,700 111,633 Dice Holdings, Inc. (a) 6,500 26,520 DynCorp. International, Inc. (a) 10,200 154,734 Exponent, Inc. (a) 6,104 183,608 First Advantage Corp. Class A (a) 4,200 59,430
40 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Forrester Research, Inc. (a) 6,581 $ 185,650 G&K Services, Inc. Class A 8,177 165,339 The Geo Group, Inc. (a) 21,500 387,645 Gevity HR, Inc. 11,400 17,214 Global Sources Ltd. (a) 5,898 32,144 Global Traffic Network, Inc. (a) 4,900 28,616 Heidrick & Struggles International, Inc. 7,358 158,491 Hudson Highland Group, Inc. (a) 10,300 34,505 ICF International, Inc. (a) 2,900 71,253 ICT Group, Inc. (a) 4,100 18,778 Jackson Hewitt Tax Service, Inc. 12,000 188,280 Kelly Services, Inc. Class A 10,868 141,393 Kforce, Inc. (a) 12,700 97,536 The Knot, Inc. (a) 11,700 97,344 Korn/Ferry International (a) 19,168 218,899 Liquidity Services, Inc. (a) 6,000 49,980 MAXIMUS, Inc. 7,504 263,465 MPS Group, Inc. (a) 39,005 293,708 Midas, Inc. (a) 5,742 60,234 Monro Muffler, Inc. 6,950 177,225 Navigant Consulting, Inc. (a) 20,323 322,526 Net 1 UEPS Technologies, Inc. (a) 20,100 275,370 Nutri/System, Inc. (b) 12,900 188,211 On Assignment, Inc. (a) 15,300 86,751 Orbitz Worldwide, Inc. (a) 14,600 56,648 PHH Corp. (a) 22,864 291,059 PRG-Schultz International, Inc. (a) 6,200 25,296 Perficient, Inc. (a) 13,200 63,096 Pre-Paid Legal Services, Inc. (a) 3,260 121,565 The Providence Service Corp. (a) 5,000 7,250 Regis Corp. 17,800 258,634 Resources Connection, Inc. (a) 19,132 313,382 Rollins, Inc. 17,153 310,126 Spherion Corp. (a) 22,629 50,010 Standard Parking Corp. (a) 3,600 69,624 Steiner Leisure Ltd. (a) 6,700 197,784 TeleTech Holdings, Inc. (a) 16,189 135,178 Tetra Tech, Inc. (a) 24,731 597,254 TrueBlue, Inc. (a) 18,822 180,127 Unifirst Corp. 5,900 175,171 Viad Corp. 8,600 212,764 Volt Information Sciences, Inc. (a) 5,538 40,040 Waste Connections, Inc. (a) 33,427 1,055,290 Waste Services, Inc. (a) 8,533 56,147 Watson Wyatt Worldwide, Inc. 17,915 856,695 World Fuel Services Corp. 12,100 447,700 --------------- 11,870,403 ---------------
41 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- SHIPPING - 0.5% American Commercial Lines, Inc. (a) 15,200 $ 74,480 DHT Maritime, Inc. 17,000 94,180 Eagle Bulk Shipping, Inc. (b) 19,900 135,718 Genco Shipping & Trading Ltd. (b) 10,400 153,920 General Maritime Corp. 20,240 218,592 Golar LNG Ltd. 14,600 98,696 Gulfmark Offshore, Inc. (a) 8,900 211,731 Horizon Lines, Inc. Class A (b) 12,400 43,276 International Shipholding Corp. 2,500 63,325 Knightsbridge Tankers Ltd. 7,300 106,945 Nordic American Tanker Shipping Ltd. 14,400 486,000 Ship Finance International Ltd. (b) 17,400 192,270 TBS International Ltd. (a) 4,700 47,141 --------------- 1,926,274 --------------- SHOES - 0.6% Crocs, Inc. (a)(b) 37,100 46,004 DSW, Inc. Class A (a) 5,800 72,268 Deckers Outdoor Corp. (a) 5,500 439,285 The Finish Line, Inc. Class A 18,080 101,248 Iconix Brand Group, Inc. (a) 24,200 236,676 K-Swiss, Inc. Class A 10,696 121,934 Kenneth Cole Productions, Inc. Class A 3,692 26,139 Shoe Carnival, Inc. (a) 3,700 35,335 Skechers U.S.A., Inc. Class A (a) 13,555 173,775 Steven Madden Ltd. (a) 7,468 159,218 Timberland Co. Class A (a) 19,700 227,535 Weyco Group, Inc. 2,700 89,235 Wolverine World Wide, Inc. 20,908 439,904 --------------- 2,168,556 --------------- STEEL - 0.0% China Precision Steel, Inc. (a) 7,100 8,875 General Steel Holdings, Inc. (a)(b) 3,800 14,972 Olympic Steel, Inc. 3,900 79,443 Sutor Technology Group Ltd. (a) 3,200 7,392 Universal Stainless & Alloy Products, Inc. (a) 2,800 40,572 --------------- 151,254 --------------- SUGAR - 0.0% Imperial Sugar Co. New Shares 5,200 74,568 --------------- TELECOMMUNICATIONS Airvana, Inc. (a) 10,000 61,200 EQUIPMENT - 0.6% Applied Signal Technology, Inc. 5,400 96,876 Arris Group, Inc. (a) 51,600 410,220 Audiovox Corp. Class A (a) 6,585 32,991 Belden, Inc. 18,961 395,906 Mastec, Inc. (a) 17,700 204,966 OpNext, Inc. (a) 7,900 13,825 Plantronics, Inc. 20,199 266,627 Polycom, Inc. (a) 36,800 497,168 Powerwave Technologies, Inc. (a) 55,677 27,839 Preformed Line Products Co. 900 41,436
42 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Symmetricom, Inc. (a) 19,000 $ 75,050 --------------- 2,124,104 --------------- TEXTILE PRODUCTS - 0.0% Interface, Inc. Class A 22,021 102,177 Unifi, Inc. (a) 19,300 54,426 --------------- 156,603 --------------- TEXTILES APPAREL American Apparel, Inc. (a)(b) 14,000 27,860 MANUFACTURERS - 0.6% Carter's, Inc. (a) 23,800 458,388 Cherokee, Inc. 3,100 53,785 Columbia Sportswear Co. (b) 4,800 169,776 G-III Apparel Group, Ltd. (a) 5,900 37,701 J. Crew Group, Inc. (a) 17,970 219,234 Lululemon Athletica, Inc. (a)(b) 7,400 58,682 Maidenform Brands, Inc. (a) 9,300 94,395 Oxford Industries, Inc. 6,242 54,742 Perry Ellis International, Inc. (a) 5,350 33,919 Quiksilver, Inc. (a) 52,100 95,864 True Religion Apparel, Inc. (a) 7,300 90,812 Under Armour, Inc. Class A (a)(b) 13,900 331,376 The Warnaco Group, Inc. (a) 19,100 374,933 --------------- 2,101,467 --------------- TIRES & RUBBER - 0.1% Cooper Tire & Rubber Co. 24,300 149,688 Titan International, Inc. 14,425 119,006 --------------- 268,694 --------------- TOBACCO - 0.2% Alliance One International, Inc. (a) 39,655 116,586 Schweitzer-Mauduit International, Inc. 6,520 130,530 Star Scientific, Inc. (a) 27,600 105,708 Universal Corp. 10,656 318,295 Vector Group Ltd. (b) 13,591 185,109 --------------- 856,228 --------------- TOYS - 0.3% Jakks Pacific, Inc. (a) 11,530 237,864 Leapfrog Enterprises, Inc. (a) 14,646 51,261 Marvel Entertainment, Inc. (a) 20,500 630,375 --------------- 919,500 --------------- TRANSPORTATION CAI International, Inc. (a) 3,000 9,510 MISCELLANEOUS - 0.2% Celadon Group, Inc. (a) 9,500 81,035 Dynamex, Inc. (a) 3,800 56,050 HUB Group, Inc. Class A (a) 15,600 413,868 Odyssey Marine Exploration, Inc. (a) 19,100 61,502 Pacer International, Inc. 14,700 153,321 Textainer Group Holdings Ltd. 4,000 42,400 Ultrapetrol Bahamas Ltd. (a) 10,300 32,857 --------------- 850,543 --------------- TRUCKERS - 0.7% Arkansas Best Corp. 9,541 287,280 Forward Air Corp. 12,232 296,871 Heartland Express, Inc. 23,573 371,510 Knight Transportation, Inc. 24,162 389,491
43 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Marten Transport Ltd. (a) 6,550 $ 124,188 Old Dominion Freight Line, Inc. (a) 11,625 330,848 Patriot Transportation Holding, Inc. (a) 500 35,035 Saia, Inc. (a) 5,881 63,868 Universal Truckload Services, Inc. (a) 1,900 26,904 Werner Enterprises, Inc. 18,000 312,120 YRC Worldwide, Inc. (a)(b) 24,300 69,741 --------------- 2,307,856 --------------- UTILITIES: ELECTRICAL - 2.3% Allete, Inc. 10,966 353,873 Avista Corp. 21,875 423,937 Black Hills Corp. 16,200 436,752 CH Energy Group, Inc. (c) 6,489 333,470 Central Vermont Public Service Corp. 5,000 119,300 Cleco Corp. 25,067 572,280 El Paso Electric Co. (a) 18,508 334,810 The Empire District Electric Co. 13,968 245,837 IDACORP, Inc. 19,100 562,495 ITC Holdings Corp. 20,600 899,808 MGE Energy, Inc. 9,145 301,785 NorthWestern Corp. 15,600 366,132 Otter Tail Corp. 14,786 344,957 PNM Resources, Inc. 34,700 349,776 Pike Electric Corp. (a) 6,900 84,870 Portland General Electric Co. 26,200 510,114 UIL Holdings Corp. 10,367 311,321 Unisource Energy Corp. 14,483 425,221 Westar Energy, Inc. 43,900 900,389 --------------- 7,877,127 --------------- UTILITIES: Chesapeake Utilities Corp. 2,800 88,144 GAS DISTRIBUTORS - 1.4% The Laclede Group, Inc. 9,148 428,492 New Jersey Resources Corp. 17,661 694,960 Nicor, Inc. 18,900 656,586 Northwest Natural Gas Co. 10,899 482,063 Piedmont Natural Gas Co. 30,600 969,102 South Jersey Industries, Inc. 12,232 487,445 Southwest Gas Corp. 17,890 451,186 WGL Holdings, Inc. 20,700 676,683 --------------- 4,934,661 --------------- UTILITIES: Alaska Communications Systems Group, Inc. (b) 18,300 171,654 TELECOMMUNICATIONS - 0.9% Atlantic Tele-Network, Inc. 3,900 103,545 Centennial Communications Corp. (a) 27,826 224,278 Cincinnati Bell, Inc. (a) 100,400 193,772 Consolidated Communications Holdings, Inc. 9,535 113,276 FairPoint Communications, Inc. 37,793 123,961 FiberTower Corp. (a) 46,850 7,496 General Communication, Inc. Class A (a) 18,639 150,790
44 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- Global Crossing Ltd. (a) 10,800 $ 85,752 Globalstar, Inc. (a) 18,000 3,600 Hungarian Telephone & Cable Corp. (a) 1,300 11,180 ICO Global Communications Holdings Ltd. (a) 42,700 48,251 IDT Corp. Class B (a) 18,200 7,280 Ibasis, Inc. (a) 10,600 14,946 Iowa Telecommunications Services, Inc. 13,600 194,208 iPCS, Inc. (a) 7,100 48,706 NTELOS Holdings Corp. 12,300 303,318 Neutral Tandem, Inc. (a) 6,900 111,918 ORBCOMM, Inc. (a)(b) 12,200 26,352 PAETEC Holding Corp. (a) 51,020 73,469 Premiere Global Services, Inc. (a) 25,600 220,416 RCN Corp. (a) 15,500 91,450 Shenandoah Telecom Co. 9,700 272,085 TW Telecom, Inc. (a) 61,800 523,446 USA Mobility, Inc. 10,020 115,931 Virgin Mobile USA, Inc. (a) 10,600 8,904 --------------- 3,249,984 --------------- UTILITIES: WATER - 0.3% American States Water Co. 7,285 240,259 California Water Service Group 8,296 385,183 Connecticut Water Service, Inc. 3,500 82,635 Consolidated Water Co., Inc. 6,000 75,000 Middlesex Water Co. 5,500 94,765 SJW Corp. 5,448 163,113 Southwest Water Co. 10,083 32,467 --------------- 1,073,422 --------------- WHOLESALERS - 0.2% Brightpoint, Inc. (a) 20,630 89,740 Chindex International Inc. (a) 4,900 38,955 Houston Wire & Cable Co. 7,400 68,894 MWI Veterinary Supply, Inc. (a) 4,400 118,624 Prestige Brands Holdings, Inc. (a) 14,400 151,920 United Stationers, Inc. (a) 9,369 313,768 --------------- 781,901 --------------- TOTAL COMMON STOCKS - 90.4% 311,768,114 --------------- INVESTMENT COMPANIES BlackRock Kelso Capital Corp. (d) 4,400 43,384 Gladstone Capital Corp. (b) 8,700 70,383 Hercules Technology Growth Capital, Inc. 13,600 107,712 Kayne Anderson Energy Development Co. 4,200 31,542 Patriot Capital Funding, Inc. 9,800 35,672 Pennantpark Investment Corp. 8,500 30,685 Prospect Capital Corp. (b) 11,400 136,458 --------------- TOTAL INVESTMENT COMPANIES - 0.1% 455,836 ---------------
45 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY WARRANTS (e) SHARES VALUE -------------------------------- --------------------------------------------------- -------------- --------------- COMMUNICATIONS TECHNOLOGY - 0.0% Lantronix, Inc. (expires 2/09/11) 138 $ 0 --------------- ENERGY MISCELLANEOUS - 0.0% GreenHunter Energy, Inc. (expires 8/27/11) (b)(f) 180 0 --------------- TOTAL WARRANTS - 0.0% 0 --------------- OTHER INTERESTS (G) OIL: CRUDE PRODUCERS - 0.0% PetroCorp Inc. (Escrow Shares) (h) 500 0 --------------- TOTAL OTHER INTERESTS - 0.0% 0 --------------- TOTAL LONG-TERM INVESTMENTS (COST - $404,884,567) - 90.5% 312,223,950 ---------------
BENEFICIAL INTEREST SHORT-TERM SECURITIES (000) --------------------------------------------------- -------------- BlackRock Liquidity Series, LLC Cash Sweep Series, 1.64% (d)(i) $ 33,515 33,514,609 BlackRock Liquidity Series, LLC Money Market Series, 0.80% (d)(i)(j) 24,644 24,644,202 --------------- TOTAL SHORT-TERM SECURITIES (COST - $58,158,811) - 16.9% 58,158,811 --------------- TOTAL INVESTMENTS (COST - $463,043,378*) - 107.4% 370,382,761 LIABILITIES IN EXCESS OF OTHER ASSETS - (7.4)% (25,662,641) --------------- NET ASSETS - 100.0% $ 344,720,120 ===============
* The cost and unrealized appreciation (depreciation) of investments as of December 31, 2008, as computed for federal income tax purposes, were as follows: Aggregate cost $ 484,047,076 ============= Gross unrealized appreciation $ 35,373,591 Gross unrealized depreciation (149,037,906) ------------- Net unrealized depreciation $(113,664,315) =============
(a) Non-income producing security. (b) Security, or a portion of security, is on loan. (c) All or a portion of the security has been pledged as collateral in connection with open financial futures contracts. (d) 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:
PURCHASE SALE REALIZED AFFILIATE COST COST LOSS INCOME --------- -------- ----------- -------- ---------- Anthracite Capital, Inc. $ 62,886 $ 166,460 $(68,727) $ 24,910 BlackRock Kelso Capital Corp. $ 18,400 $ 6,168 $ (524) $ 5,848 BlackRock Liquidity Series, LLC Cash Sweep Series $287,816* -- -- $ 580,110 BlackRock Liquidity Series, LLC Money Market Series -- $59,164,615** -- $1,200,163
* Represents net purchase cost. ** Represents net sale cost. (e) Warrants entitle the Series to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date. (f) Restricted security as to resale, representing 0.0% of net assets, was as follows:
ACQUISITION ISSUE DATE COST VALUE ----- ----------- ---- ----- GreenHunter Energy, Inc. 6/27/08 $-- $--
46 MASTER SMALL CAP INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (g) Other interests represent beneficial interest in liquidation trusts and other reorganization entities and are non-income producing. (h) Security is fair valued in accordance with the Series' fair valuation policy. (i) Represents the current yield as of report date. (j) Security was purchased with the cash proceeds from securities loans. - 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, 2008 were as follows:
EXPIRATION FACE UNREALIZED CONTRACTS ISSUE DATE VALUE APPRECIATION --------- ------------------ ---------- ----------- ------------ 683 Russell 2000 Index March 2009 $31,631,628 $2,374,942
- Effective January 1, 2008, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 clarifies the definition of fair value, establishes a framework for measuring fair values and requires additional disclosures about the use of fair value measurements. Various inputs are used in determining the fair value of investments, which are as follows: - Level 1 - price quotations in active markets/exchanges for identical securities - Level 2 - other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs) - Level 3 - unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Series' own assumption used in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For information about the Series' policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2008 in determining the fair valuation of the Series' investments:
INVESTMENTS IN OTHER FINANCIAL VALUATION SECURITIES INSTRUMENTS* INPUTS ASSETS ASSETS --------- -------------- --------------- Level 1 $312,223,950 $2,374,942 Level 2 58,158,811 -- Level 3 -- -- ------------ ---------- TOTAL $370,382,761 $2,374,942 ============ ==========
* Other financial instruments are futures. 47 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- AUSTRALIA - 5.4% AIR FREIGHT & LOGISTICS - 0.0% Toll Holdings Ltd. 56,456 $ 243,921 --------------- AIRLINES - 0.0% Qantas Airways Ltd. 71,345 131,439 --------------- BEVERAGES - 0.2% Coca-Cola Amatil Ltd. 47,908 307,862 Foster's Group Ltd. 166,479 640,291 Lion Nathan Ltd. 17,836 102,464 --------------- 1,050,617 --------------- BIOTECHNOLOGY - 0.2% CSL Ltd. 49,786 1,174,045 --------------- CAPITAL MARKETS - 0.1% Macquarie Group Ltd. 25,214 511,727 Perpetual Trustees Australia Ltd. 1,777 46,477 --------------- 558,204 --------------- CHEMICALS - 0.1% Incitec Pivot Ltd. 143,533 251,593 Nufarm Ltd. 7,277 53,655 Orica Ltd. 27,591 270,760 --------------- 576,008 --------------- COMMERCIAL BANKS - 1.4% Australia & New Zealand Banking Group Ltd. 170,965 1,845,773 Bendigo and Adelaide Bank Ltd. 20,287 156,949 Commonwealth Bank of Australia Ltd. 123,368 2,538,358 National Australia Bank Ltd. 158,209 2,325,934 Westpac Banking Corp. 232,966 2,794,129 --------------- 9,661,143 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.1% Brambles Ltd. 118,982 618,176 --------------- CONSTRUCTION & ENGINEERING - 0.0% Leighton Holdings Ltd. 11,839 230,043 --------------- CONSTRUCTION MATERIALS - 0.0% Boral Ltd. 46,639 151,048 James Hardie Industries NV 31,616 103,544 --------------- 254,592 --------------- CONTAINERS & PACKAGING - 0.0% Amcor Ltd. 71,378 290,066 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Australian Stock Exchange Ltd. 13,605 318,021 --------------- DIVERSIFIED TELECOMMUNICATION Telstra Corp. Ltd. 354,396 948,731 --------------- SERVICES - 0.1% ENERGY EQUIPMENT & SERVICES - 0.0% WorleyParsons Ltd. 13,235 132,032 --------------- FOOD & STAPLES RETAILING - 0.4% Metcash Ltd. 58,380 178,746 Wesfarmers Ltd. NPV 50,712 640,079 Wesfarmers Ltd. NPV PPS 12,455 157,126 Woolworths Ltd. 103,023 1,920,988 --------------- 2,896,939 --------------- FOOD PRODUCTS - 0.0% Goodman Fielder Ltd. 77,271 71,832 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.0% Cochlear Ltd. 3,890 150,696 --------------- HEALTH CARE PROVIDERS & SERVICES - 0.0% Sonic Healthcare Ltd. 31,035 316,185 --------------- HOTELS, RESTAURANTS & LEISURE - 0.1% Aristocrat Leisure Ltd. 22,855 62,186 Crown Ltd. 33,445 140,094 Tabcorp Holdings Ltd. 40,947 200,337 Tatts Group Ltd. 98,432 192,195 --------------- 594,812 --------------- IT SERVICES - 0.0% Computershare Ltd. 33,896 185,213 --------------- INDUSTRIAL CONGLOMERATES - 0.0% CSR Ltd. 92,805 114,789 --------------- INSURANCE - 0.5% AMP Ltd. 158,343 603,728
1 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- AXA Asia Pacific Holdings Ltd. 60,500 $ 210,289 Insurance Australia Group Ltd. 147,253 401,312 QBE Insurance Group Ltd. 84,374 1,524,918 Suncorp-Metway Ltd. 75,710 446,258 --------------- 3,186,505 --------------- MEDIA - 0.0% Fairfax Media Ltd. 105,523 121,075 --------------- METALS & MINING - 1.2% Alumina Ltd. 100,776 101,530 BHP Billiton Ltd. 280,586 5,960,817 BlueScope Steel Ltd. 59,588 146,402 Fortescue Metals Group Ltd. (a) 109,670 149,543 Newcrest Mining Ltd. 37,808 899,938 OZ Mineral Ltd. (b) 230,335 26,497 OneSteel Ltd. 66,281 114,616 Rio Tinto Ltd. 24,427 654,589 Sims Metal Management Ltd. 11,875 145,343 --------------- 8,199,275 --------------- MULTI-UTILITIES - 0.1% AGL Energy Ltd. 37,661 401,527 --------------- MULTILINE RETAIL - 0.0% Harvey Norman Holdings Ltd. 44,194 82,017 --------------- OIL, GAS & CONSUMABLE FUELS - 0.4% Caltex Australia Ltd. 12,081 61,049 Origin Energy Ltd. 74,071 835,411 Santos Ltd. 51,987 544,716 Woodside Petroleum Ltd. 40,622 1,051,188 --------------- 2,492,364 --------------- REAL ESTATE INVESTMENT TRUSTS CFS Retail Property Trust 148,618 195,358 (REITS) - 0.4% DB RREEF Trust 198,135 113,456 General Property Trust 404,333 263,655 Goodman Group 180,246 92,816 Macquarie Office Trust 106,454 18,285 Mirvac Group 104,197 93,255 Stockland 114,066 324,482 Westfield Group 149,494 1,357,218 --------------- 2,458,525 --------------- REAL ESTATE MANAGEMENT & Lend Lease Corp., Ltd. 27,961 140,895 DEVELOPMENT - 0.0% --------------- ROAD & RAIL - 0.0% Asciano Group 48,559 51,692 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Billabong International Ltd. 8,070 44,318 --------------- TRANSPORTATION INFRASTRUCTURE - 0.1% Macquarie Airports Group 51,082 85,987 Macquarie Infrastructure Group 207,733 249,012 Transurban Group 95,317 360,550 --------------- 695,549 --------------- TOTAL COMMON STOCKS IN AUSTRALIA 38,391,246 --------------- AUSTRIA - 0.3% BUILDING PRODUCTS - 0.0% Wienerberger AG 7,093 120,993 --------------- COMMERCIAL BANKS - 0.1% Erste Bank der Oesterreichischen Sparkassen 16,166 376,407 Raiffeisen International Bank Holding AG 4,465 124,123 --------------- 500,530 --------------- CONSTRUCTION & ENGINEERING - 0.0% Strabag SE 4,955 115,778 ---------------
2 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- DIVERSIFIED TELECOMMUNICATION Telekom Austria AG 28,456 $ 414,038 --------------- SERVICES - 0.1% ELECTRIC UTILITIES - 0.0% Verbund - Oesterreichische Elektrizitaetswirtschafts AG 5,715 264,248 --------------- INSURANCE - 0.0% Vienna Insurance Group 2,331 80,986 --------------- METALS & MINING - 0.0% Voestalpine AG 10,194 220,240 --------------- OIL, GAS & CONSUMABLE FUELS - 0.1% OMV AG 13,921 369,901 --------------- TOTAL COMMON STOCKS IN AUSTRIA 2,086,714 --------------- BELGIUM - 0.7% BEVERAGES - 0.1% Anheuser-Busch Inbev NV 39,608 919,824 Anheuser-Busch Inbev NV VVPR STRIP(a) 24,374 136 --------------- 919,960 --------------- CHEMICALS - 0.1% Solvay SA 4,893 363,337 Umicore SA 11,341 224,104 --------------- 587,441 --------------- COMMERCIAL BANKS - 0.1% Dexia NV 42,737 193,762 KBC Bancassurance Holding 13,180 396,089 --------------- 589,851 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.2% Fortis 184,182 242,873 Groupe Bruxelles Lambert SA 6,501 520,803 KBC Ancora 3,067 53,206 Nationale A Portefeuille 3,872 188,830 --------------- 1,005,712 --------------- DIVERSIFIED TELECOMMUNICATION Belgacom SA 13,949 533,248 --------------- SERVICES - 0.1% FOOD & STAPLES RETAILING - 0.1% Colruyt SA 1,343 288,593 Delhaize Group 8,278 511,718 --------------- 800,311 --------------- PHARMACEUTICALS - 0.0% UCB SA 8,700 283,779 WIRELESS TELECOMMUNICATION Mobistar SA 2,394 172,690 SERVICES - 0.0% --------------- TOTAL COMMON STOCKS IN BELGIUM 4,892,992 --------------- BERMUDA - 0.0% ENERGY EQUIPMENT & SERVICES - 0.0% SeaDrill Ltd. 26,734 217,882 --------------- MARINE - 0.0% Pacific Basin Shipping Ltd. 110,713 50,965 --------------- OIL, GAS & CONSUMABLE FUELS - 0.0% Mongolia Energy Co. Ltd. (a) 244,297 75,990 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Yue Yuen Industrial Holdings Ltd. 33,785 67,078 --------------- TOTAL COMMON STOCKS IN BERMUDA 411,915 --------------- CAYMAN ISLANDS - 0.0% COMMUNICATIONS EQUIPMENT - 0.0% Foxconn International Holdings Ltd. (a) 148,529 49,835 --------------- MULTILINE RETAIL - 0.0% Lifestyle International Holdings Ltd. 32,013 32,693 --------------- TOTAL COMMON STOCKS IN THE CAYMAN ISLANDS 82,528 --------------- DENMARK - 0.8% --------------- BEVERAGES - 0.0% Carlsberg A/S 5,874 192,019 --------------- CHEMICALS - 0.1% Novozymes A/S Class B 4,067 326,182 --------------- COMMERCIAL BANKS - 0.1% Danske Bank A/S 39,851 401,459
3 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Jyske Bank (a) 3,300 $ 77,026 --------------- 478,485 --------------- CONSTRUCTION & ENGINEERING - 0.0% FLS Industries A/S Class B 4,367 153,284 --------------- ELECTRICAL EQUIPMENT - 0.1% Vestas Wind Systems A/S (a) 16,259 956,790 --------------- FOOD PRODUCTS - 0.0% Danisco A/S 4,513 184,314 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.0% Coloplast A/S Class B 1,521 105,181 William Demant Holding (a) 1,330 55,685 --------------- 160,866 --------------- INSURANCE - 0.1% Topdanmark A/S (a) 1,551 203,123 TrygVesta A/S 2,219 139,841 --------------- 342,964 --------------- MARINE - 0.1% A P Moller - Maersk A/S Class A 50 273,635 A P Moller - Maersk A/S Class B 91 489,717 --------------- 763,352 --------------- PHARMACEUTICALS - 0.3% Novo-Nordisk A/S Class B 37,952 1,957,712 --------------- ROAD & RAIL - 0.0% Dsv A/S 15,808 172,033 --------------- TOTAL COMMON STOCKS IN DENMARK 5,688,001 --------------- FINLAND - 1.2% AUTO COMPONENTS - 0.0% Nokian Renkaat Oyj 8,515 96,745 --------------- COMMUNICATIONS EQUIPMENT - 0.7% Nokia Oyj 317,753 4,986,297 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% OKO Bank 6,121 85,131 --------------- DIVERSIFIED TELECOMMUNICATION Elisa Corp. 13,141 228,770 --------------- SERVICES - 0.0% ELECTRIC UTILITIES - 0.1% Fortum Oyj 36,645 796,490 --------------- FOOD & STAPLES RETAILING - 0.0% Kesko Oyj Class B 6,235 157,105 --------------- INSURANCE - 0.1% Sampo Oyj 38,401 726,830 --------------- MACHINERY - 0.1% Kone Oyj Class B 12,704 284,871 Metso Oyj 11,856 145,296 Wartsila Oyj 7,230 218,463 --------------- 648,630 --------------- MEDIA - 0.0% Sanoma Oyj 4,060 52,732 --------------- METALS & MINING - 0.0% Outokumpu Oyj 9,768 116,230 Rautaruukki Oyj 7,096 123,934 --------------- 240,164 --------------- OIL, GAS & CONSUMABLE FUELS - 0.0% Neste Oil Oyj 10,559 158,936 PAPER & FOREST PRODUCTS - 0.2% Stora Enso Oyj Class R 53,245 421,781 --------------- UPM-Kymmene Oyj 46,654 598,045 --------------- 1,019,826 PHARMACEUTICALS - 0.0% Orion Oyj 4,698 79,902 --------------- TOTAL COMMON STOCKS IN FINLAND 9,277,558 --------------- FRANCE - 9.8% AEROSPACE & DEFENSE - 0.2% European Aeronautic Defense and Space Co. 26,785 453,613 Safran SA 15,605 210,693 Thales SA 7,177 300,595 Zodiac SA 3,520 128,528 --------------- 1,093,429 --------------- AIRLINES - 0.0% Air France-KLM 11,113 143,316 ---------------
4 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- AUTO COMPONENTS - 0.1% Compagnie Generale des Etablissements 12,919 $ 682,558 Valeo SA 6,460 96,234 --------------- 778,792 --------------- AUTOMOBILES - 0.1% Peugeot SA 13,684 233,951 Renault SA 14,516 378,810 --------------- 612,761 --------------- BEVERAGES - 0.1% Pernod-Ricard SA 14,425 1,071,602 --------------- BUILDING PRODUCTS - 0.2% Cie de Saint-Gobain SA 24,417 1,153,708 --------------- CHEMICALS - 0.3% Air Liquide 20,763 1,901,462 --------------- COMMERCIAL BANKS - 0.8% BNP Paribas SA 68,178 2,942,866 Credit Agricole SA 69,667 782,508 Natixis 80,926 143,556 Societe Generale SA 39,264 1,991,977 --------------- 5,860,907 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.1% Societe BIC SA 1,668 95,967 Suez Environnement SA (a) 22,304 376,684 --------------- 472,651 --------------- COMMUNICATIONS EQUIPMENT - 0.1% Alcatel SA 198,597 429,884 --------------- CONSTRUCTION & ENGINEERING - 0.4% Bouygues 20,139 854,366 Eiffage 3,519 184,495 Vinci SA 35,134 1,482,641 --------------- 2,521,502 --------------- CONSTRUCTION MATERIALS - 0.1% Imerys SA 2,195 100,323 Lafarge SA 11,452 700,420 --------------- 800,743 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Eurazeo 2,508 117,950 --------------- DIVERSIFIED TELECOMMUNICATION France Telecom SA 150,246 4,187,757 SERVICES - 0.6% Iliad SA 1,114 96,715 --------------- 4,284,472 --------------- ELECTRIC UTILITIES - 0.1% Electricite de France SA 16,545 962,287 --------------- ELECTRICAL EQUIPMENT - 0.4% Alstom 17,533 1,044,873 Legrand Promesses 9,435 180,687 Schneider Electric SA 18,786 1,398,688 --------------- 2,624,248 --------------- ENERGY EQUIPMENT & SERVICES - 0.1% Compagnie Generale de Geophysique SA (a) 10,727 160,569 Technip SA 8,422 258,588 --------------- 419,157 --------------- FOOD & STAPLES RETAILING - 0.3% Carrefour SA 52,655 2,035,347 Casino Guichard Perrachon SA 3,591 273,686 --------------- 2,309,033 --------------- FOOD PRODUCTS - 0.3% Groupe Danone 36,628 2,213,055 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.1% Cie Generale d'Optique Essilor International 17,775 834,980 --------------- HOTELS, RESTAURANTS & LEISURE - 0.2% Accor SA 16,723 823,767 Sodexho Alliance SA 7,849 436,222 --------------- 1,259,989 --------------- IT SERVICES - 0.1% Atos Origin SA 5,609 141,179
5 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Cap Gemini SA 12,634 $ 488,518 --------------- 629,697 --------------- INDEPENDENT POWER PRODUCERS & ENERGY EDP Renovaveis SA (a) 13,128 91,821 TRADERS - 0.0% --------------- INDUSTRIAL CONGLOMERATES - 0.0% Wendel 2,216 110,857 --------------- INSURANCE - 0.5% AXA SA 129,232 2,900,688 CNP Assurances 3,055 221,972 Scor SE 13,521 312,381 --------------- 3,435,041 --------------- MACHINERY - 0.1% Vallourec SA 4,556 518,017 --------------- MEDIA - 0.6% Eutelsat Communications 8,923 210,751 JC Decaux SA 5,607 96,979 Lagardere S.C.A. 10,889 442,401 M6-Metropole Television SA 3,026 58,666 PagesJaunes Groupe SA 10,464 103,111 Publicis Groupe 10,822 279,293 Societe Television Francaise 1 9,437 138,266 Vivendi SA 97,557 3,179,773 --------------- 4,509,240 --------------- METALS & MINING - 0.0% Eramet 426 83,099 --------------- MULTI-UTILITIES - 0.8% GDF Suez 90,797 4,506,895 Veolia Environnement SA 31,705 1,000,067 --------------- 5,506,962 --------------- MULTILINE RETAIL - 0.1% Pinault-Printemps-Redoute 6,346 415,506 --------------- OFFICE ELECTRONICS - 0.0% Neopost SA 2,619 237,643 --------------- OIL, GAS & CONSUMABLE FUELS - 1.4% Total SA 177,470 9,757,146 --------------- PERSONAL PRODUCTS - 0.2% L'Oreal SA 19,820 1,729,709 --------------- PHARMACEUTICALS - 0.8% Sanofi-Aventis 86,580 5,537,927 --------------- PROFESSIONAL SERVICES - 0.0% Bureau Veritas SA 4,034 162,183 --------------- REAL ESTATE INVESTMENT TRUSTS Gecina SA 839 58,336 (REITS) - 0.2% ICADE 1,182 98,229 Klepierre 6,884 169,292 Unibail - Rodamco 7,161 1,069,814 --------------- 1,395,671 --------------- SEMICONDUCTORS & SEMICONDUCTOR STMicroelectronics NV 58,053 389,341 EQUIPMENT - 0.1% --------------- SOFTWARE - 0.0% Dassault Systemes SA 5,132 232,670 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.3% Christian Dior SA 4,485 253,578 Hermes International 5,692 796,895 LVMH Moet Hennessy Louis Vuitton SA 20,592 1,380,045 --------------- 2,430,518 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Aeroports de Paris 2,398 163,249 Societe Des Autoroutes Paris-Rhin-Rhone 1,437 100,226 --------------- 263,475 --------------- TOTAL COMMON STOCKS IN FRANCE 69,302,451 --------------- GERMANY - 8.3% AIR FREIGHT & LOGISTICS - 0.2% Deutsche Post AG 69,745 1,179,641 ---------------
6 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- AIRLINES - 0.0% Deutsche Lufthansa AG 18,828 $ 309,605 --------------- AUTO COMPONENTS - 0.2% Continental AG (a) 12,383 1,247,939 --------------- AUTOMOBILES - 1.1% Bayerische Motoren Werke AG 28,700 881,239 Bayerische Motoren Werke AG (Preference Shares) 5,309 103,699 DaimlerChrysler AG 70,599 2,689,951 Porsche Automobil Holding SE (Preference Shares) 7,884 617,118 Volkswagen AG 9,578 3,331,346 --------------- 7,623,353 --------------- CAPITAL MARKETS - 0.3% Deutsche Bank AG Registered Shares 45,872 1,814,062 --------------- CHEMICALS - 0.7% BASF SE 78,772 3,060,578 K+S AG 12,851 734,481 Linde AG 11,059 928,165 Wacker Chemie AG 1,287 137,816 --------------- 4,861,040 --------------- COMMERCIAL BANKS - 0.1% Commerzbank AG 56,690 538,618 Deutsche Postbank AG 6,769 146,500 Hypo Real Estate Holding AG 13,286 58,701 --------------- 743,819 --------------- CONSTRUCTION & ENGINEERING - 0.0% Hochtief AG 3,455 178,162 --------------- CONSTRUCTION MATERIALS - 0.0% HeidelbergCement AG 2,346 102,630 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.2% Deutsche Boerse AG 16,259 1,176,321 --------------- DIVERSIFIED TELECOMMUNICATION Deutsche Telekom AG 229,735 3,473,430 SERVICES - 0.5% ELECTRIC UTILITIES - 0.9% E.ON AG 158,040 6,205,782 ELECTRICAL EQUIPMENT - 0.0% Q-Cells AG (a) 4,977 186,054 Solarworld AG 6,748 151,020 --------------- 337,074 --------------- FOOD & STAPLES RETAILING - 0.1% Metro AG 9,362 372,313 HEALTH CARE EQUIPMENT & SUPPLIES - 0.1% Fresenius AG 2,764 139,491 Fresenius AG (Preference Shares) 6,253 366,958 --------------- 506,449 --------------- HEALTH CARE PROVIDERS & SERVICES - 0.1% Celesio AG 7,048 190,702 Fresenius Medical Care AG 16,082 739,317 --------------- 930,019 --------------- HOTELS, RESTAURANTS & LEISURE - 0.0% TUI AG 17,565 208,667 --------------- HOUSEHOLD PRODUCTS - 0.0% Henkel KGaA 11,896 310,073 --------------- INDUSTRIAL CONGLOMERATES - 0.8% Siemens AG 71,711 5,398,644 --------------- INSURANCE - 1.0% Allianz AG Registered Shares 36,947 3,931,184 Hannover Rueckversicherung AG Registered Shares 4,957 157,636 Muenchener Rueckversicherungs AG Registered Shares 17,317 2,688,423 --------------- 6,777,243 --------------- INTERNET SOFTWARE & SERVICES - 0.0% United Internet AG 11,411 103,223 --------------- MACHINERY - 0.1% GEA Group AG 12,377 214,929
7 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- MAN AG 8,972 $ 503,273 --------------- 718,202 --------------- METALS & MINING - 0.2% Salzgitter AG 3,391 263,532 ThyssenKrupp AG 30,495 848,922 --------------- 1,112,454 --------------- MULTI-UTILITIES - 0.5% RWE AG 37,100 3,295,108 --------------- PERSONAL PRODUCTS - 0.1% Beiersdorf AG 7,287 431,612 --------------- PHARMACEUTICALS - 0.6% Bayer AG 63,337 3,690,546 Merck KGaA 5,332 477,002 --------------- 4,167,548 --------------- SEMICONDUCTORS & SEMICONDUCTOR Infineon Technologies AG (a) 61,658 82,985 EQUIPMENT - 0.0% SOFTWARE - 0.4% SAP AG 72,430 2,628,269 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.1% Adidas-Salomon AG 16,799 640,371 Puma AG Rudolf Dassler Sport 573 114,192 --------------- 754,563 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Fraport AG 2,921 132,173 Hamburger Hafen und Logistik AG 2,544 85,174 --------------- 217,347 --------------- TOTAL COMMON STOCKS IN GERMANY 57,267,577 --------------- GREECE - 0.4% BEVERAGES - 0.0% Coca-Cola Hellenic Bottling Co. SA 12,150 176,669 --------------- CAPITAL MARKETS - 0.0% Marfin Investment Group SA 53,258 213,080 --------------- COMMERCIAL BANKS - 0.2% Alpha Bank AE 30,594 286,225 EFG Eurobank Ergasias SA 27,217 216,761 National Bank of Greece SA 43,816 813,689 Piraeus Bank SA 27,189 242,702 --------------- 1,559,377 --------------- CONSTRUCTION MATERIALS - 0.0% Titan Cement Co. SA 3,439 66,754 --------------- DIVERSIFIED TELECOMMUNICATION Hellenic Telecommunications SERVICES - 0.1% Organization SA 22,722 377,499 --------------- ELECTRIC UTILITIES - 0.0% Public Power Corp. 8,606 138,309 --------------- HOTELS, RESTAURANTS & LEISURE - 0.1% OPAP SA 17,998 517,953 --------------- OIL, GAS & CONSUMABLE FUELS - 0.0% Hellenic Petroleum SA 6,553 48,534 --------------- TOTAL COMMON STOCKS IN GREECE 3,098,175 --------------- HONG KONG - 1.7% AIRLINES - 0.0% Cathay Pacific Airways Ltd. 106,263 120,025 --------------- COMMERCIAL BANKS - 0.2% BOC Hong Kong Holdings Ltd. 304,900 348,985 Bank of East Asia Ltd. 117,139 247,090 Hang Seng Bank Ltd. 63,053 832,464 Wing Hang Bank Ltd. 10,500 61,080 --------------- 1,489,619 --------------- DISTRIBUTORS - 0.0% Li & Fung Ltd. 183,990 317,971 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.1% Hong Kong Exchanges and Clearing Ltd. 89,927 863,383 --------------- DIVERSIFIED TELECOMMUNICATION PCCW Ltd. 364,195 174,853 SERVICES - 0.0% ELECTRIC UTILITIES - 0.3% CLP Holdings Ltd. 169,187 1,150,256
8 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Cheung Kong Infrastructure Holdings Ltd. 28,500 $ 107,626 HongKong Electric Holdings Ltd. 117,000 658,709 --------------- 1,916,591 --------------- ELECTRONIC EQUIPMENT & Kingboard Chemical Holdings Ltd. 50,647 91,806 INSTRUMENTS - 0.0% GAS UTILITIES - 0.1% The Hong Kong & China Gas Ltd. 323,290 490,258 --------------- HOTELS, RESTAURANTS & LEISURE - 0.0% Shangri-La Asia Ltd. 84,990 98,307 --------------- INDUSTRIAL CONGLOMERATES - 0.1% Hutchison Whampoa Ltd. 176,176 889,375 NWS Holdings Ltd. 79,000 118,346 --------------- 1,007,721 --------------- MARINE - 0.0% Orient Overseas International Ltd. 17,057 38,247 --------------- MEDIA - 0.0% Television Broadcasts Ltd. 15,000 49,174 --------------- REAL ESTATE INVESTMENT TRUSTS The Link REIT 184,414 306,774 (REITS) - 0.1% --------------- REAL ESTATE MANAGEMENT & Cheung Kong Holdings Ltd. 114,835 1,095,483 DEVELOPMENT - 0.7% Chinese Estates Holdings Ltd. 96,000 109,836 Hang Lung Group Ltd. 83,000 253,552 Hang Lung Properties Ltd. 167,000 366,660 Henderson Land Development Co., Ltd. 86,491 323,491 Hopewell Holdings Ltd. 56,349 186,946 Hysan Development Co. Ltd. 56,791 92,339 Kerry Properties Ltd. 55,000 147,956 New World Development Ltd. 195,484 200,160 Sino Land Co. 160,421 167,999 Sun Hung Kai Properties Ltd. 116,324 978,813 Swire Pacific Ltd. Class A 68,077 471,584 Wharf Holdings Ltd. 112,870 312,442 Wheelock and Co., Ltd. 91,000 200,539 --------------- 4,907,800 --------------- ROAD & RAIL - 0.0% MTR Corp. 115,000 267,827 --------------- SEMICONDUCTORS & SEMICONDUCTOR ASM Pacific Technology Ltd. 12,504 41,212 EQUIPMENT - 0.0% --------------- SPECIALTY RETAIL - 0.1% Esprit Holdings Ltd. 87,200 496,901 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Hong Kong Aircraft Engineering Company Ltd. 3,200 26,432 --------------- WIRELESS TELECOMMUNICATION Hutchison Telecommunications SERVICES - 0.0% International Ltd. 158,647 42,782 --------------- TOTAL COMMON STOCKS IN HONG KONG 12,747,683 --------------- IRELAND - 0.3% AIRLINES - 0.0% Ryanair Holdings Plc (a) 35,968 152,864 --------------- COMMERCIAL BANKS - 0.1% Allied Irish Banks Plc 72,617 173,702 Anglo Irish Bank Corp. Plc 62,641 15,080 Bank of Ireland 82,478 95,728 --------------- 284,510 --------------- CONSTRUCTION MATERIALS - 0.2% CRH Plc 44,247 1,130,579 --------------- FOOD PRODUCTS - 0.0% Kerry Group Plc 10,288 187,557 --------------- PHARMACEUTICALS - 0.0% Elan Corp. Plc (a) 37,704 222,533 --------------- TOTAL COMMON STOCKS IN IRELAND 1,978,043 ---------------
9 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- ITALY - 3.5% AEROSPACE & DEFENSE - 0.1% Finmeccanica SpA 34,599 $ 535,901 --------------- AUTO COMPONENTS - 0.0% Pirelli & C. SpA 204,382 77,190 --------------- AUTOMOBILES - 0.1% Fiat SpA 64,040 428,692 --------------- CAPITAL MARKETS - 0.1% Mediobanca SpA 40,577 417,280 --------------- COMMERCIAL BANKS - 1.0% Banca Carige SpA 61,682 150,118 Banca Monte dei Paschi di Siena SpA 204,231 445,967 Banca Popolare di Milano Scrl 34,459 207,131 Banco Popolare SpA 54,523 386,582 Intesa Sanpaolo SpA 636,412 2,311,885 Intesa Sanpaolo SpA (Non-Convertible Savings Shares) 68,618 177,506 Unicredit SpA 943,627 2,399,193 Unione Di Banche Italiane ScpA 51,394 753,757 --------------- 6,832,139 --------------- CONSTRUCTION MATERIALS - 0.0% Italcementi SpA 6,190 80,435 Italcementi SpA (Non-Convertible Savings Shares) 10,722 74,765 --------------- 155,200 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% IFIL-Investments SpA 31,121 80,545 --------------- DIVERSIFIED TELECOMMUNICATION Telecom Italia SpA 833,858 1,371,839 SERVICES - 0.3% Telecom Italia SpA (Non-Convertible Savings Shares) 497,057 565,929 --------------- 1,937,768 --------------- ELECTRIC UTILITIES - 0.4% Enel SpA 361,832 2,330,774 Terna SpA 102,837 339,360 --------------- 2,670,134 --------------- ELECTRICAL EQUIPMENT - 0.0% Prysmian SpA 8,885 140,703 --------------- ENERGY EQUIPMENT & SERVICES - 0.1% Saipem SpA 23,126 394,427 --------------- FOOD PRODUCTS - 0.0% Parmalat SpA 140,552 235,789 --------------- GAS UTILITIES - 0.1% Snam Rete Gas SpA 64,373 359,587 --------------- HOTELS, RESTAURANTS & LEISURE - 0.0% Autogrill SpA 8,807 67,484 Lottomatica SpA 6,535 162,665 --------------- 230,149 --------------- INSURANCE - 0.4% Alleanza Assicurazioni SpA 34,823 286,234 Assicurazioni Generali SpA 86,256 2,381,482 Fondiaria-Sai SpA 6,498 118,617 Mediolanum SpA 27,409 119,106 Unipol SpA 54,783 85,860 Unipol SpA (Preference Shares) 53,172 58,617 --------------- 3,049,916 --------------- MEDIA - 0.1% Mediaset SpA 63,163 363,946 --------------- MULTI-UTILITIES - 0.0% A2A SpA 103,091 185,338 --------------- OIL, GAS & CONSUMABLE FUELS - 0.7% Eni SpA 215,550 5,186,917 Saras SpA 19,965 68,100 --------------- 5,255,017 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Bulgari SpA 12,838 81,810
10 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Luxottica Group SpA 11,420 $ 208,900 --------------- 290,710 --------------- TRANSPORTATION INFRASTRUCTURE - 0.1% Autostrade SpA 19,679 369,168 --------------- TOTAL COMMON STOCKS IN ITALY 24,009,599 --------------- JAPAN - 23.7% AIR FREIGHT & LOGISTICS - 0.1% Yamato Transport Co., Ltd. 35,000 457,688 --------------- AIRLINES - 0.1% All Nippon Airways Co., Ltd. 41,000 161,588 Japan Airlines Corp. (a) 87,000 205,219 --------------- 366,807 --------------- AUTO COMPONENTS - 0.4% Aisin Seiki Co., Ltd. 15,400 220,569 Bridgestone Corp. 52,700 790,479 Denso Corp. 38,900 659,136 NGK Spark Plug Co., Ltd. 15,000 120,511 NHK Spring Co., Ltd. 9,000 33,248 NOK Corp. 10,600 74,639 Stanley Electric Co., Ltd. 11,100 117,202 Sumitomo Rubber Industries, Ltd. 17,100 148,842 Toyoda Gosei Co., Ltd. 5,300 62,407 Toyota Boshoku Corp. 3,800 30,963 Toyota Industries Corp. 15,400 331,732 --------------- 2,589,728 --------------- AUTOMOBILES - 1.8% Daihatsu Motor Co., Ltd. 20,000 176,736 Fuji Heavy Industries Ltd. 47,000 129,162 Honda Motor Co., Ltd. 136,500 2,907,271 Isuzu Motors Ltd. 100,000 129,216 Mazda Motor Corp. 74,000 125,512 Mitsubishi Motors Corp. (a) 280,000 383,522 Nissan Motor Co., Ltd. 181,000 651,171 Suzuki Motor Corp. 31,800 444,454 Toyota Motor Corp. 228,200 7,543,910 Yamaha Motor Co., Ltd. 16,200 170,462 --------------- 12,661,416 --------------- BEVERAGES - 0.2% Asahi Breweries Ltd. 34,200 591,320 Coca-Cola West Holdings Co., Ltd. 3,300 71,350 Ito En, Ltd. 5,800 85,621 Kirin Holdings Co., Ltd. 63,000 837,609 Sapporo Holdings Ltd. 23,000 145,680 --------------- 1,731,580 --------------- BUILDING PRODUCTS - 0.2% Asahi Glass Co., Ltd. 81,100 462,295 Daikin Industries Ltd. 22,500 591,716 JS Group Corp. 19,300 298,238 Nippon Sheet Glass Co., Ltd. 58,000 192,024 Toto Ltd. 22,000 139,029 --------------- 1,683,302 --------------- CAPITAL MARKETS - 0.3% Daiwa Securities Group, Inc. 107,000 642,355 Jafco Co., Ltd. 1,900 48,557 Matsui Securities Co., Ltd. 7,900 66,008
11 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Nomura Holdings, Inc. 146,800 $ 1,222,304 SBI Holdings, Inc. 1,486 229,408 Shinko Securities Co., Ltd. 40,300 88,424 --------------- 2,297,056 --------------- CHEMICALS - 0.9% Asahi Kasei Corp. 94,000 414,921 DIC Corp. 30,000 63,293 Daicel Chemical Industries Ltd. 14,000 66,316 Denki Kagaku Kogyo Kabushiki Kaisha 25,000 61,563 Hitachi Chemical Co., Ltd. 8,700 90,377 JSR Corp. 14,500 163,129 Kaneka Corp. 17,000 108,591 Kansai Paint Co., Ltd. 14,000 71,927 Kuraray Co., Ltd. 26,500 207,626 Mitsubishi Chemical Holdings Corp. 103,000 456,403 Mitsubishi Gas Chemical Co., Inc. 31,000 127,200 Mitsubishi Rayon Co., Ltd. 57,000 172,645 Mitsui Chemicals, Inc. 55,000 204,384 Nippon Sanso Corp. 18,000 138,941 Nissan Chemical Industries Ltd. 16,000 155,091 Nitto Denko Corp. 13,010 249,061 Shin-Etsu Chemical Co., Ltd. 34,900 1,610,690 Showa Denko KK 93,000 134,700 Sumitomo Chemical Co., Ltd. 126,000 431,934 Teijin Ltd. 85,000 241,444 Tokuyama Corp. 20,000 169,568 Toray Industries, Inc. 117,700 598,995 Tosoh Corp. 49,000 120,940 Ube Industries Ltd. 81,000 227,541 --------------- 6,287,280 --------------- COMMERCIAL BANKS - 2.4% The 77 Bank Ltd. 21,000 114,306 Aozora Bank Ltd. 70,000 65,765 The Bank of Kyoto Ltd. 26,000 291,394 The Bank of Yokohama Ltd. 104,000 613,472 The Chiba Bank Ltd. 65,000 406,500 The Chugoku Bank Ltd. 16,000 247,217 Chuo Mitsui Trust Holdings, Inc. 84,000 413,004 Fukuoka Financial Group, Inc. 67,000 292,856 The Gunma Bank Ltd. 26,000 166,443 The Hachijuni Bank Ltd. 28,000 161,013 The Hiroshima Bank Ltd. 31,000 135,658 Hokuhoku Financial Group, Inc. 84,100 199,084 The Iyo Bank Ltd. 23,000 286,281 The Joyo Bank Ltd. 50,000 284,357 Mitsubishi UFJ Financial Group, Inc. 904,674 5,686,011 Mizuho Financial Group, Inc. 812 2,308,355 The Nishi-Nippon City Bank Ltd. 48,000 139,610 Resona Holdings, Inc. 447 661,254
12 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Sapporo Hokuyo Holdings, Inc. 17 $ 65,450 Seven Bank Ltd. 40 152,888 Shinsei Bank Ltd. 122,000 193,092 The Shizuoka Bank Ltd. 51,000 592,661 Sumitomo Mitsui Financial Group, Inc. 562 2,331,076 The Sumitomo Trust & Banking Co., Ltd. 125,000 738,906 Suruga Bank Ltd. 15,000 149,019 Yamaguchi Financial Group, Inc. 21,000 236,174 The Yasuda Trust & Banking Co., Ltd. 145,000 183,963 --------------- 17,115,809 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.3% Dai Nippon Printing Co., Ltd. 47,000 519,566 Secom Co., Ltd. 18,200 939,165 Toppan Printing Co., Ltd. 41,000 316,738 --------------- 1,775,469 --------------- COMPUTERS & PERIPHERALS - 0.4% Fujitsu Ltd. 155,000 753,610 Mitsumi Electric Co., Ltd. 7,400 129,580 NEC Corp. 154,000 521,006 Seiko Epson Corp. 10,300 163,893 Toshiba Corp. 256,000 1,053,386 --------------- 2,621,475 --------------- CONSTRUCTION & ENGINEERING - 0.2% JGC Corp. 18,000 269,387 Kajima Corp. 67,800 238,804 Kinden Corp. 7,000 63,313 Obayashi Corp. 54,000 322,753 Shimizu Corp. 48,000 281,781 Taisei Corp. 93,000 256,356 --------------- 1,432,394 --------------- CONSTRUCTION MATERIALS - 0.0% Taiheiyo Cement Corp. 73,000 140,728 --------------- CONSUMER FINANCE - 0.2% Acom Co., Ltd. 4,160 175,820 Aeon Credit Service Co., Ltd. 8,900 93,836 Credit Saison Co., Ltd. 15,900 220,728 ORIX Corp. 7,360 420,263 Promise Co., Ltd. 5,900 149,653 Takefuji Corp. 8,870 72,774 --------------- 1,133,074 --------------- CONTAINERS & PACKAGING - 0.0% Toyo Seikan Kaisha Ltd. 10,600 183,739 --------------- DISTRIBUTORS - 0.0% Canon Marketing Japan Inc. 4,700 75,684 --------------- DIVERSIFIED CONSUMER SERVICES - 0.0% Benesse Corp. 5,400 236,310 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Diamond Lease Co., Ltd. 3,720 94,808 --------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3% Nippon Telegraph & Telephone Corp. 418 2,158,014 --------------- ELECTRIC UTILITIES - 1.5% Chubu Electric Power Co., Inc. 54,000 1,644,723 Chugoku Electric Power Co. 21,700 571,370 Hokkaido Electric Power Co., Inc. 14,800 374,183 Hokuriku Electric Power 16,000 452,608 The Kansai Electric Power Co., Inc. 62,200 1,801,685 Kyushu Electric Power Co., Inc. 30,300 804,393
13 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Shikoku Electric Power Co., Inc. 16,200 $ 546,185 Tohoku Electric Power Co., Inc. 34,100 922,447 The Tokyo Electric Power Co., Inc. 102,100 3,408,277 --------------- 10,525,871 --------------- ELECTRICAL EQUIPMENT - 0.3% Fuji Electric Holdings Co., Ltd. 31,800 47,911 Furukawa Electric Co., Ltd. 52,000 253,765 Mitsubishi Electric Corp. 155,000 971,347 Panasonic Electric Works Ltd. 32,873 293,127 Sumitomo Electric Industries Ltd. 60,200 466,020 Ushio, Inc. 7,000 92,486 --------------- 2,124,656 --------------- ELECTRONIC EQUIPMENT & Alps Electric Co., Ltd. 17,700 87,297 INSTRUMENTS - 1.0% Citizens Holding Co., Ltd. 32,400 116,792 Fuji Photo Film Co., Ltd. 42,100 939,845 Hirose Electric Co., Ltd. 2,300 232,716 Hitachi High-Technologies Corp. 4,300 68,860 Hitachi Ltd. 287,000 1,113,824 Hoya Corp. 33,100 578,131 Ibiden Co., Ltd. 10,900 225,999 Keyence Corp. 3,000 616,536 Kyocera Corp. 14,200 1,028,049 Mabuchi Motor Co., Ltd. 1,600 66,328 Murata Manufacturing Co., Ltd. 17,200 674,437 Nidec Corp. 9,200 359,806 Nippon Electric Glass Co. 27,500 145,162 Omron Corp. 14,500 194,820 Shimadzu Corp. 26,000 163,667 TDK Corp. 11,300 417,497 Yaskawa Electric Corp. 16,000 64,625 Yokogawa Electric Corp. 12,700 83,577 --------------- 7,177,968 --------------- FOOD & STAPLES RETAILING - 0.5% Aeon Co., Ltd. 51,000 513,606 FamilyMart Co., Ltd. 5,700 247,542 Lawson, Inc. 6,500 374,864 Seven & I Holdings Co., Ltd. 68,800 2,364,766 UNY Co., Ltd. 16,000 177,058 --------------- 3,677,836 --------------- FOOD PRODUCTS - 0.3% Ajinomoto Co., Inc. 55,000 600,277 Kikkoman Corp. 16,000 190,130 Meiji Dairies Corp. 29,000 156,125 Nippon Meat Packers, Inc. 18,000 273,995 Nisshin Seifun Group, Inc. 11,000 145,268 Nissin Foods Holdings Co., Ltd. 7,500 261,363 Toyo Suisan Kaisha, Ltd. 9,000 259,348 Yakult Honsha Co., Ltd. 6,800 145,500 Yamazaki Baking Co., Ltd. 8,000 123,069 2,155,075
14 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- GAS UTILITIES - 0.3% Osaka Gas Co., Ltd. 163,000 $ 753,751 Toho Gas Co., Ltd. 45,000 296,938 Tokyo Gas Co., Ltd. 198,000 1,003,638 --------------- 2,054,327 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.1% Olympus Corp. 18,000 360,335 Terumo Corp. 14,800 693,313 --------------- 1,053,648 --------------- HEALTH CARE PROVIDERS & SERVICES - 0.0% Alfresa Holdings Corp. 1,900 91,074 Mediceo Paltac Holdings Co., Ltd. 9,400 113,065 Suzuken Co., Ltd. 4,600 137,136 --------------- 341,275 --------------- HOTELS, RESTAURANTS & LEISURE - 0.1% Oriental Land Co., Ltd. 3,900 320,188 --------------- HOUSEHOLD DURABLES - 0.8% Casio Computer Co., Ltd. 19,000 119,897 HASEKO Corp. 108,000 115,149 Makita Corp. 9,800 219,266 Panasonic Corp. 150,000 1,843,835 Sanyo Electric Co., Ltd. (a) 154,000 288,082 Sekisui Chemical Co., Ltd. 29,000 181,049 Sekisui House Ltd. 37,000 326,431 Sharp Corp. 88,000 634,347 Sony Corp. 84,800 1,854,738 --------------- 5,582,794 --------------- HOUSEHOLD PRODUCTS - 0.2% Kao Corp. 44,000 1,336,515 Uni-Charm Corp. 3,600 270,834 --------------- 1,607,349 --------------- IT SERVICES - 0.1% Itochu Techno-Science Corp. 1,300 31,761 NTT Data Corp. 113 455,285 Nomura Research Institute Ltd. 8,700 165,963 Obic Co., Ltd. 430 70,223 Otsuka Shokai Co., Ltd. 700 31,882 --------------- 755,114 --------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1% Electric Power Development Co. 11,300 444,161 --------------- INDUSTRIAL CONGLOMERATES - 0.1% Hankyu Hanshin Holdings, Inc. 94,000 542,874 --------------- INSURANCE - 0.7% Aioi Insurance Co., Ltd. 45,000 235,403 Mitsui Sumitomo Insurance Group Holdings, 30,557 971,748 Nipponkoa Insurance Co., Ltd. 53,000 412,330 Nissay Dowa General Insurance Co., Ltd. 8,000 49,754 Sompo Japan Insurance, Inc. 66,800 494,633 Sony Financial Holdings, Inc. 70 267,151 T&D Holdings, Inc. 15,650 662,400 Tokio Marine Holdings, Inc. 57,500 1,703,692 --------------- 4,797,111 --------------- INTERNET & CATALOG RETAIL - 0.1% Dena Co. Ltd. 24 77,732 Rakuten, Inc. (a) 539 343,178 --------------- 420,910 --------------- INTERNET SOFTWARE & SERVICES - 0.1% Yahoo! Japan Corp. 1,211 496,890 ---------------
15 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- LEISURE EQUIPMENT & PRODUCTS - 0.2% Namco Bandai Holdings, Inc. 16,700 $ 183,040 Nikon Corp. 28,000 336,072 Sankyo Co., Ltd. (Gunma) 4,300 216,929 Sega Sammy Holdings, Inc. 17,632 205,605 Shimano, Inc. 5,600 220,453 Yamaha Corp. 12,000 111,566 --------------- 1,273,665 --------------- MACHINERY - 1.0% Amada Co., Ltd. 28,000 136,182 Fanuc Ltd. 15,300 1,096,578 Hino Motors Ltd. 22,000 45,346 Hitachi Construction Machinery Co., Ltd. 11,300 135,117 IHI Corp. 98,000 125,011 JTEKT Corp. 15,600 121,574 The Japan Steel Works, Ltd. 32,000 448,027 Kawasaki Heavy Industries Ltd. 142,000 286,643 Komatsu Ltd. 77,400 987,354 Kubota Corp. 87,000 629,914 Kurita Water Industries Ltd. 10,600 286,557 Minebea Co., Ltd. 29,000 100,358 Mitsubishi Heavy Industries Ltd. 275,200 1,229,938 Mitsui Engineering & Shipbuilding Co., Ltd. 58,000 97,702 NGK Insulators Ltd. 21,000 237,966 NSK Ltd. 35,000 132,182 NTN Corp. 26,000 78,567 SMC Corp. 4,600 473,879 Sumitomo Heavy Industries Ltd. 55,000 220,017 THK Co., Ltd. 9,200 96,820 --------------- 6,965,732 --------------- MARINE - 0.2% Kawasaki Kisen Kaisha Ltd. 49,000 229,813 Mitsui OSK Lines Ltd. 101,000 624,209 Nippon Yusen Kabushiki Kaisha 100,000 616,474 --------------- 1,470,496 --------------- MEDIA - 0.1% Dentsu, Inc. 170 331,936 Fuji Media Holdings, Inc. 54 77,249 Hakuhodo DY Holdings, Inc. 1,140 62,194 Jupiter Telecommunications Co., Ltd. 159 165,494 Toho Co., Ltd. 7,400 159,237 Tokyo Broadcasting System, Inc. 3,500 53,399 --------------- 849,509 --------------- METALS & MINING - 0.7% Daido Steel Co., Ltd. 24,000 72,803 Dowa Mining Co., Ltd. (b) 16,000 59,142 Hitachi Metals Ltd. 13,000 60,463 JFE Holdings, Inc. 41,800 1,110,868 Kobe Steel Ltd. 208,000 382,121 Maruichi Steel Tube Ltd. 4,400 122,761 Mitsubishi Materials Corp. 93,000 235,392 Mitsui Mining & Smelting Co., Ltd. 63,000 133,647
16 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Nippon Steel Corp. 434,000 $ 1,426,247 Nisshin Steel Co., Ltd. 49,000 100,988 Osaka Titanium Technologies Co. 1,500 37,807 Sumitomo Metal Industries Ltd. 316,000 780,558 Sumitomo Metal Mining Co., Ltd. 49,000 524,182 Tokyo Steel Manufacturing Co., Ltd. 9,700 101,776 Yamato Kogyo Co. Ltd. 3,500 94,725 --------------- 5,243,480 --------------- MULTILINE RETAIL - 0.1% Isetan Mitsukoshi Holdings Ltd. 30,105 259,802 J Front Retailing Co. Ltd. 34,600 143,176 Marui Group Co. Ltd. 26,700 155,996 Takashimaya Co., Ltd. 24,000 182,398 --------------- 741,372 --------------- OFFICE ELECTRONICS - 0.6% Brother Industries Ltd. 23,000 137,211 Canon, Inc. 87,300 2,766,064 Konica Minolta Holdings, Inc. 38,500 299,562 Ricoh Co., Ltd. 54,000 692,103 --------------- 3,894,940 --------------- OIL, GAS & CONSUMABLE FUELS - 0.3% Cosmo Oil Co., Ltd. 33,000 102,733 Idemitsu Kosan Co., Ltd. 2,000 128,803 Inpex Corp. 65 518,184 Japan Petrolleum Explora 3,000 131,898 Nippon Mining Holdings, Inc. 69,500 301,571 Nippon Oil Corp. 104,000 527,318 Showa Shell Sekiyu KK 19,900 197,208 TonenGeneral Sekiyu KK 25,000 250,504 --------------- 2,158,219 --------------- PAPER & FOREST PRODUCTS - 0.1% Nippon Paper Group, Inc. 85 335,687 OJI Paper Co., Ltd. 69,000 405,662 --------------- 741,349 --------------- PERSONAL PRODUCTS - 0.1% Shiseido Co., Ltd. 29,000 596,382 --------------- PHARMACEUTICALS - 1.5% Astellas Pharma, Inc. 40,600 1,661,852 Chugai Pharmaceutical Co., Ltd. 18,000 349,898 Daiichi Sankyo Co., Ltd. 56,400 1,333,768 Dainippon Pharma Co., Ltd. 17,000 159,165 Eisai Co., Ltd. 22,000 918,051 Hisamitsu Pharmaceutical Co., Ltd. 6,300 257,530 Kyowa Hakko Kirin Co. Ltd. 20,000 209,962 Mitsubishi Tanabe Pharma Corp. 20,000 301,876 Ono Pharmacecutical Co., Ltd. 7,600 393,994 Santen Pharmaceutical Co., Ltd. 4,900 148,887 Shionogi & Co., Ltd. 26,000 671,452 Taisho Pharmaceutical Co., Ltd. 11,000 234,323 Takeda Pharmaceutical Co., Ltd. 68,300 3,559,954 Tsumura & Co. 5,500 204,148 --------------- 10,404,860 ---------------
17 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- REAL ESTATE INVESTMENT TRUSTS Japan Prime Realty Investment Corp. 62 $ 147,173 (REITS) - 0.2% Japan Real Estate Investment Corp. 34 303,727 Japan Retail Fund Investment Corp. 37 159,816 Nippon Building Fund, Inc. 41 450,662 Nomura Real Estate Office Fund, Inc. 20 130,133 --------------- 1,191,511 --------------- REAL ESTATE MANAGEMENT Aeon Mall Co. Ltd. 3,600 69,594 & DEVELOPMENT - 0.7% Daito Trust Construction Co., Ltd. 6,500 341,213 Daiwa House Industry Co., Ltd. 41,000 401,988 Leopalace21 Corp. 11,400 115,510 Mitsubishi Estate Co., Ltd. 99,000 1,635,370 Mitsui Fudosan Co., Ltd. 72,000 1,200,401 NTT Urban Development Co. 63 68,227 Nomura Real Estate Holdings, Inc. 3,000 59,852 Sumitomo Realty & Development Co., Ltd. 33,000 496,061 Tokyo Tatemono Co., Ltd. 22,000 100,824 Tokyu Land Corp. 35,000 134,157 --------------- 4,623,197 --------------- ROAD & RAIL - 1.0% Central Japan Railway Co. 126 1,092,754 East Japan Railway Co. 286 2,173,789 Keihin Electric Express Railway Co., Ltd. 31,000 273,765 Keio Electric Railway Co., Ltd. 41,000 246,699 Keisei Electric Railway Co., Ltd. 31,000 193,800 Kintetsu Corp. 125,000 575,068 Nippon Express Co., Ltd. 70,000 295,058 Odakyu Electric Railway Co., Ltd. 53,000 466,661 Tobu Railway Co., Ltd. 66,000 394,323 Tokyu Corp. 91,000 458,808 West Japan Railway Co. 148 674,352 --------------- 6,845,077 --------------- SEMICONDUCTORS & SEMICONDUCTOR Advantest Corp. 14,800 241,255 EQUIPMENT - 0.2% Elpida Memory, Inc. (a) 14,400 89,076 NEC Electronics Corp. (a) 1,200 11,362 Rohm Co., Ltd. 8,100 408,944 Shinko Electric Industries 2,100 17,148 Sumco Corp. 11,300 143,560 Tokyo Electron Ltd. 15,300 538,615 --------------- 1,449,960 --------------- SOFTWARE - 0.6% Konami Corp. 9,800 254,064 Nintendo Co., Ltd. 8,100 3,095,429 Oracle Corp. Japan 2,400 103,952 Square Enix Holdings Co., Ltd. 4,000 129,070 Trend Micro, Inc. (a) 9,500 333,668 --------------- 3,916,183 --------------- SPECIALTY RETAIL - 0.2% Abc-Mart Inc 1,600 58,509 Fast Retailing Co., Ltd. 4,200 616,278 Hikari Tsushin, Inc. 800 15,206
18 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Nitori Co., Ltd. 3,450 $ 268,482 Shimamura Co., Ltd. 1,500 115,808 USS Co., Ltd. 1,440 76,412 Yamada Denki Co., Ltd. 6,920 483,720 --------------- 1,634,415 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Asics Corp. 12,000 97,236 Nisshinbo Industries, Inc. 13,000 99,101 Onward Holdings Co. Ltd. 7,000 55,795 --------------- 252,132 --------------- TOBACCO - 0.2% Japan Tobacco, Inc. 364 1,205,692 --------------- TRADING COMPANIES & DISTRIBUTORS - 0.8% Itochu Corp. 125,000 630,637 Marubeni Corp. 146,000 558,970 Mitsubishi Corp. 109,400 1,549,548 Mitsui & Co., Ltd. 147,000 1,511,214 Sojitz Corp. 99,900 166,952 Sumitomo Corp. 90,200 800,009 Toyota Tsusho Corp. 16,700 179,789 --------------- 5,397,119 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Kamigumi Co., Ltd. 17,000 151,041 Mitsubishi Logistics Corp. 9,000 114,104 --------------- 265,145 --------------- WIRELESS TELECOMMUNICATION KDDI Corp. 248 1,770,794 SERVICES - 0.8% NTT DoCoMo, Inc. 1,279 2,517,476 Softbank Corp. 64,600 1,173,213 --------------- 5,461,483 --------------- TOTAL COMMON STOCKS IN JAPAN 165,702,326 --------------- KAZAKHSTAN - 0.0% METALS & MINING - 0.0% Eurasian Natural Resources Corp. 25,222 120,682 --------------- TOTAL COMMON STOCKS IN KAZAKHSTAN 120,682 --------------- LUXEMBOURG - 0.4% ENERGY EQUIPMENT & SERVICES - 0.1% Tenaris SA 37,664 391,463 --------------- MEDIA - 0.1% SES Global 24,363 472,167 --------------- METALS & MINING - 0.2% ArcelorMittal 70,618 1,711,735 --------------- TOTAL COMMON STOCKS IN LUXEMBOURG 2,575,365 --------------- NETHERLANDS - 2.3% AIR FREIGHT & LOGISTICS - 0.1% TNT NV 33,940 659,297 --------------- BEVERAGES - 0.1% Heineken Holding NV 10,233 292,302 Heineken NV 20,204 618,580 --------------- 910,882 --------------- CHEMICALS - 0.2% Akzo Nobel NV 21,126 871,400 Koninklijke DSM NV 11,225 288,047 --------------- 1,159,447 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.3% ING Groep NV CVA 159,098 1,751,020 SNS Reaal 12,764 70,156 --------------- 1,821,176 --------------- DIVERSIFIED TELECOMMUNICATION Koninklijke KPN NV 152,062 2,210,743 SERVICES - 0.3% ---------------
19 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- ENERGY EQUIPMENT & SERVICES - 0.0% Fugro NV 4,637 $ 133,281 SBM Offshore NV 12,600 165,536 --------------- 298,817 --------------- FOOD & STAPLES RETAILING - 0.2% Koninklijke Ahold NV 100,527 1,238,784 --------------- FOOD PRODUCTS - 0.5% Unilever NV 134,383 3,257,169 --------------- INDUSTRIAL CONGLOMERATES - 0.2% Koninklijke Philips Electronics NV 86,074 1,706,564 --------------- INSURANCE - 0.1% Aegon NV 115,294 727,807 --------------- MEDIA - 0.2% Reed Elsevier NV 54,412 646,926 Wolters Kluwer NV 23,939 453,896 --------------- 1,100,822 --------------- PROFESSIONAL SERVICES - 0.0% Randstad Holdings NV 7,691 156,956 --------------- REAL ESTATE INVESTMENT TRUSTS Corio NV 2,933 135,060 (REITS) - 0.0% --------------- SEMICONDUCTORS & SEMICONDUCTOR ASML Holding NV 38,616 696,136 EQUIPMENT - 0.1% --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Koninklijke Boskalis Westminster NV 4,333 101,090 --------------- TOTAL COMMON STOCKS IN THE NETHERLANDS 16,180,750 --------------- NEW ZEALAND - 0.1% CONSTRUCTION MATERIALS - 0.0% Fletcher Building Ltd. 44,823 151,023 --------------- DIVERSIFIED TELECOMMUNICATION Telecom Corp. of New Zealand Ltd. 149,831 201,377 SERVICES - 0.1% --------------- ELECTRIC UTILITIES - 0.0% Contact Energy Ltd. 18,866 81,102 --------------- HOTELS, RESTAURANTS & LEISURE - 0.0% Sky City Ltd. 27,722 50,718 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Auckland International Airport Ltd. 55,023 52,207 --------------- TOTAL COMMON STOCKS IN NEW ZEALAND 536,427 --------------- NORWAY - 0.6% CHEMICALS - 0.1% Yara International ASA 17,600 387,143 --------------- COMMERCIAL BANKS - 0.0% DnB NOR ASA 60,599 240,435 --------------- DIVERSIFIED TELECOMMUNICATION Telenor ASA 52,995 357,525 SERVICES - 0.1% Telenor ASA (c) 5,999 122,980 --------------- 480,505 --------------- ELECTRICAL EQUIPMENT - 0.0% Renewable Energy Corp. ASA (a) 12,198 116,842 --------------- ENERGY EQUIPMENT & SERVICES - 0.0% Aker Solutions ASA 13,243 87,584 --------------- INDUSTRIAL CONGLOMERATES - 0.1% Orkla ASA 69,967 465,540 --------------- METALS & MINING - 0.0% Norsk Hydro ASA 57,044 232,420 --------------- OIL, GAS & CONSUMABLE FUELS - 0.3% Frontline Ltd. 4,600 135,047 Statoilhydro ASA 108,294 1,811,195 --------------- 1,946,242 --------------- TOTAL COMMON STOCKS IN NORWAY 3,956,711 --------------- PORTUGAL - 0.3% COMMERCIAL BANKS - 0.1% Banco Comercial Portugues SA Registered Shares 193,098 220,443 Banco Espirito Santo SA Registered Shares 17,884 166,568 --------------- 387,011 --------------- CONSTRUCTION MATERIALS - 0.0% Cimpor Cimentos de Portugal SA 26,806 130,160 --------------- DIVERSIFIED TELECOMMUNICATION Portugal Telecom SGPS SA Registered Shares 53,624 458,905 SERVICES - 0.1% --------------- ELECTRIC UTILITIES - 0.1% Energias de Portugal SA 154,384 580,789 ---------------
20 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- FOOD & STAPLES RETAILING - 0.0% Jeronimo Martins SGPS SA 17,014 $ 94,496 MEDIA - 0.0% Zon Multimedia Servicos de --------------- Telecomunicacoes e Multimedia SGPS SA 15,808 82,007 --------------- OIL, GAS & CONSUMABLE FUELS - 0.0% Galp Energia SGPS SA 15,896 159,599 --------------- TRANSPORTATION INFRASTRUCTURE - 0.0% Brisa-Auto Estradas de Portugal SA Private Shares 20,401 152,917 --------------- TOTAL COMMON STOCKS IN PORTUGAL 2,045,884 --------------- SINGAPORE - 0.9% AEROSPACE & DEFENSE - 0.0% Singapore Technologies Engineering Ltd. 114,213 189,137 --------------- AIRLINES - 0.1% Singapore Airlines Ltd. 44,009 346,128 --------------- COMMERCIAL BANKS - 0.3% DBS Group Holdings Ltd. 93,605 551,369 Oversea-Chinese Banking Corp. 206,914 719,457 United Overseas Bank Ltd. 101,572 917,909 --------------- 2,188,735 --------------- DISTRIBUTORS - 0.0% Jardine Cycle & Carriage Ltd. 7,529 50,073 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.1% Singapore Exchange Ltd. 81,000 288,537 --------------- DIVERSIFIED TELECOMMUNICATION Singapore Telecommunications Ltd. 656,132 1,169,263 SERVICES - 0.2% --------------- FOOD & STAPLES RETAILING - 0.0% Olam International Ltd. 115,900 93,431 --------------- FOOD PRODUCTS - 0.0% Golden Agri-Resources Ltd. 409,497 67,481 Wilmar International Ltd. 68,670 134,548 --------------- 202,029 --------------- HEALTH CARE PROVIDERS & SERVICES - 0.0% Parkway Holdings Ltd. 109,706 95,076 --------------- HOTELS, RESTAURANTS & LEISURE - 0.0% Genting International PLC (a) 149,388 46,887 --------------- INDUSTRIAL CONGLOMERATES - 0.1% Fraser and Neave Ltd. 68,096 140,795 Keppel Corp. Ltd. 119,616 363,165 SembCorp Industries Ltd. 81,590 133,100 --------------- 637,060 --------------- MACHINERY - 0.0% Cosco Corp. (Singapore) Ltd. 75,002 50,139 Sembcorp Marine Ltd. 87,197 102,773 --------------- 152,912 --------------- MARINE - 0.0% Neptune Orient Lines Ltd. 44,200 34,734 --------------- MEDIA - 0.0% Singapore Press Holdings Ltd. 130,316 282,567 --------------- REAL ESTATE INVESTMENT TRUSTS Ascendas Real Estate Investment Trust 117,152 112,704 (REITS) - 0.0% CapitaMall Trust 83,000 92,361 --------------- 205,065 --------------- REAL ESTATE MANAGEMENT & CapitaLand Ltd. 159,833 348,745 DEVELOPMENT - 0.1% City Developments Ltd. 46,535 208,195 UOL Group Ltd. 20,457 31,839 --------------- 588,779 --------------- ROAD & RAIL - 0.0% ComfortDelgro Corp. Ltd. 115,816 117,321 --------------- TRADING COMPANIES & DISTRIBUTORS - 0.0% Noble Group Ltd. 175,720 125,862 --------------- TOTAL COMMON STOCKS IN SINGAPORE 6,813,596 --------------- SPAIN - 4.0% AIRLINES - 0.0% Iberia Lineas Aereas de Espana 40,744 114,915 --------------- BIOTECHNOLOGY - 0.0% Grifols SA 10,517 184,275 --------------- COMMERCIAL BANKS - 1.6% Banco Bilbao Vizcaya Argentaria SA 295,581 3,662,358 ---------------
21 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Banco de Sabadell SA 75,496 $ 516,832 Banco de Valencia SA 14,005 149,825 Banco Popular Espanol SA 68,136 590,983 Banco Santander SA 652,338 6,295,854 Bankinter SA 20,987 189,830 --------------- 11,405,682 --------------- CONSTRUCTION & ENGINEERING - 0.2% ACS Actividades de Construccion y Servicios, 15,955 740,893 Acciona SA 2,303 292,830 Fomento de Construcciones y Contratas SA 3,759 125,007 Grupo Ferrovial SA 5,192 144,829 Sacyr Vallehermoso SA 6,339 57,471 --------------- 1,361,030 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Criteria Caixacorp. SA 69,161 275,907 --------------- DIVERSIFIED TELECOMMUNICATION Telefonica SA 350,872 7,919,764 SERVICES - 1.1% --------------- ELECTRIC UTILITIES - 0.6% Iberdrola SA 283,581 2,643,453 Red Electrica de Espana 9,950 507,218 Union Fenosa SA 32,135 805,155 --------------- 3,955,826 --------------- ELECTRICAL EQUIPMENT - 0.1% Gamesa Corp. Tecnologica SA 16,408 299,170 --------------- GAS UTILITIES - 0.0% Enagas 14,730 325,257 Gas Natural SDG SA 9,017 245,346 --------------- 570,603 --------------- IT SERVICES - 0.0% Indra Sistemas SA 9,965 228,724 --------------- INDEPENDENT POWER PRODUCERS & ENERGY Iberdrola Renovables (a) 69,701 303,872 TRADERS - 0.0% --------------- INSURANCE - 0.0% Corp. Mapfre SA 57,592 196,413 --------------- MACHINERY - 0.0% Zardoya Otis SA 8,675 155,923 --------------- MEDIA - 0.0% Gestevision Telecinco SA 10,684 115,086 --------------- METALS & MINING - 0.0% Acerinox SA 11,741 190,847 --------------- OIL, GAS & CONSUMABLE FUELS - 0.2% Repsol YPF SA 61,765 1,318,693 --------------- SPECIALTY RETAIL - 0.1% Inditex SA 17,909 797,502 --------------- TRANSPORTATION INFRASTRUCTURE - 0.1% Abertis Infraestructuras SA 20,325 364,272 Cintra Concesiones de Infraestructuras de Transporte SA 21,741 164,980 --------------- 529,252 --------------- TOTAL COMMON STOCKS IN SPAIN 29,923,484 --------------- SWEDEN - 1.8% BUILDING PRODUCTS - 0.1% Assa Abloy AB Series B 29,377 341,627 --------------- COMMERCIAL BANKS - 0.3% Nordea Bank AB 165,351 1,178,570 Skandinaviska Enskilda Banken AB Class A 40,953 330,583 Svenska Handelsbanken Class A 36,512 603,771 Swedbank AB-A Shares 34,000 200,828 --------------- 2,313,752 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.0% Loomis AB (a) 1 4
22 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Securitas AB 29,048 $ 244,553 --------------- 244,557 --------------- COMMUNICATIONS EQUIPMENT - 0.3% Telefonaktiebolaget LM Ericsson 249,889 1,948,105 --------------- CONSTRUCTION & ENGINEERING - 0.0% Skanska AB Class B 30,205 309,804 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.1% Investor AB 36,400 555,209 --------------- DIVERSIFIED TELECOMMUNICATION Tele2 AB 24,366 220,498 SERVICES - 0.2% TeliaSonera AB 173,701 874,762 --------------- 1,095,260 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.0% Getinge AB (a) 1,414 16,316 Getinge AB Class B 12,727 154,434 --------------- 170,750 --------------- HOUSEHOLD DURABLES - 0.0% Electrolux AB 25,175 220,283 Husqvarna AB 19,458 104,689 --------------- 324,972 --------------- MACHINERY - 0.4% Alfa Laval AB 30,393 271,336 Atlas Copco AB Class A 60,148 529,211 Atlas Copco AB Class B 31,386 245,742 SKB AB 36,016 366,503 Sandvik AB 80,267 515,580 Scania AB 28,889 293,955 Volvo AB A Shares 30,061 173,388 Volvo AB B Shares 86,159 490,314 --------------- 2,886,029 --------------- MEDIA - 0.0% Modern Times Group AB 4,332 94,839 --------------- METALS & MINING - 0.0% SSAB Svenskt Stal AB Series A 14,420 127,878 SSAB Svenskt Stal AB Series B 6,267 52,252 --------------- 180,130 --------------- OIL, GAS & CONSUMABLE FUELS - 0.0% Lundin Petroleum AB (a) 15,302 82,121 --------------- PAPER & FOREST PRODUCTS - 0.1% Holmen AB Class B 3,145 78,701 Svenska Cellulosa AB 44,132 383,173 --------------- 461,874 --------------- SPECIALTY RETAIL - 0.2% Hennes & Mauritz AB B Shares 41,755 1,660,810 --------------- TOBACCO - 0.1% Swedish Match AB 23,550 339,988 --------------- WIRELESS TELECOMMUNICATION Millicom International Cellular SA (c) 6,052 285,957 SERVICES - 0.0% --------------- TOTAL COMMON STOCKS IN SWEDEN 13,295,784 --------------- SWITZERLAND - 8.0% BIOTECHNOLOGY - 0.1% Actelion Ltd. (a) 8,268 467,733 --------------- BUILDING PRODUCTS - 0.1% Geberit AG 3,274 354,084 --------------- CAPITAL MARKETS - 1.0% Credit Suisse Group AG 89,642 2,512,179 EFG International AG 2,886 51,573 Julius Baer Holding AG Class B 17,498 678,176 UBS AG (a) 245,571 3,572,900 --------------- 6,814,828 --------------- CHEMICALS - 0.3% Givaudan SA 538 425,125 Syngenta AG 8,395 1,630,859 --------------- 2,055,984 ---------------
23 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- COMPUTERS & PERIPHERALS - 0.0% Logitech International SA (a) 13,890 $ 217,983 --------------- CONSTRUCTION MATERIALS - 0.1% Holcim Ltd. 17,616 1,019,616 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% Pargesa Holding SA 2,669 178,374 --------------- DIVERSIFIED TELECOMMUNICATION Swisscom AG 1,952 633,199 SERVICES - 0.1% --------------- ELECTRIC UTILITIES - 0.0% BKW FMB Energie AG 995 96,088 --------------- ELECTRICAL EQUIPMENT - 0.4% ABB Ltd. 189,024 2,882,643 --------------- FOOD PRODUCTS - 1.9% Aryzta AG (a) 7,200 231,352 Lindt & Spruengli AG 53 99,167 Lindt & Spruengli AG 'R' 8 172,100 Nestle SA Registered Shares 324,020 12,830,590 --------------- 13,333,209 --------------- HEALTH CARE EQUIPMENT & Nobel Biocare Holding AG 9,625 198,754 SUPPLIES - 0.2% Sonova Holding AG 3,914 237,883 Straumann Holding AG Registered Shares 806 142,878 Synthes, Inc. 4,898 621,096 --------------- 1,200,611 --------------- INSURANCE - 0.7% Baloise Holding AG 4,219 318,612 Swiss Life Holding 2,886 200,125 Swiss Reinsurance Co. Registered Shares 29,388 1,439,001 Zurich Financial Services AG 12,199 2,665,249 --------------- 4,622,987 --------------- LIFE SCIENCES TOOLS & SERVICES - 0.1% Lonza Group AG Registered Shares 4,545 421,373 --------------- MACHINERY - 0.0% OC Oerlikon Corp. AG (a) 611 40,861 Schindler Holding AG 3,443 157,964 Sulzer AG 2,539 146,519 --------------- 345,344 --------------- MARINE - 0.0% Kuehne & Nagel International AG 4,353 281,936 --------------- PHARMACEUTICALS - 2.7% Novartis AG Registered Shares 200,847 10,058,710 Roche Holding AG 58,996 9,133,591 --------------- 19,192,301 --------------- PROFESSIONAL SERVICES - 0.1% Adecco SA Registered Shares 10,618 363,497 SGS SA 387 404,746 --------------- 768,243 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.2% Compagnie Financiere Richemont SA 46,224 880,747 The Swatch Group Ltd. Bearer Shares 2,613 368,531 The Swatch Group Ltd. Registered Shares 4,656 128,311 --------------- 1,377,589 --------------- TOTAL COMMON STOCKS IN SWITZERLAND 56,264,125 --------------- UNITED KINGDOM - 18.4% AEROSPACE & DEFENSE - 0.4% BAE Systems Plc 296,941 1,615,995 Cobham Plc 79,850 238,682 Meggitt Plc 59,138 137,309 Rolls-Royce Group Plc 148,028 724,139 Rolls-Royce Group Plc (a) 8,323,801 11,968 --------------- 2,728,093 --------------- AIRLINES - 0.0% British Airways Plc 45,251 119,606 ---------------
24 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- AUTO COMPONENTS - 0.0% GKN Plc 59,800 $ 83,262 --------------- BEVERAGES - 0.6% Diageo Plc 210,498 2,957,677 SABMiller Plc 71,578 1,201,999 --------------- 4,159,676 --------------- CAPITAL MARKETS - 0.1% 3i Group Plc 30,759 120,455 ICAP Plc 41,753 176,249 Investec Plc 25,570 105,580 Man Group Plc 137,152 471,824 Schroders Plc 11,024 138,678 --------------- 1,012,786 --------------- CHEMICALS - 0.0% Johnson Matthey Plc 16,900 268,944 --------------- COMMERCIAL BANKS - 2.2% Barclays Plc 682,849 1,552,041 HBOS Plc 430,039 445,165 HSBC Holdings Plc 991,572 9,704,709 Lloyds TSB Group Plc 475,646 900,266 Royal Bank of Scotland Group Plc 1,501,988 1,105,656 Standard Chartered Plc 156,036 1,996,645 --------------- 15,704,482 --------------- COMMERCIAL SERVICES & SUPPLIES - 0.1% Group 4 Securicor Plc 99,341 295,832 Serco Group Plc 45,013 294,658 --------------- 590,490 --------------- CONSTRUCTION & ENGINEERING - 0.0% Balfour Beatty Plc 42,120 203,754 --------------- CONTAINERS & PACKAGING - 0.0% Rexam Plc 51,289 262,512 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.0% London Stock Exchange Group Plc 12,046 90,357 --------------- DIVERSIFIED TELECOMMUNICATION BT Group Plc 656,479 1,320,249 SERVICES - 0.3% Cable & Wireless Plc 220,100 497,763 --------------- 1,818,012 --------------- ELECTRIC UTILITIES - 0.3% British Energy Group Plc 82,572 925,297 Scottish & Southern Energy Plc 70,056 1,235,182 --------------- 2,160,479 --------------- ENERGY EQUIPMENT & SERVICES - 0.0% Amec Plc 26,645 192,355 --------------- FOOD & STAPLES RETAILING - 0.7% J Sainsbury Plc 93,560 446,470 Tesco Plc 654,003 3,405,414 William Morrison Supermarkets Plc 192,228 779,167 --------------- 4,631,051 --------------- FOOD PRODUCTS - 0.6% Associated British Foods Plc 28,555 300,608 Cadbury Plc 116,149 1,026,345 Tate & Lyle Plc 34,772 202,606 Unilever Plc 107,568 2,470,816 --------------- 4,000,375 --------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.1% Smith & Nephew Plc 75,444 481,824 --------------- HOTELS, RESTAURANTS & LEISURE - 0.3% Carnival Plc 15,326 338,460 Compass Group Plc 147,980 738,078 Intercontinental Hotels Group Plc 20,773 171,380 Ladbrokes Plc 53,298 143,157 TUI Travel Plc 39,184 132,817 Thomas Cook Group Plc 28,091 71,834
25 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Whitbread Plc 17,348 $ 231,222 --------------- 1,826,948 --------------- HOUSEHOLD DURABLES - 0.0% Berkeley Group Holdings Plc 3,735 47,363 --------------- HOUSEHOLD PRODUCTS - 0.3% Reckitt Benckiser Plc 48,660 1,823,337 --------------- IT SERVICES - 0.0% LogicaCMG Plc 120,610 121,251 --------------- INDEPENDENT POWER PRODUCERS & ENERGY Drax Group Plc 27,189 220,714 TRADERS - 0.1% International Power Plc 128,927 449,274 --------------- 669,988 --------------- INDUSTRIAL CONGLOMERATES - 0.1% Smiths Group Plc 30,529 392,297 Tomkins Plc 78,603 141,521 --------------- 533,818 --------------- INSURANCE - 0.7% Admiral Group Plc 13,207 174,331 Aviva Plc 212,278 1,202,872 Friends Provident Plc 186,698 238,643 Legal & General Group Plc 484,369 541,389 Old Mutual Plc 397,492 319,482 Prudential Plc 214,012 1,299,104 Royal & Sun Alliance Insurance Group 259,900 517,908 Standard Life Plc 171,156 499,640 --------------- 4,793,369 --------------- INTERNET & CATALOG RETAIL - 0.0% Home Retail Group 72,181 222,782 --------------- MACHINERY - 0.0% IMI Plc 24,844 98,681 Invensys Plc (a) 64,547 163,131 --------------- 261,812 --------------- MEDIA - 0.5% British Sky Broadcasting Plc 90,532 639,330 Daily Mail & General Trust 24,362 96,143 ITV Plc 287,054 165,625 Pearson Plc 70,844 667,730 Reed Elsevier Plc 95,363 700,140 Thomson Reuters Plc 17,001 378,849 United Business Media Ltd. 15,334 113,294 WPP Plc 98,929 578,471 --------------- 3,339,582 --------------- METALS & MINING - 1.3% Anglo American Plc 108,786 2,538,753 Antofagasta Plc 31,691 198,516 BHP Billiton Plc 184,260 3,573,834 Kazakhmys Plc 17,122 58,446 Lonmin Plc 12,492 166,502 Rio Tinto Plc Registered Shares 81,903 1,820,425 Vedanta Resources Plc 11,572 103,912 Xstrata Plc 53,937 504,709 --------------- 8,965,097 --------------- MULTI-UTILITIES - 0.6% Centrica Plc 428,206 1,648,512 National Grid Plc 205,696 2,032,576 United Utilities Group Plc 59,745 542,486 --------------- 4,223,574 --------------- MULTILINE RETAIL - 0.1% Marks & Spencer Group Plc 139,616 437,632
26 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
INDUSTRY COMMON STOCKS SHARES VALUE --------------------------------------- -------------------------------------------- -------------- --------------- Next Plc 18,727 $ 294,279 --------------- 731,911 --------------- OIL, GAS & CONSUMABLE FUELS - 4.2% BG Group Plc 278,300 3,852,113 BP Plc 1,544,898 11,925,745 Cairn Energy Plc (a) 10,300 301,669 Royal Dutch Shell Plc 291,305 7,653,486 Royal Dutch Shell Plc Class B 223,973 5,677,368 Tullow Oil Plc 57,495 550,469 --------------- 29,960,850 --------------- PHARMACEUTICALS - 1.9% AstraZeneca Plc 120,741 4,939,567 GlaxoSmithKline Plc 433,752 8,066,813 Shire Ltd. 44,716 658,666 --------------- 13,665,046 --------------- PROFESSIONAL SERVICES - 0.2% Capita Group Plc 49,791 534,106 Experian Group Ltd. 80,535 507,770 Hays Plc 87,373 88,288 --------------- 1,130,164 --------------- REAL ESTATE INVESTMENT TRUSTS British Land Co. Plc 40,216 322,221 (REITS) - 0.2% Hammerson Plc 22,750 176,234 Land Securities Group Plc 41,117 552,791 Liberty International Plc 20,162 139,595 Segro Plc 35,377 126,123 --------------- 1,316,964 --------------- ROAD & RAIL - 0.1% Firstgroup Plc 38,694 244,704 National Express Group Plc 12,431 89,389 Stagecoach Group Plc 40,760 83,842 --------------- 417,935 --------------- SOFTWARE - 0.0% Sage Group Plc 112,528 278,639 --------------- SPECIALTY RETAIL - 0.1% The Carphone Warehouse Plc 32,874 43,080 Kingfisher Plc 216,514 426,517 --------------- 469,597 --------------- TEXTILES, APPAREL & LUXURY GOODS - 0.0% Burberry Group Plc 35,712 115,625 --------------- TOBACCO - 0.9% British American Tobacco Plc 156,974 4,094,960 Imperial Tobacco Group Plc 82,361 2,199,945 --------------- 6,294,905 --------------- TRADING COMPANIES & DISTRIBUTORS - 0.1% Bunzl Plc 30,014 256,120 Wolseley Plc 53,182 296,252 --------------- 552,372 --------------- WATER UTILITIES - 0.0% Severn Trent Plc 18,856 326,778 --------------- WIRELESS TELECOMMUNICATION Vodafone Group Plc 4,354,451 8,916,407 SERVICES - 1.3% --------------- TOTAL COMMON STOCKS IN THE UNITED KINGDOM 129,514,172 --------------- TOTAL COMMON STOCKS - 92.9% 656,163,788 ---------------
27 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (PERCENTAGES SHOWN ARE BASED ON NET ASSETS)
EXCHANGE-TRADED FUNDS SHARES VALUE -------------------------------------------- -------------- --------------- UNITED STATES - 3.9% iShares MSCI EAFE Index Fund (d) 617,845 $ 27,722,705 --------------- TOTAL EXCHANGE-TRADED FUNDS - 3.9% 27,722,705 --------------- INDUSTRY PREFERRED STOCKS GERMANY - 0.2% AUTOMOBILES - 0.1% Volkswagen AG, 4.35% 8,482 457,206 --------------- HOUSEHOLD PRODUCTS - 0.1% Henkel KGaA, 1.75% 14,702 460,595 --------------- MULTI-UTILITIES - 0.0% RWE AG, 3.50% 2,624 197,995 --------------- TOTAL PREFERRED STOCKS - 0.2% 1,115,796 --------------- RIGHTS BELGIUM - 0.0% DIVERSIFIED FINANCIAL SERVICES - 0.0% Fortis (b)(e) 184,182 3 --------------- TOTAL RIGHTS IN BELGIUM 3 --------------- JAPAN - 0.0% METALS & MINING - 0.0% Dowa Mining Co., Ltd. (b)(f) 7,000 -- --------------- TOTAL RIGHTS IN JAPAN -- --------------- SINGAPORE - 0.0% COMMERCIAL BANKS - 0.0% DBS Goup Holdings Ltd. (g) 46,803 97,454 --------------- TOTAL RIGHTS IN SINGAPORE 97,454 --------------- UNITED KINGDOM - 0.0% COMMERCIAL BANKS - 0.0% HBOS Plc (h) 595,130 9 Lloyds TSB Group Plc (h) 206,763 3 --------------- TOTAL RIGHTS IN THE UNITED KINGDOM 12 --------------- TOTAL RIGHTS - 0.0% 97,466 --------------- TOTAL LONG-TERM INVESTMENTS (COST - $865,585,207) - 97.0% 685,099,758 ---------------
BENEFICIAL INTEREST SHORT-TERM SECURITIES (000) -------------------------------------------- -------------- BlackRock Liquidity Series, LLC Cash Sweep Series, 1.64% (i)(j) USD 11,260 11,259,665 --------------- TOTAL SHORT-TERM SECURITIES (COST - $11,259,665) - 1.6% 11,259,665 --------------- TOTAL INVESTMENTS (COST - $876,844,872*) - 98.6% 696,359,423 OTHER ASSETS LESS LIABILITIES - 1.4% 9,759,975 --------------- NET ASSETS - 100.0% $ 706,119,398 ===============
* The cost and unrealized appreciation (depreciation) of investments, as of December 31, 2008, as computed for federal income tax purposes, were as follows: Aggregate cost $ 895,944,370 ============= Gross unrealized appreciation $ 44,690,983 Gross unrealized depreciation (244,275,930) ------------- Net unrealized depreciation $(199,584,947) =============
(a) Non-income producing security. (b) Security is valued in accordance with the Series' fair valuation policy. (c) Depositary receipts. (d) All or a portion of security has been pledged as collateral in connection with open financial futures contracts. (e) The rights may be exercised until 7/01/14 (f) The rights may be exercised until 1/29/10. 28 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 (g) The rights may be exercised until 1/20/09. (h) The rights may be exercised until 1/09/09. (i) Represents the current yield as of report date. (j) 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 AFFILIATE ACTIVITY INCOME --------- -------------- -------- BlackRock Liquidity Series, LLC Cash Sweeps Series USD (2,269,673) $347,498
- 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. These industry classifications are unaudited. - Financial futures contracts purchased as of December 31, 2008 were as follows:
UNREALIZED EXPIRATION FACE APPRECIATION CONTRACTS ISSUE EXCHANGE DATE VALUE (DEPRECIATION) --------- ---------------------- ----------------- ------------ ---------- -------------- 1 IBEX 35 Plus Eurex January 2009 $ 128,154 $ (1,479) 4 Hang Seng Index Future Hong Kong January 2009 364,962 6,770 62 OMX Stock Index Future Stockholm January 2009 528,796 (12,126) 1 Dax Index 25 Euro Eurex Deutschland March 2009 166,557 1,448 1 S&P MIB Index Eurex March 2009 136,511 (1,524) 159 DJ Euro Stoxx 50 Eurex March 2009 5,465,643 (50,714) 69 FTSE 100 Index Future LIFFE March 2009 4,255,013 100,083 21 SPI 200 Index Future Sydney March 2009 1,288,532 82,615 56 TOPIX Index Future Tokyo March 2009 5,045,773 279,324 TOTAL $404,397
- Foreign currency exchange contracts as of December 31, 2008 were as follows:
UNREALIZED CURRENCY CURRENCY SETTLEMENT APPRECIATION PURCHASED SOLD DATE (DEPRECIATION) --------------- --------------- ---------- -------------- AUD 2,905,650 USD 1,889,627 2/12/09 $ 126,948 AUD 427,000 USD 294,124 2/12/09 2,222 USD 1,343,567 AUD 2,073,650 2/12/09 (95,585) CHF 698,300 USD 589,627 2/12/09 66,746 USD 584,084 CHF 698,300 2/12/09 (72,288) CHF 233,000 USD 220,812 2/12/09 (1,802) EUR 7,325,700 USD 9,176,794 2/12/09 988,533 EUR 1,047,000 USD 1,405,492 2/12/09 47,352 EUR 444,100 USD 554,487 2/12/09 61,757 USD 8,950,183 EUR 7,051,300 2/12/09 (834,380) USD 254,738 EUR 181,600 2/12/09 2,746 GBP 3,413,500 USD 5,244,862 2/12/09 (342,615) GBP 615,300 USD 912,473 2/12/09 (28,819) GBP 484,300 USD 709,222 2/12/09 (13,702) USD 457,851 GBP 307,900 2/12/09 15,665
29 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 Foreign currency exchange contracts as of December 31, 2008 were as follows (concluded):
UNREALIZED CURRENCY CURRENCY SETTLEMENT APPRECIATION PURCHASED SOLD DATE (DEPRECIATION) --------------- --------------- ---------- -------------- USD 4,956,738 GBP 3,302,600 2/12/09 $ 213,758 USD 326,195 GBP 224,000 2/12/09 4,500 JPY 521,967,400 USD 5,391,039 2/12/09 372,100 JPY 105,760,000 USD 1,131,019 2/12/09 36,697 JPY 21,045,000 USD 232,921 2/12/09 (559) USD 479,549 JPY 45,436,000 2/12/09 (22,119) USD 3,688,263 JPY 354,702,500 2/12/09 (228,074) USD 138,335 JPY 13,360,600 2/12/09 (9,181) SEK 4,806,100 USD 594,468 2/12/09 12,836 USD 398,679 SEK 3,204,300 2/12/09 (6,220) --------- TOTAL $ 296,516 =========
CURRENCY ABBREVIATIONS: AUD Australian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen SEK Swedish Krona USD US Dollar - Effective January 1, 2008, the Series adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 clarifies the definition of fair value, establishes a framework for measuring fair values and requires additional disclosures about the use of fair value measurements. Various inputs are used in determining the fair value of investments, which are as follows: - Level 1 - price quotations in active markets/exchanges for identical securities - Level 2 - other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs) - Level 3 - unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Series' own assumption used in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For information about the Series' policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2008 in determining the fair valuation of the Series' investments:
OTHER FINANCIAL INVESTMENTS IN INSTRUMENTS* VALUATION SECURITIES ------------------------ INPUTS ASSETS ASSETS LIABILITIES --------- -------------- ---------- ----------- Level 1 $ 40,464,760 $ 470,240 $ (65,843) Level 2 655,868,163 1,951,860 (1,655,344) Level 3 26,500 -- -- ------------ ---------- ----------- TOTAL $696,359,423 $2,422,100 $(1,721,187) ============ ========== ===========
* Other financial instruments are futures and foreign currency exchange contracts. 30 MASTER INTERNATIONAL INDEX SERIES OF QUANTITATIVE MASTER SERIES LLC SCHEDULE OF INVESTMENTS DECEMBER 31, 2008 The following is a reconciliation of investments for unobservable inputs Level 3 were used in determining fair value:
INVESTMENTS IN SECURITIES ----------- Balance, as of January 1, 2008 -- Realized gain (loss) -- Change in unrealized appreciation (depreciation)(1) $(661,574) Net purchases (sales) -- Net transfers in/out of Level 3 688,074 --------- Balance, as of December 31, 2008 $ 26,500 =========
(1) Included in the related net change in unrealized appreciation/depreciation on the Statement of Operations. 31 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 6, 2009 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 6, 2009 By /s/ Rebecca L. Harris --------------------- Rebecca L. Harris Treasurer Date: March 6, 2009