As filed with the Securities and Exchange Commission on March 31, 1998
File No. 811-7885
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 2 [X]
(Check appropriate box or boxes)
MERRILL LYNCH INDEX TRUST
(Exact Name of Registrant as Specified in Charter)
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Address of Principal Executive Offices)
(609) 282-2800
(Registrant's Telephone Number, including Area Code)
ARTHUR ZEIKEL
Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund: and
JOEL H. GOLDBERG, Esq. PHILIP L. KIRSTEIN, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP Merrill Lynch Asset Management
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, New Jersey 08543-9011
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). However, beneficial interests in the Registrant are
not being registered under the Securities Act of 1933, as amended (the "1933
Act") because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may be made only by
a limited number of institutional investors, including investment companies,
common or commingled trust funds, group trusts and certain other "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.
2
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Merrill Lynch Index Trust (the "Trust") is a no-load, open-end
management investment company which was organized as a Delaware business trust
on August 28, 1996. The Trust currently consists of four separate series or
portfolios: Merrill Lynch S&P 500 Index Series ("S&P 500 Index Series"), Merrill
Lynch Small Cap Index Series ("Small Cap Index Series"), Merrill Lynch Aggregate
Bond Index Series ("Aggregate Bond Index Series") and Merrill Lynch
International Index Series ("International Index Series"), (collectively, the
"Series," and each, a "Series"). Beneficial interests in the Trust corresponding
to each Series are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in each Series may be made only by a limited number of
institutional investors, including investment companies, common or commingled
trusts, group trusts, and certain other "accredited investors" within the
meaning of Regulation D under the 1933 Act ("Investing Funds"). This
Registration Statement does not constitute an offer to sell, or a solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
Each of the Series is a non-diversified investment company with
different investment objectives and policies, so that investors may choose the
Series which are most appropriate to their specific needs.
There can, of course, be no assurance that the respective investment
objectives of the Series can be achieved. Except for certain investment
restrictions designated as fundamental in this Part A or in Part B of this
Registration Statement, the investment objectives and policies of each Series
may be changed by the Board of Trustees of the Trust (the "Trustees") without
the approval of the investors in the respective Series. THE TRUSTEES MAY ALSO
CHANGE THE TARGET INDEX OF ANY RESPECTIVE SERIES IF THEY CONSIDER THAT A
DIFFERENT INDEX WOULD FACILITATE THE MANAGEMENT OF THE SERIES IN A MANNER WHICH
BETTER ENABLES THE SERIES TO SEEK TO REPLICATE THE TOTAL RETURN OF THE MARKET
SEGMENT REPRESENTED BY THE CURRENT INDEX.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
S&P 500 INDEX SERIES
The investment objective of the S&P 500 Index Series is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of the Standard & Poor's(R) 500
Composite Stock Price Index (the "S&P 500"). Additional information about the
investment policies of the Series appears in Part B. There can be no assurance
that the investment objective of the Series will be achieved.
3
In seeking to replicate the total return of the S&P 500, Merrill Lynch Asset
Management, L.P. ("MLAM" or the "Manager") generally will allocate the Series'
investments among common stocks in approximately the same weightings as the
index. In addition, the Manager may use options and futures contracts and other
types of financial instruments relating to all or a portion of the index. The
Series may also engage in securities lending and index arbitrage. See "About
Indexing and Management of the Series - Other Types of Investments and
Investment Techniques."
The S&P 500 is composed of the common stocks of 500 large capitalization
companies from several industrial sectors, most of which are listed on the New
York Stock Exchange Inc. A company's stock market capitalization is the total
market value of its outstanding shares. The S&P 500 represents a significant
portion of the market value of all common stocks publicly traded in the United
States.
SMALL CAP INDEX SERIES
The investment objective of the Small Cap Index Series is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of the Russell 2000(R) Index (the
"Russell 2000"). Additional information about the investment policies of the
Series appears in Part B. There can be no assurance that the investment
objective of the Series will be achieved.
In seeking to replicate the total return of the Russell 2000, the Manager may
not allocate the Series' investments among all of the common stocks in the
index, or in the same weightings as the index. Instead, the Series may invest in
a statistically selected sample of the stocks included in the Russell 2000 and
other types of financial instruments. The Manager may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the index. The investments to be included in the Series will be selected so
that the market capitalizations, industry weightings and other fundamental
characteristics of the stocks, and of the stocks underlying or otherwise related
to the foregoing financial instruments, closely approximate those same factors
in the Russell 2000, with the objective of reducing the selected investment
portfolio's deviation from the performance of the Index (this deviation is
referred to as "tracking error"). The Series may also engage in securities
lending and index arbitrage. See "About Indexing and Management of the Series -
Other Types of Investments and Investment Techniques."
The Russell 2000 is composed of approximately 2,000 smaller-capitalization
common stocks from various industrial sectors. A company's stock market
capitalization is the total market value of its outstanding shares.
AGGREGATE BOND INDEX SERIES
The investment objective of the Aggregate Bond Index Series is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of
4
capital changes and income) of the Lehman Brothers Aggregate Bond Index (the
"Aggregate Bond Index"). Additional information about the investment policies of
the Series appears in Part B. There can be no assurance that the investment
objective of the Series will be achieved.
In seeking to replicate the total return of the Aggregate Bond Index, the
Manager may not allocate the Series' investments among all of the fixed-income
securities in the index, or in the same weightings as the index. Instead, the
Series may invest in a statistically selected sample of fixed-income securities
and other types of financial instruments. The Manager may use options and
futures contracts and other types of financial instruments relating to all or a
portion of the index. The investments to be included in the Series will be
selected with the objective of reducing the selected investment portfolio's
deviation from the performance of the Aggregate Bond Index (tracking error). The
Series may, from time to time, substitute a different type of bond for one
included in the index. Substitution may result in levels of interest rate,
credit or prepayment risks that differ from the levels of risks on the
securities composing the Aggregate Bond Index. See "Risk Factors - Investments
in Fixed-Income Securities." The Series may also engage in securities lending
and index arbitrage. See "About Indexing and Management of the Series - Other
Types of Investments and Investment Techniques."
The Aggregate Bond Index is composed primarily of dollar-denominated investment
grade fixed- income securities in the following major classes: U.S. Treasury and
agency securities, U.S. corporate bonds, foreign corporate bonds, foreign
sovereign debt (debt securities issued or guaranteed by foreign governments and
governmental agencies), supranational debt (debt securities issued by entities,
such as the World Bank, constituted by the governments of several countries to
promote economic development) and mortgage-backed securities with maturities
greater than one year. Corporate bonds contained in the index represent issuers
from various industrial sectors.
The Series may invest in U.S. Treasury bills, notes and bonds and other "full
faith and credit" obligations of the U.S. Government. The Series may also invest
in U.S. Government agency securities, which are debt obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government. "Agency"
securities may not be backed by the "full faith and credit" of the U.S.
Government. U.S. Government agencies may include the Federal Farm Credit Bank,
the Resolution Trust Corporation and the Government National Mortgage
Association. "Agency" obligations are not explicitly guaranteed by the U.S.
Government and so are perceived as somewhat riskier than comparable Treasury
bonds.
The Series' corporate fixed-income securities will be primarily of investment
grade quality -- i.e., those rated at least Baa3 by Moody's Investors Service,
Inc. ("Moody's") or BBB- by Standard & Poor's Ratings Services ("S&P"), the
equivalent by another nationally recognized statistical rating organization
("NRSRO") or, if unrated, of equal quality in the opinion of the Manager.
Corporate fixed-income securities ranked in the fourth highest rating
category, while considered "investment grade", have more speculative
characteristics and are more likely to be downgraded than securities rated in
the three highest ratings categories. In the event that the rating of a
security in the Series is lowered below Baa or BBB, the Series may continue to
hold the security. Such securities rated below investment grade are considered
to be speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation.
5
Descriptions of the ratings of fixed-income securities are contained in Appendix
B hereto.
The Series may also invest in other instruments that "pass through" payments on
such obligations, such as collateralized mortgage obligations ("CMOs").
INTERNATIONAL INDEX SERIES
The investment objective of the International Index Series is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of capital changes and income) of the Morgan Stanley
Capital International EAFE(R) (GDP Weighted) Index (the "EAFE Index").
Additional information about the investment policies of the Series appears in
Part B. There can be no assurance that the investment objective of the Series
will be achieved.
In seeking to replicate the total return of the EAFE Index, the Manager may not
allocate the Series' investments among all of the countries, or all of the
companies within a country, represented in the EAFE Index, or in the same
weightings as the EAFE Index. Instead, the Series may invest in a statistically
selected sample of the equity securities included in the EAFE Index and other
types of financial instruments. In addition, the Manager may use options and
futures contracts and other types of financial instruments relating to all or a
portion of the EAFE Index. The investments to be included in the Series will be
selected so that the market capitalizations, industry weightings and other
fundamental characteristics of the stocks, and of the stocks underlying or
otherwise related to the foregoing financial instruments, closely approximate
those same factors in the EAFE Index, with the objective of reducing the
selected investment portfolio's deviation from the performance of the EAFE Index
(tracking error). The Series may also engage in securities lending and index
arbitrage. See "About Indexing and Management of the Series - Other Types of
Investments and Investment Techniques."
The EAFE Index is composed of equity securities of companies from various
industrial sectors whose primary trading markets are located outside the United
States and which are selected from among the larger capitalization companies in
such markets. A company's stock market capitalization is the total market value
of its outstanding shares. The countries currently included in the EAFE Index
are Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. The weighting of the
EAFE Index among these countries is based upon gross domestic product (GDP).
(Market capitalization is the basis for country weightings in another version of
the EAFE Index. Using GDP weighting tends to decrease the relative weighting of
Japan and the United Kingdom while increasing the weighting of certain European
countries, generally resulting in a more diversified EAFE Index). Portugal is
expected to be included in the EAFE Index, effective July 1, 1998.
ABOUT INDEXING AND MANAGEMENT OF THE SERIES
6
ABOUT INDEXING.
The Series are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial, and market analyses and investment judgment. Instead,
each Series, utilizing essentially a "passive" or "indexing" investment
approach, seeks to replicate, before each Series' expenses (which can be
expected to reduce the return of the Series), the total return of its respective
index.
INDEXING AND MANAGING THE SERIES.
Under normal conditions each Series will invest at least 80% of its assets
(exclusive of assets held as collateral for securities loans or as margin for
futures transactions) in securities or other financial instruments which are
contained in, or related to the securities contained in, the applicable index
(equity securities, in the case of the Merrill Lynch S&P 500 Index Series,
Merrill Lynch Small Cap Index Series and Merrill Lynch International Index
Series (the "Equity Series"), and debt securities in the case of the Merrill
Lynch Aggregate Bond Index Series (the "Fixed-Income Series")).
Because each Series seeks to replicate the total return of its respective index,
generally the Manager will not attempt to judge the merits of any particular
security as an investment but will seek only to replicate the total return of
the securities in the relevant index. However, the Manager may omit or remove a
security which is included in an index from the portfolio of a Series if,
following objective criteria, the Manager judges the security to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions.
In managing the Equity Series, the Manager may employ index arbitrage. Index
arbitrage involves the sale of a replicating selection, or "basket," of stocks
with the simultaneous purchase of an equivalent dollar value of related futures
contracts, or alternatively the purchase of such an equity basket with a
simultaneous sale of related futures contracts. This technique is designed to
take advantage of a possible mispricing which could arise between the securities
market and the futures market.
In addition, the Manager may acquire certain financial instruments based upon
individual securities or upon one or more baskets of securities (which basket
may be based upon a target index ). Certain of these instruments may represent
an indirect ownership interest in such securities or baskets. Others may provide
for the payment to a Series or by a Series of amounts based upon the performance
(positive, negative or both) of a particular security or basket. The Manager
will select such instruments when it believes that the use of the instrument
will correlate substantially with the expected total return of a target security
or index. In connection with the use of such instruments, the Manager may enter
into short sales in an effort to adjust the weightings of particular securities
represented in the basket to more accurately reflect such securities' weightings
in the target index.
7
Each Series' ability to replicate the total return of its respective index may
be affected by, among other things, transaction costs, administration and other
expenses incurred by the Series, taxes (including foreign withholding taxes,
which will affect the International Index Series due to foreign tax withholding
practices), changes in either the composition of the index or the assets of a
Series, and the timing and amount of Series investor contributions and
withdrawals, if any. Under normal circumstances, it is anticipated that each
Series' total return over periods of one year and longer will, on a gross basis
and before taking into account expenses, be within 5 basis points (a basis point
is one one-hundredth of one percent (0.01%)) for the S&P 500 Index Series, 100
basis points for the Small Cap Index Series, 150 basis points for the
International Index Series, and 25 basis points for the Aggregate Bond Index
Series, of the total return of the applicable indices. There can be no
assurance, however, that these levels of correlation will be achieved. In the
event that this correlation is not achieved over time, the Trustees of the Trust
will consider alternative strategies for the Series.
OTHER TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES.
Cash Management. Generally, the Manager will employ futures and options on
futures to provide liquidity necessary to meet anticipated redemptions or for
day-to-day operating purposes. However, if considered appropriate in the opinion
of the Manager, a portion of a Series' assets may be invested in certain types
of instruments with remaining maturities of 397 days or less for liquidity
purposes. Such instruments would consist of: (i) obligations of the U.S.
Government, its agencies, instrumentalities, authorities or political
subdivisions ("U.S. Government Securities"); (ii) other fixed-income securities
rated Aa or higher by Moody's or AA or higher by S&P or, if unrated, of
comparable quality in the opinion of the Manager; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Series
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper, bank obligations
or other short-term obligations rated Prime-1 by Moody's or A-1 by S&P; or, if
no such ratings are available, the instrument must be of comparable quality in
the opinion of the Manager.
Portfolio Strategies Involving Futures, Options, Swaps and Indexed Instruments.
Each Series will also utilize options, futures, options on futures, swaps and
other indexed instruments. Futures and options on futures may be employed to
provide liquidity as described in the preceding paragraph, and may also be
employed in connection with a Series' index arbitrage strategies. Futures,
options on futures, swaps and other indexed instruments may be employed as a
proxy for a direct investment in securities underlying the Series' index. In
addition, the Merrill Lynch International Index Series may engage in futures
contracts on foreign currencies in connection with certain foreign securities
transactions.
8
The Manager will choose among the foregoing instruments based on its judgment of
how best to meet each Series' goals. In connection therewith, the Manager will
assess such factors as current and anticipated securities prices, relative
liquidity and price levels in the options, futures and swap markets compared to
the securities markets, and the Series' cash flow and cash management needs.
The Series' use of the foregoing instruments and the associated risks are
described in detail in Appendix A attached to this Part A.
Foreign Exchange Transactions. The International Index Series may engage in
futures contracts on foreign currencies and foreign currency forward and spot
transactions in connection with transactions or anticipated transactions in
securities denominated in foreign currencies. Specifically, the Series may
purchase or sell a currency to settle a security transaction or sell a currency
in which the Series has received or anticipates receiving a dividend or
distribution.
OTHER INVESTMENT POLICIES AND PRACTICES.
Illiquid Investments. Each of the Series may invest up to 15% of its net assets
in illiquid investments. Pursuant to that restriction each Series may not invest
in instruments that cannot be readily resold because of legal or contractual
restrictions, that cannot otherwise be marketed, redeemed, put to the issuer or
a third party, which do not mature within seven days, or which the Trustees have
not determined to be liquid, if, regarding all such instruments, more than 15%
of its net assets, taken at market value, would be invested in such instruments.
Each Series may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933(the "Securities Act")
but that can be offered and sold to "qualified institutional buyers" under Rule
144A under the Securities Act, provided that the Trustees, or the Manager
pursuant to guidelines adopted by the Trustees, continuously determines, based
on the trading markets for the specific Rule 144A security, that it is liquid.
The Trustees, however, will retain oversight and are ultimately responsible for
these determinations. The Trustees monitor each Series' investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in each Series to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
Repurchase Agreements. Each Series may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System, primary dealers in U.S. Government
securities, or an affiliate thereof, or with other entities which the Manager
otherwise deems to be creditworthy. Under repurchase agreements, the
counterparty agrees, upon entering into the contract, to repurchase the security
from the Series at a mutually agreed upon time and price in a specified
currency, thereby determining the
9
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period although it may be
affected by currency fluctuations. In the event of default by the seller under a
repurchase agreement the Series may suffer time delays and incur costs or
possible losses in connection with disposition of the collateral. Repurchase
agreements maturing in more than seven days are deemed illiquid by the
Securities and Exchange Commission and are therefore subject to the Series'
investment restrictions limiting investments in securities that are not readily
marketable to 15% of the Series' net assets.
Lending of Portfolio Securities. To the extent permitted by law, each Series may
from time to time lend securities from its portfolio to banks, brokers and other
financial institutions and receive collateral in cash or securities issued or
guaranteed by the United States government. Such collateral will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Each Series' policy concerning lending is fundamental and
it may not be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company Act.
During the period of such a loan, the Series receives the income on the loaned
securities and either receives the income on the collateral or other
compensation, i.e., negotiated loan premium or fee, for entering into the loan
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Series could experience delays and costs in gaining access to the collateral
and could suffer a loss to the extent that the value of the collateral falls
below the market value of the borrowed securities. Presently, no Series intends
to lend portfolio securities representing in excess of 33 1/3% of its total
assets.
When-Issued Securities and Delayed Delivery Transactions. The Aggregate Bond
Index Series may purchase securities on a when-issued basis, and it may purchase
or sell securities for delayed delivery. These transactions occur when
securities are purchased or sold by the Series with payment and delivery taking
place in the future to secure what is considered an advantageous yield and price
to the Series at the time of entering into the transaction. Although the
Aggregate Bond Index Series has not established any limit on the percentage of
its assets that may be committed in connection with such transactions, the
Aggregate Bond Index Series will maintain a segregated account with its
custodian of liquid securities in an aggregate amount equal to the amount of its
commitment in connection with such purchase transactions.
Dollar Rolls. The Aggregate Bond Index Series may enter into dollar rolls, in
which the Aggregate Bond Index Series will sell securities for delivery in the
current month and simultaneously contract to repurchase substantially similar
(the same type and coupon) securities on a specified future date from the same
party. During the roll period, the Aggregate Bond Index Series forgoes principal
and interest paid on the securities sold. The Aggregate Bond Index Series is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale.
10
Dollar rolls involve the risk that the market value of the securities subject to
the Aggregate Bond Index Series' forward purchase commitment may decline below
the price of the securities the Aggregate Bond Index Series has sold. In the
event the buyer of the securities files for bankruptcy or becomes insolvent, the
Aggregate Bond Index Series' use of the proceeds of the current sale portion
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Aggregate Bond Index Series'
obligation to purchase the similar securities in the forward transaction. Dollar
rolls are speculative techniques which can be deemed to involve leverage. The
Aggregate Bond Index Series will establish a segregated account with its
custodian in which it will maintain liquid securities in an aggregate amount
equal to the amount of the forward commitment. The Aggregate Bond Index Series
will engage in dollar roll transactions to enhance return and not for the
purpose of borrowing. Each dollar roll transaction is accounted for as a sale of
a portfolio security and a subsequent purchase of a substantially similar
security in the forward market.
Standby Commitment Agreements. The Aggregate Bond Index Series may from time to
time enter into standby commitment agreements. Such agreements commit the
Aggregate Bond Index Series, for a stated period of time, to purchase a stated
amount of a fixed income security which may be issued and sold to the Aggregate
Bond Index Series at the option of the issuer. The price and coupon of the
security is fixed at the time of the commitment. At the time of entering into
the agreement , the Aggregate Bond Index Series is paid a commitment fee,
regardless of whether or not the security is ultimately issued. The Aggregate
Bond Index Series will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Series. The Aggregate Bond Index Series will
not enter into a standby commitment with a remaining term in excess of 90 days
and will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value of
all other illiquid securities, will not exceed 15% of its total assets taken at
the time of acquisition of such commitment or security. The Aggregate Bond Index
Series will at all times maintain a segregated account with its custodian of
liquid securities in an aggregate amount equal to the purchase price of the
securities underlying the commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Aggregate Bond
Index Series may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Aggregate Bond Index Series'
net asset value. The cost basis of the security will be adjusted by the amount
of the commitment fee. In the event the security is not issued, the commitment
fee will be recorded as income on the expiration date of the standby commitment.
Short Sales. In connection with the use of certain instruments based upon or
consisting of one or more baskets of securities, the Manager may sell a security
a Series does not own, or in an amount greater than the Series owns (i.e., make
short sales). Such transactions will be
11
used only in an effort to adjust the weightings of particular securities
represented in the basket to reflect such securities' weightings in the target
index. The Manager will not employ short sales in reflection of the Manager's
outlook for the securities markets or for the performance of the securities sold
short. Generally, to complete a short sale transaction, the Series will borrow
the security to make delivery to the buyer. The Series is then obligated to
replace the security borrowed. The price at the time of replacement may be more
or less than the price at which the security was sold by the Series. Until the
security is replaced, the Series is required to pay to the lender any interest
which accrues during the period of the loan. To borrow the security, the Series
may be required to pay a premium which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker to the
extent necessary to meet margin requirements until the short position is closed
out. Until the Series replaces the borrowed security, it will (a) maintain in a
segregated account with its custodian cash or liquid securities at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral will equal the current market value of the security sold
short or (b) otherwise cover its short position.
INVESTMENT RESTRICTIONS.
Each Series has adopted a number of policies and restrictions which are
described below and in Part B. A Series' investment policies and restrictions
are not fundamental policies unless otherwise specified in this Part A or in
Part B. Any restriction or policy that is not fundamental may be changed without
investor approval. Fundamental policies may not be changed without the approval
of the holders of a majority of the respective Series' outstanding voting
securities defined in the Investment Company Act.
The Trustees may change the target index of any respective series if they
consider that a different index would facilitate the management of the Series in
a manner which better enables the Series to seek to replicate the total return
of the market segment represented by the current index.
Each Series is classified as a non-diversified fund under the Investment Company
Act and is not subject to the diversification requirements of the Investment
Company Act. Accordingly, any Series may invest more than 5% of the value of its
assets in the obligations of a single issuer. Under the Declaration of Trust,
each Series is to be managed in compliance with the provisions of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to
regulated investment companies ("RICs") as though such requirements were
applicable to the Series. Thus, consistent with its investment objectives, each
Series will meet the income and diversification of assets tests of the Code
applicable to RICs. Those requirements include limiting investments so that at
the close of each quarter of the taxable year (i) not more than 25% of the
market value of the Series' total assets are invested in the securities of a
single issuer, or any two or more issuers which are controlled by the Series and
engaged in the same, similar or related businesses, and (ii) with respect to 50%
of the market value of its total assets, not more than 5%
12
of the market value of its total assets are invested in the securities of a
single issuer, and the Series does not own more than 10% of the outstanding
voting securities of a single issuer. The U.S. Government, its agencies and
instrumentalities are not included within the definition of "issuer" for
purposes of the diversification requirements of the Code.
Among the more significant fundamental restrictions, a Series may not invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and instrumentalities); provided, that in
replicating the weighting of a particular industry in its target index, a Series
may invest more than 25% of its total asssets in securities of issuers in that
industry.
RISK FACTORS
Cash Flows; Expenses. The ability of each Series to satisfy its investment
objective depends to some extent on the Manager's ability to manage cash flow
(primarily from purchases and redemptions and distributions from the Series'
investments). The Manager will make investment changes to a Series' portfolio to
accommodate cash flow while continuing to seek to replicate the total return of
the Series' target index. Investors should also be aware that the investment
performance of each index is a hypothetical number which does not take into
account brokerage commissions and other transaction costs, custody and other
costs of investing, which will be borne by the Series. Finally, since each
Series seeks to replicate the total return of its target index, the Manager
generally will not attempt to judge the merits of any particular security as an
investment.
Options, Futures, Swaps and Indexed Instruments. The Manager expects to use
options, futures, options on futures, swaps and indexed instruments as described
above under "About Indexing and Management of the Series - Other Types of
Investments and Techniques - Portfolio Strategies Involving Futures, Options,
Swaps and Indexed Instruments." Use of such instruments may involve investment
risks and transaction costs to which the Series would not be subject absent the
use of these instruments. A discussion of these instruments is contained in
Appendix A to this Part A.
Investment in Foreign Securities. Investments on an international basis involve
certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
or U.S. governmental laws or restrictions applicable to such investments.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Also, it is anticipated that most of the foreign securities held by a Series
will not be registered with the Securities and Exchange Commission nor will the
issuers thereof be subject to the reporting requirements of
13
such agency. In addition, foreign investors such as the Series may be subject to
withholding taxes in certain countries, which may reduce the returns of the
Series.
Since the International Index Series will invest heavily in securities
denominated or quoted in currencies other than the United States dollar, changes
in foreign currency exchange rates will affect the value of securities in the
Series' portfolio and the unrealized appreciation or depreciation of investments
so far as United States investors are concerned. Currencies of certain foreign
countries may be volatile and therefore may affect the value of securities
denominated in such currencies. Changes in foreign currency exchange rates
relative to the United States dollar will affect the United States dollar value
of the Series' assets denominated in that currency and the return on such
assets. The rate of exchange between the dollar and other currencies is
determined by forces of supply and demand in the foreign exchange markets. These
forces are, in turn, affected by the international balance of payments, the
level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors.
Investment in Fixed-Income Securities. Because the Merrill Lynch Aggregate Bond
Index Series will invest in fixed-income securities, it will be subject to the
general risks inherent in such securities, primarily interest rate risk, credit
risk and prepayment risk.
Interest rate risk is the potential for fluctuations in bond prices due to
changing interest rates. As a rule bond prices vary inversely with interest
rates. If interest rates rise, bond prices generally decline; if interest rates
fall, bond prices generally rise. In addition, for a given change in interest
rates, longer-maturity bonds generally fluctuate more in price than
shorter-maturity bonds. To compensate investors for these larger fluctuations,
longer-maturity bonds usually offer higher yields than shorter-maturity bonds,
other factors, including credit quality, being equal. These basic principles of
bond prices also apply to U.S. Government Securities. A security backed by the
"full faith and credit" of the U.S. Government is guaranteed only as to its
stated interest rate and face value at maturity, not its current market price.
Just like other fixed-income securities, government-guaranteed securities will
fluctuate in value when interest rates change.
Credit risk is the possibility that an issuer of securities held by the Series
will be unable to make payments of either interest or principal or will be
perceived to have a diminished capacity to make such payments in the future. The
credit risk of the Series is a function of the diversification and credit
quality of its underlying securities.
The Aggregate Bond Index Series may also be exposed to event risk, which
includes the possibility that fixed-income securities held by the Aggregate Bond
Index Series may suffer a substantial decline in credit quality and market value
due to issuer restructurings. Certain restructurings such as mergers, leveraged
buyouts, takeovers or similar events, are often financed by a significant
expansion of corporate debt. As a result of the added debt burden, the credit
quality and market value of a firm's existing debt securities may decline
significantly. Other types of restructurings (such as corporate spinoffs or
privatizations of governmental or agency borrowers or the termination of express
or implied governmental credit support) may also result in decreased credit
quality of a particular issuer.
14
Prepayment risk is the possibility that the principal of the mortgage loans
underlying mortgage- backed securities may be prepaid at any time. As a general
rule, prepayments increase during a period of falling interest rates and
decrease during a period of rising interest rates. As a result of prepayments,
in periods of declining interest rates the Aggregate Bond Index Series may be
required to reinvest its assets in securities with lower interest rates. In
periods of increasing interest rates, prepayments generally may decline, with
the effect that the mortgage-backed securities held by the Aggregate Bond Index
Series may exhibit price characteristics of longer-term debt securities.
The corporate substitution strategy used by the Aggregate Bond Index Series
(discussed above) may increase or decrease the Aggregate Bond Index Series'
exposure to the foregoing risks relative to those of the Aggregate Bond
Index.
Investments in Small Companies. The Small Cap Index Series will invest primarily
in securities of smaller capitalization issuers. Investments in securities of
smaller capitalization issuers involve special considerations and risks not
typically associated with investments in securities of larger capitalization
issuers, including an issuer's limited product lines, markets or financial
resources, or dependence on a limited management group. In addition, many
smaller capitalization stocks trade less frequently and in smaller volume, and
may be subject to more abrupt or erratic price movements, than stocks of larger
companies. The securities of smaller companies may also be more sensitive to
market changes than the securities of larger companies.
Portfolio Turnover. Although each Series will use a passive, indexing approach
to investing, each Series may engage in a substantial number of portfolio
transactions. The rate of portfolio turnover will be a limiting factor when the
Manager considers whether to purchase or sell securities for a Series only to
the extent that the Manager will consider the impact of transaction costs on a
Series' tracking error. Changes in the securities comprising a Series' index
will tend to increase that Series' portfolio turnover rate, as the Manager
restructures the Series' holdings to reflect the changes in the index. The
portfolio turnover rate is, in summary, the percentage computed by dividing the
lesser of a Series' purchases or sales of securities by the average net asset
value of the Series. High portfolio turnover involves correspondingly greater
brokerage commissions for a Series investing in equity securities and other
transaction costs which are borne directly by a Series. A high portfolio
turnover rate may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income rates.
ADDITIONAL INFORMATION CONCERNING THE INDICES.
S&P 500. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's
500", and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the Trust. The S&P 500 Index Series is not sponsored,
endorsed, sold or promoted by Standard & Poor's, a
15
division of the McGraw Hill Companies, Inc. ("Standard & Poor's"). Standard &
Poor's makes no representation regarding the advisability of investing in the
Series. Standard & Poor's makes no representation or warranty, express or
implied, to the owners of shares of the Series or any member of the public
regarding the advisability of investing in securities generally or in the Series
particularly or the ability of the S&P 500 to track general stock market
performance. Standard & Poor's only relationship to the Series is the licensing
of certain trademarks and trade names of Standard & Poor's and of the S&P 500
which is determined, composed and calculated by Standard & Poor's without regard
to the Series. Standard & Poor's has no obligation to take the needs of the
Series or the owners of shares of the Series into consideration in determining,
composing or calculating the S&P 500 Index. Standard & Poor's is not responsible
for and has not participated in the determination of the prices and amount of
the Series or the timing of the issuance of sale of shares of the Series or in
the determination or calculation of the equation by which the Series is to be
converted into cash. Standard & Poor's has no obligation or liability in
connection with the administration, marketing or trading of the Series.
Standard & Poor's does not guarantee the accuracy and/or the completeness of the
S&P 500 Index or any data included therein and Standard & Poor's shall have no
liability for any errors, omissions, or interruptions therein. Standard & Poor's
makes no warranty, express or implied, as to results to be obtained by the
Series, owners of shares of the Series, or any other person or entity from the
use of the S&P 500 Index or any data included therein. Standard & Poor's makes
no express or implied warranties and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall Standard & Poor's have any liability for any
special, punitive, indirect, or consequential damages (including lost profits),
even if notified of the possibility of such damages.
Russell 2000. The Merrill Lynch Small Cap Index Series is not promoted,
sponsored or endorsed by, nor in any way affiliated with Frank Russell Company.
Frank Russell Company is not responsible for and has not reviewed the Series nor
any associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change the Russell 2000(R) Index. Frank
Russell Company has no obligation to take the needs of any particular fund or
its participants or any other product or person into consideration in
determining, composing or calculating the Index.
Frank Russell Company's publication of the Russell 2000(R) Index in no way
suggests or implies an opinion by Frank Russell Company as to the attractiveness
or appropriateness of investment in any or all securities upon which the Russell
2000 is based. Frank Russell
16
Company makes no representation, warranty, or guarantee as to the accuracy,
completeness, reliability, or otherwise of the Russell 2000 or any data included
in the Russell 2000. Frank Russell Company makes no representation or warranty
regarding the use, or the results of use, of the Russell 2000 or any data
included therein, or any security (or combination thereof) comprising the
Russell 2000. Frank Russell Company makes no other express or implied warranty,
and expressly disclaims any warranty, of any kind, including, without means of
limitation, any warranty of merchantability or fitness for a particular purpose
with respect to the Russell 2000 or any data or any security (or combination
thereof) included therein.
EAFE Index. The EAFE Index is the exclusive property of Morgan Stanley & Co.
Incorporated ("Morgan Stanley"). The EAFE Index is a service mark of Morgan
Stanley Group Inc. and has been licensed for use by MLAM and certain of its
affiliates.
The International Index Series is not sponsored, endorsed, sold or promoted by
Morgan Stanley. Morgan Stanley makes no representation or warranty, express or
implied, to the owners of shares of the International Index Series or any member
of the public regarding the advisability of investing in securities generally or
in the International Index Series particularly or the ability of the EAFE Index
to track general stock market performance. Morgan Stanley is the licensor of
certain trademarks, service marks and trade names of Morgan Stanley and of the
EAFE Index. Morgan Stanley has no obligation to take the needs of the
International Index Series or the owners of shares of the International Index
Series into consideration in determining, composing or calculating the EAFE
Index. Morgan Stanley is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of shares of the
International Index Series to be issued or in the determination or calculation
of the equation by which shares of the International Index Series are redeemable
for cash. Morgan Stanley has no obligation or liability to owners of shares of
the International Index Series in connection with the administration, marketing
or trading of the International Index Series.
Although Morgan Stanley shall obtain information for inclusion in or for use in
the calculation of the EAFE Index from sources which Morgan Stanley considers
reliable, Morgan Stanley does not guarantee the accuracy and/or the completeness
of the EAFE Index or any data included therein. Morgan Stanley makes no
warranty, express or implied, as to results to be obtained by licensee,
licensee's customers and counterparties, owners of the shares of the
International Index Series, or any other person or entity from the use of the
EAFE Index or any data included therein in connection with the rights licensed
therefrom or for any other use. Morgan Stanley makes no express or implied
warranties, and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the EAFE Index or any data
included therein. Without limiting any of the foregoing, in no event shall
Morgan Stanley have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of
the possibility of such damages.
Item 5. Management of the Series.
17
The Trustees of the Trust are responsible for the general oversight of the
conduct of the Trust's business.
INVESTMENT MANAGER.
The Trust on behalf of each Series has entered into an investment management
agreement (the "Management Agreement") with the Manager. The Manager, with
offices at 800 Scudders Mill Road, Plainsboro, New Jersey (mailing address: Box
9011, Princeton, New Jersey 08543-9011) acts as manager for the Trust and each
Series and provides them with management and investment advisory services. The
Manager is owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."), a
financial services holding company and the parent of Merrill Lynch. The Asset
Management Group of ML&Co. (which includes the Investment Adviser) acts as the
manager for more than 100 other registered investment companies. The Manager and
FAM also offer portfolio management services to individuals and institutions. As
of February, 1998, the Asset Management Group had a total of approximately
$476 billion in investment company and other portfolio assets under management.
This amount includes assets managed for certain affiliates of MLAM.
The Trust will pay the Manager a monthly fee with respect to each Series equal
to a percentage of the average daily net assets of that Series at the rates
described below. In addition, the Management Agreement obligates the Trust to
pay certain expenses incurred in its operations including, among other things,
the investment advisory fee, legal and audit fees, registration fees,
unaffiliated Trustees' fees and expenses, custodian and transfer agency fees,
accounting costs, the costs of issuing and redeeming shares and certain of the
costs of printing proxies, shareholder reports, prospectuses and statements of
additional information. For the fiscal period April 3, 1997 (commencement of
operations) to December 31, 1997, the total fee paid by the S&P 500 Index Series
to the Manager was $148,645, all of which was voluntarily waived, and the total
fee paid by the Aggregate Bond Index Series to the Manager was $88,609, of which
$37,562 was voluntarily waived (based on average daily net assets of
approximately $398.9 million and $197.4 million, respectively). For the fiscal
period April 9, 1997 (commencement of operations) to December 31, 1997, the
total fee paid by the Small Cap Index Series to the Manager was $36,425, all of
which was voluntarily waived, and the total fee paid by the International Index
Series to the Manager was $100,102, of which $35,546 was voluntarily waived
(based on average daily net assets of approximately $62.5 million and $124.9
million, respectively). Accounting services are provided to the Trust by the
Manager, and the Trust reimburses the Manager for its costs in connection with
such services on a semi-annual basis. For the fiscal period April 3, 1997
(commencement of operations) to December 31, 1997, the amount of such
reimbursement for the S&P 500 Index Series and the Aggregate Bond Index Series
was $192,752 and $113,606, respectively. For the fiscal period April 9, 1997
(commencement of operations) to December 31, 1997, the amount of such
reimbursement for the Small Cap Index Series and the International Index Series
was $31,090 and $68,823, respectively.
For the fiscal period April 3, 1997 (commencement of operations) to December 31,
1997, the ratio of total expenses to average net assets was .17% and .18% for
the S&P 500 Index Series and the Aggregate Bond Index Series, respectively. For
the fiscal period April 9, 1997 (commencement of operations) to December 31,
1997, the ratio of total expenses to average net assets was .29% and .36% for
the Small Cap Index Series and the International Index Series,
respectively.
The following table sets forth the annual management fee rates to be paid by
each Series, expressed as a percentage of the Series' average daily net assets.
Name of Series Total Management Fee
-------------- --------------------
Merrill Lynch S & P 500 Index Series...............................0.05%
Merrill Lynch Small Cap Index Series...............................0.08%
Merrill Lynch Aggregate Bond Index Series..........................0.06%
Merrill Lynch International Equity Index Series....................0.11%
Eric Mitofsky is primarily responsible for the day-to-day management of the
investments of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Mr. Mitofsky has been associated with MLAM since
1987, has been a First Vice President of MLAM since 1997 and was a Vice
President of MLAM from 1992 to 1997. Jay C. Harbeck and Gregory M. Maunz are
primarily responsible for the day-to-day management of the investments of
18
the Merrill Lynch Aggregate Bond Index Series. Mr. Harbeck has been a First Vice
President of MLAM since 1997 and was a Vice President of MLAM from 1986 to
1997, and Mr. Maunz has been a First Vice President of MLAM since 1997 and was a
Vice President of MLAM from 1985 to 1997.
CUSTODY ARRANGEMENTS.
Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsboro, New Jersey,
acts as custodian of the assets of S&P 500 Index Series, Small Cap Index Series
and Aggregate Bond Index Series. State Street Bank and Trust Company ("State
Street"), P.O. Box 351, Boston Massachusetts 02101 acts as custodian of the
assets of International Index Series. Under its contract with the Trust, State
Street is authorized to establish separate accounts in foreign currencies and to
cause foreign securities owned by the International Index Series to be held in
its offices outside the United States and with certain foreign banks and
securities depositories. Each Custodian is responsible for safeguarding and
controlling cash and securities, handling the receipt and delivery of securities
and collecting interest and dividends on investments.
Item 6. Capital Stock and Other Securities.
Investors in the Trust have no preemptive or conversion rights and beneficial
interests in the Trust are fully paid and non-assessable. The Trust has no
current intention to hold annual meetings of investors, except to the extent
required by the Investment Company Act, but will hold special meetings of
investors when in the judgment of the Trustees it is necessary or desirable to
submit matters for an investor vote. Investors have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Trustees by a specified number of investors) the right to communicate with other
investors in connection with requesting a meeting of investors for the purpose
of removing one or more Trustees. Investors also have the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of investors. Upon liquidation of the Trust or any Series, investors
would be entitled to share, in proportion to their investment in the Trust or
Series (as the case may be), in the assets of the Trust or Series available for
distribution to investors.
The Trust is organized as a Delaware business trust and currently consists of
four Series. Each investor is entitled to a vote in proportion to its investment
in the Trust or the Series (as the case may be). Investors in any Series will
participate equally in accordance with their pro rata interests in the earnings,
dividends and assets of the particular Series. The Trust reserves the right to
create and issue interests in additional Series.
Investments in the Trust may not be transferred, but an investor may withdraw
all or any portion of its investment in any Series on any day on which the New
York Stock Exchange is open at net asset value. The complete withdrawal of any
investor from a Series will result in the dissolution of the Series unless the
remaining investors unanimously agree to continue the Series.
19
The net asset value of each Series is determined on each day during which the
New York Stock Exchange is open for trading ("Pricing Day"). This determination
is made once during each such day by deducting the amount of the Series' total
liabilities (including accrued expenses) from the value of its total assets.
Total assets consist of the value of the securities held by the Series plus cash
and other assets (including interest and dividends accrued and not yet
received).
A Series' securities which are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the closing bid price for long positions, and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under authority of the Board of Trustees as the primary market.
Securities traded in the over-the-counter market are valued at the last quoted
bid prices as at the close of trading on the New York Stock Exchange on each day
by brokers that make markets in the securities. Securities traded on the NASDAQ
national market system are valued at the last sale price prior to the time of
the valuation. Portfolio securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded on the over-the-
counter market are valued at the last available ask price in the over-the-
counter market prior to the time of valuation. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not readily available are valued at
fair market value, as determined in good faith by or under the direction of the
Trustees of the Trust. See "Item 19. Purchase, Redemption and Pricing of
Securities" in Part B.
Each investor in the Trust may add to or reduce its investment in any Series on
each Pricing Day. On each Pricing Day, the value of each investor's beneficial
interest in a Series will be determined 15 minutes after the close of business
of the New York Stock Exchange (generally 4:00 p.m., New York time) by
multiplying the net asset value of the Series by the percentage, effective for
that day, that represents that investor's share of the aggregate beneficial
interests in such Series. Any additions or withdrawals, which are to be effected
on that day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a Series will then be re-computed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Series as of the time or determination on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Series effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Series as of such
time on such day plus or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate investments in the Series by all
investors in the Series. The percentage so determined will then be applied to
determine the value of the investor's interest in such Series as of 15 minutes
after the close of business of the New York Stock Exchange on the next Pricing
Day of the Series.
Under the anticipated method of operation of the Series, each Series will be
treated as a separate partnership for tax purposes and, thus, will not be
subject to any income tax. The Series have received a ruling from the Internal
Revenue Service establishing their status as partnerships. Based upon the status
of each Series as a partnership, each investor in a Series will be taxable on
its share (as determined in accordance with the governing instruments of the
Series) of such Series' ordinary income and capital gain in determining its
income tax liability. The determination of such share will be made in accordance
with the Code and Treasury Regulations promulgated thereunder.
20
It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in any Series will be able to satisfy the
requirements of Subchapter M of the Code assuming that the investor invested all
of its assets in the Series.
Investor inquiries should be made by contacting Merrill Lynch Funds Distributor,
Inc. (the "Placement Agent").
DIVIDENDS AND DISTRIBUTIONS.
It is the Trust's intention to distribute all of its net investment income, if
any. Dividends from such net investment income will be paid at least annually
with respect to each of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Dividends with respect to the Aggregate Bond Series
will be declared daily and paid monthly. All net realized long- or short-term
capital gains, if any, are distributed to Series interestholders at least
annually. From time to time, a Series may declare a special distribution at or
about the end of the calendar year in order to comply with certain Federal
income tax requirements. All Dividends and Distributions will be credited ot the
accounts of interestholders or paid to interestholders, in each case as the
interestholder directs.
Item 7. Purchase of Securities.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Trust could be adversely affected if
the computer systems used by the Manager or other Trust service providers do not
properly address this problem prior to January 1, 2000. The Manager has
established a dedicated group to analyze these issues and to implement any
systems modifications necessary to prepare for the Year 2000. Currently, the
Manager does not anticipate that the transition to the 21st century will have
any material impact on its ability to continue to service the Trust at current
levels. In addition, the Manager has sought assurances from the Trust's other
service providers that they are taking all necessary steps to ensure that their
computer systems will accurately reflect the Year 2000, and the Manager will
continue to monitor the situation. At this time, however, no assurance can be
given that the Trust's other service providers have anticipated every step
necessary to avoid any adverse effect on the Trust attributable to the Year 2000
Problem.
Beneficial interests in the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in each Series of the Trust may only
be made by a limited number of institutional investors including investment
companies, common or commingled trust funds, group trusts, and certain other
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
Investments in the Series will be made without a sales load. All investments are
made at net asset value next determined after an order is received by the
Series. The net asset value of each Series is determined on each Pricing Day.
There is no minimum initial or subsequent investment in each Series. However,
because each Series intends to be as fully invested at all times as is
reasonably consistent with its investment objectives and policies in order to
enhance the yield on its assets, investments must be made in federal funds
(i.e., monies credited to the account of the respective Series' custodian bank
by a Federal Reserve Bank).
Each Series reserves the right to cease accepting investments at any time or to
reject any investment order.
The Trust's placement agent is Merrill Lynch Funds Distributor, Inc.
21
Item 8. Redemption or Repurchase.
An investor in the Trust may withdraw all or a portion of its investment in any
Series on any Pricing Day at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to the Series.
The proceeds of the withdrawal will be paid by the Series normally on the
business day on which the withdrawal is effected, but in any event within seven
days. Investments in any Series of the Trust may not be transferred.
Item 9. Pending Legal Proceedings.
Not applicable.
22
APPENDIX A
The Series are authorized to use certain instruments, including indexed
securities, options, futures and swaps, as described below. Such instruments,
which may be regarded as derivatives, are referred to collectively herein as
"Strategic Instruments."
INDEXED SECURITIES
The Series may invest in securities the potential return of which is based on
the change in particular measurements of value or rate (an "index"). As an
illustration, a Series may invest in a debt security that pays interest and
returns principal based on the change in the value of a securities index or a
basket of securities, or based on the relative changes of two indices. If a
Series invests in such securities, it may be subject to reduced or eliminated
interest payments or loss of principal in the event of an adverse movement in
the relevant index or indices.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. Each Series is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially correlated with securities held in its portfolio. When a Series
purchases a put option, in consideration for an upfront payment (the "option
premium") the Series acquires a right to sell to another party specified
securities owned by the Series at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Series' risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Series will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
Each Series is also authorized to purchase call options on securities it intends
to purchase or securities indices. When a Series purchases a call option, in
consideration for the option premium the Series acquires the right to purchase
from another party specified securities at the exercise price on or before the
expiration date, in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
increases beyond a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a call option may protect
the Series from having to pay more for a security as a consequence of increases
in the market value for the security during a period when the Series is
contemplating its purchase, in the case of an option on a security, or
attempting to maintain exposure to an index prior to purchasing underlying
securities. in the case of an option on an index (an "anticipatory hedge"). In
the event the Series determines not to
23
purchase a security underlying a call option, however, the Series may lose the
entire option premium.
Each Series is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Options. Each Series is authorized to write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
is substantially replicated by securities held in its portfolio. When a Series
writes a call option, in return for an option premium the Series gives another
party the right to buy specified securities owned by the Series at the exercise
price on or before the expiration date, in the case of an option on securities,
or agrees to pay to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the expiration date, in
the case of an option on a securities index. In the event the party to which a
Series has written an option fails to exercise its rights under the option
because the value of the underlying securities is less than the exercise price,
the Series will partially offset any decline in the value of the underlying
securities through the receipt of the option premium. By writing a call option,
however, a Series limits its ability to sell the underlying securities, and
gives up the opportunity to profit from any increase in the value of the
underlying securities beyond the exercise price, while the option remains
outstanding.
Each Series may also write put options on securities or securities indices. When
a Series writes a put option, in return for an option premium the Series gives
another party the right to sell to the Series a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. In the event the party to
which the Series has written an option fails to exercise its rights under the
option because the value of the underlying securities is greater than the
exercise price, the Series will profit by the amount of the option premium. By
writing a put option, however, a Series will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Series writes a put option it is exposed to a risk of loss in the event the
value of the underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received by
the Series for writing the put option. A Series will write a put option on a
security or a securities index only if the Series would be willing to purchase
the security at the exercise price for investment purposes (in the case of an
option on a security) or is writing the put in connection with trading
strategies involving combinations of options -- for example, the sale and
purchase of options on the same security or index but different expiration dates
or exercise prices (a technique called a "spread").
Each Series is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
24
Other than with respect to closing transactions, the Series will only write call
or put options that are "covered." A call or put option will be considered
covered if a Series has segregated assets with respect to such option in the
manner described in "Risk Factors in Strategic Instruments" below. A call option
will also be considered covered if a Series owns the securities it would be
required to deliver upon exercise of the option (or, in the case of option on a
securities index, securities which substantially replicate the performance of
such index) or owns a call option, warrant or convertible instrument which is
immediately exercisable for, or convertible into, such security.
Types of Options. Each Series may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and seller,
but generally do not require the parties to post margin and are subject to
greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions" below.
FUTURES
Each Series may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of a commodity at
a specified future date at a specified price. No price is paid upon entering
into a futures contract. Rather, upon purchasing or selling a futures contract
the Series is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Series will pay additional margin representing
any loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day. The Series will further limit transactions in
futures and options on futures to the extent necessary to prevent the Series
from being deemed a "commodity pool" under regulations of the Commodity Futures
Trading Commission.
SWAPS
The Series are authorized to enter into equity swap agreements, which are OTC
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of securities or equity index. Swap agreements may also be used
to obtain exposure to a secrity or market without owning or taking physical
custody of securities in circumstances in which direct investment is restricted
by local law or is otherwise impractical.
25
RISK FACTORS IN STRATEGIC INSTRUMENTS
The Series intend to enter into transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments or,
in the case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions." However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Strategic Instrument or a
Series will otherwise be able to sell such instrument at an acceptable price. It
may therefore not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., futures transactions, sales
of put options) may expose a Series to potential losses which exceed the amount
originally invested by the Series in such instruments. When a Series engages in
such a transaction, the Series will deposit in a segregated account at its
custodian liquid securities with a value at least equal to the Series' exposure,
on a mark-to-market basis, to the transaction (as calculated pursuant to
requirements of the Securities and Exchange Commission). Such segregation will
ensure that the Series has assets available to satisfy its obligations with
respect to the transaction, but will not limit the Series' exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which a Series may invest. The absence of liquidity may make it
difficult or impossible for a Series to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Series to ascertain a market value for such instruments. A Series will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Manager anticipates
the Series can receive on each business day at least two independent bids or
offers, unless a quotation from only one dealer is available, in which case that
dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position that
purchased OTC options and the assets underlying written OTC options are illiquid
securities. The Series have therefore adopted an investment policy pursuant to
which they will not purchase or sell OTC options (including OTC options on
futures contracts) if, as a result of such transactions, the sum of the market
value of OTC options currently outstanding which are held by the Series, the
market value of the securities underlying OTC call options currently outstanding
which have been sold by the Series and margin deposits on the Series'
outstanding OTC options exceeds 15% of the total assets of the Series, taken at
market value, together with all other assets of the Series which are deemed to
be illiquid or are otherwise not readily marketable. However, if an OTC option
is sold by the Series to a dealer in U.S. government securities recognized as a
"primary
26
dealer" by the Federal Reserve Bank of New York and the Series has the
unconditional contractual right to repurchase such OTC option at a predetermined
price, then the Series will treat as illiquid such amount of the underlying
securities as is equal to the repurchase price less the amount by which the
option is "in-the-money" (i.e., current market value of the underlying security
minus the option's exercise price).
Because Strategic Instruments traded in OTC markets are not guaranteed by an
exchange or clearing corporation and generally do not require payment of margin,
to the extent that a Series has unrealized gains in such instruments or has
deposited collateral with its counterparty the Series is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Series will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Series with a
third-party guaranty or other credit enhancement.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS.
The Series may not use any Strategic Instrument to gain exposure to an asset or
class of assets that it would be prohibited by its investment restrictions from
purchasing directly.
27
APPENDIX B - DESCRIPTION OF COMMERCIAL
PAPER AND BOND RATINGS
COMMERCIAL PAPER
Description of relevant commercial paper ratings of Standard & Poor's Ratings
Group ("S&P") are as follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
Description of the relevant commercial paper ratings of Moody's Investors
Service, Inc. ("Moody's") are as follows:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Capitalization
28
characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is
maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurement and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
CORPORATE BONDS
Descriptions of the bond ratings of S&P are:
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for
debt in higher rated categories.
BB, B, CCC, CC or C--Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
C1 -- The rating C1 is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in default and payment of interest and/or repayment
of principal is in arrears.
The ratings from AA to CC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
29
Descriptions of the bond ratings of Moody's are as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat greater than the Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or
have other marked shortcomings.
30
C -- Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
31
PART B
Except as otherwise indicated herein, all capitalized terms shall have the
meaning assigned to them in Part A hereof.
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents. Page
----
General Information and History.....................................32
Investment Objectives and Policies..................................32
Management of the Registrant........................................34
Control Persons and Principal Holders of Securities.................36
Investment Advisory And Other Services .............................37
Brokerage Allocation and Other Practices............................38
Capital Stock and Other Securities..................................40
Purchase, Redemption and Pricing of Securities......................41
Tax Status..........................................................42
Underwriters........................................................44
Calculations of Performance Data....................................44
Financial Statements................................................44
Item 12. General Information and History
Not applicable
Item 13. Investment Objectives and Policies.
The investment objectives and policies of the Series are described in Part A.
There can be no assurance that the Series will achieve their investment
objectives.
Except as described below under "Investment Restrictions" and except as
otherwise specifically stated in Part A or this Part B, the investment objective
and policies of each Series are not fundamental and may be changed without
shareholder approval.
The Trustees may also change the target index of any respective Series if they
consider that a different index would facilitate the management of the Series in
a manner which better enables the Series to seek to replicate the total return
of the market segment represented by the current index.
32
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by each Series and may
be changed with respect to a particular Series only by the vote of the holders
of a majority of that Series' outstanding beneficial interests ("shares"), which
as used in this Part B means the lesser of (a) 67% of the shares of the Series
present at a meeting of shareholders if the holders of more than 50% of the
Series' shares are present or represented at that meeting, or (b) more than 50%
of the shares of the Series. Accordingly, no Series may:
1. Make any investment inconsistent with the Series'
classification as a non-diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities); provided, that in
replicating the weighting of a particular industry in its target index, a Series
may invest more that 25% of its total asssets in securities of issuers in that
industry.
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent
permitted by applicable law, a Series may invest in securities directly or
indirectly secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments, certificates
of deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except further
that a Series may lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable law and the
guidelines set forth in the Trust's Registration Statement under the Investment
Company Act (the "Registration Statement"), as such Registration Statement may
be amended from time to time.
6. Issue senior securities to the extent such issuance would
violate applicable law.
7. Borrow money, except that (i) a Series may borrow from banks
(as defined in the Investment Company Act) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) a Series may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) a Series may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) a Series may purchase securities on
margin to the extent permitted by applicable law. A Series may not pledge its
assets other than to secure such borrowings or, to the extent permitted by the
Series' investment policies as set forth in its Registration Statement, as it
may be amended from time to time, in connection with hedging
33
transactions, short sales, when-issued and forward commitment transactions and
similar investment strategies.
8. Underwrite securities of other issuers except insofar as a
Series technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities,
except to the extent that a Series may do so in accordance with applicable law
and the Trust's Registration Statement, as it may be amended from time to time,
and without registering as a commodity pool operator under the Commodity
Exchange Act.
In addition, the Trust has adopted as an operating policy, which may be changed
by the Trustees without shareholder approval, that no Series will make any
additional investments if the amount of its borrowings exceeds 5% of its total
assets. For purposes of this policy, borrowings will not include the use of
investment techniques that may be deemed to create leverage, including, but not
limited to, such techniques as dollar rolls, when-issued securities, options and
futures.
Portfolio securities of a Series generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the Investment Company Act.
Because of the affiliation of the Manager with the Trust, the Trust is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order, the
Trust is prohibited from engaging in portfolio transactions with Merrill Lynch
or its affiliates acting as principal and from purchasing securities in public
offerings which are not registered under the Securities Act of 1933 in which
such firms or any of their affiliates participate as an underwriter or dealer.
Item 14. Management of the Registrant.
The Trustees and executive officers of the Trust and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Trustee is P.O. Box
9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (57) - President and Trustee(1)(2) - Executive Vice
President of MLAM and Fund Asset Management, L.P. ("FAM") since 1983; Executive
Vice President and Director of Princeton Services, Inc. since 1993; President of
Merrill Lynch Funds Distributor, Inc. (the "Distributor") since 1986 and
Director thereof since 1991; President
34
of Princeton Administrators, L.P. since 1988; and Director of Merrill Lynch
Financial Data Services, Inc. since 1985.
JACK B. SUNDERLAND (69) - Trustee(2) - P.O. Box 7, West Cornwall,
Connecticut. 06796. President and Director of American Independent Oil Company,
Inc. (energy company) since 1987; Member of Council on Foreign Relations since
1971.
STEPHEN B. SWENSRUD (64) - Trustee(2) - 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman, Fernwood Advisers (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975.
J. THOMAS TOUCHTON (58) - Trustee(2) - Suite 3405, One Tampa City
Center, Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and
its predecessor The Witt Co. (private placement partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc.
(electric utility holding company).
NORMAN R. HARVEY (64) - Senior Vice President(1)(2) - Senior Vice
President of MLAM and FAM since 1982.
JOSEPH T. MONAGLE, JR. (49) - Senior Vice President(1)(2) - Senior Vice
President and Department Head of the Global Fixed Income Division of MLAM since
1990; Vice President of MLAM from 1978 to 1990.
GREGORY MARK MAUNZ (44) - Senior Vice President (1)(2) - First Vice
President of MLAM since 1997; Vice President of MLAM from 1985 to 1997;
Portfolio Manager of MLAM since 1984.
ERIC S. MITOFSKY (43) - Senior Vice President (1)(2) - First Vice
President of MLAM since 1997; Vice President of MLAM from 1992 to 1997; Senior
Desk Analyst with Merrill Lynch Program Trading Desk from 1987 to 1992.
JAY C. HARBECK (62) - Senior Vice President(1)(2) - First Vice
President of MLAM since 1997; Vice President of MLAM and FAM from 1986 to 1997.
GERALD M. RICHARD (48) - Treasurer(1)(2) - Senior Vice President and
Treasurer of the Manager since 1984; Senior Vice President and Treasurer of FAM
since 1984; Treasurer of the Distributor since 1984 and Vice President since
1981.
IRA SHAPIRO (34) - Secretary (1)(2) - Director (Legal-Advisory) of MLAM
since 1997; Attorney with MLAM and FAM from 1993 to 1997; Attorney in private
practice prior to 1993.
- ----------
(1) Interested person, as defined in the Investment Company Act, of the
Corporation.
(2) Such Trustee or officer is a director, trustee or officer of other
investment companies for which MLAM or FAM acts as investment adviser.
35
As of the date of this Part B, the officers and Trustees of the Trust
as a group (eleven persons) owned an aggregate of less than 1/4 of 1% of the
outstanding shares of Common Stock of Merrill Lynch & Co., Inc. and owned an
aggregate of less than 1% of the outstanding shares of any of the Series.
Pursuant to the terms of the Management Agreement with the Trust, the
Manager pays all compensation of officers of the Trust as well as the fees of
all Trustees who are affiliated persons of MLAM. The Trust and Merrill Lynch
Index Funds, Inc. (the "Corporation") pay each individual who serves as a
Director/Trustee not affiliated with the Manager (each a "non-affiliated
Director/Trustee") a fee of $2,500 per year plus $250 per Board meeting
attended, together with such individual's actual out-of-pocket expenses relating
to attendance at meetings. The Corporation and the Trust also compensate members
of the Audit and Nominating Committee (the "Committee"), which consists of all
of the Directors/Trustees who are not affiliated persons of the Funds of the
Corporation and the Series, with a fee of $1,000 per year. For the fiscal period
April 3, 1997 (commencement of operations) to December 31, 1997 for the S&P 500
Index Fund, the S&P 500 Index Series, the Aggregate Bond Index Fund and the
Aggregate Bond Index Series, fees and expenses paid to non-affiliated
Directors/Trustees aggregated $200, $5,797, $750 and $3,065, respectively. For
the fiscal period April 9, 1997 (commencement of operations) to December 31,
1997 for the Small Cap Index Fund,the Small Cap Index Series, the International
Index Fund and the International Index Series, fees and expenses paid to non-
affiliated Directors/Trustees aggregated $0, $2,203, $381 and $3,361,
respectively.
COMPENSATION OF DIRECTORS/TRUSTEES
The following table sets forth the aggregate compensation the Corporation and
the Trust expect to pay to the non-affiliated Directors/Trustees for the current
fiscal year and the total compensation paid by all investment companies
advised by MLAM and its affiliate, FAM ("MLAM/FAM-Advised Funds") to the
non-affiliated Directors/Trustees for the calendar year ended December 31, 1997.
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION
PENSION OR RETIREMENT FROM FUNDS/SERIES AND
AGGREGATE BENEFITS ACCRUED AS MLAM/FAM ADVISED
NAME OF DIRECTOR/TRUSTEE COMPENSATION FROM PART OF FUND/SERIES FUNDS PAID TO
FUNDS/SERIES EXPENSES DIRECTORS/TRUSTEES(1)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Jack B. Sunderland $ 4,500 None $ 132,600
- -----------------------------------------------------------------------------------------------------------------------
Stephen B. Swensrud $ 4,500 None $ 175,500
- -----------------------------------------------------------------------------------------------------------------------
J. Thomas Touchton $ 4,500 None $ 132,100
- -----------------------------------------------------------------------------------------------------------------------
(1) The Directors/Trustees serve on the boards of MLAM/FAM Advised Funds as
follows: Mr. Sunderland (18 registered investment companies consisting
of 30 portfolios); Mr. Swensrud (23 registered investment companies
consisting of 54 portfolios); Mr. Touchton (18 registered investment
companies consisting of 30 portfolios).
Item 15. Control Persons and Principal Holders of Securities.
The following chart sets forth the name and percentage of ownership of
each person who owns of record or is known by the Trust to own of record or
beneficially 5 percent or more of the Trust's outstanding interests, as of March
16, 1998. The address of each is P.O. Box 9011, Princeton, NJ 08543-9011:
Name Percentage of ownership
- ---- -----------------------
Merrill Lynch Index Funds, Inc., - S&P 500 Index Fund 51.39%
Merrill Lynch Index Funds, Inc., - Small Cap Index Fund 3.86%
Merrill Lynch Small Cap Index Trust 2.59%
Merrill Lynch Index Funds, Inc., - Aggregate Bond Index Fund 32.84%
Merrill Lynch Aggregate Bond Index Trust 0.03%
Merrill Lynch Index Funds, Inc., - International Index Fund 8.33%
Merrill Lynch International Index Trust 0.96%
36
All holders of interests ("Holders") are entitled to vote in proportion to the
amount of their interest in a Series or in the Trust, as the case may be. There
is no cumulative voting. Accordingly, the Holder or Holders of more than 50% of
the aggregate beneficial interests of the Trust would be able to elect all the
Trustees. With respect to the election of Trustees and ratification of
accountants the shareholders of separate Series vote together; they generally
vote separately by Series on other matters.
The Manager's address is 800 Scudders Mill Road, Plainsboro, New Jersey (mailing
address: Box 9011, Princeton, New Jersey 08543-9011).
Item 16. Investment Advisory And Other Services.
INVESTMENT ADVISORY SERVICES
The Trust has engaged the Manager as investment manager to each of the Series.
The Manager is a limited partnership, the partners of which are ML & Co. and
Princeton Services. ML & Co. and Princeton Services are "controlling persons" of
the Manager as defined under the Investment Company Act because of their
ownership of its voting securities or their powers to exercise a controlling
influence over its management or policies. Similarly, the following entities may
be considered "controlling persons" of MLAM U.K.: Merrill Lynch Europe Limited
(MLAM U.K.'s parent), a subsidiary of Merrill Lynch International, Inc., a
subsidiary of ML & CO. Reference is made to Part A for certain information
concerning the management and advisory arrangements of the Trust.
Securities held by the Series may also be held by, or be appropriate investments
for, other funds or investment advisory clients for which the Manager or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities by
the Manager for the Series or other funds for which it acts as investment
adviser or for its advisory clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or its
affiliates during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Trust has entered into a Management Agreement (the "Management Agreement")
with the Manager. As discussed in Part A, the Manager will receive for its
services to the Portfolios monthly compensation based upon a percentage of the
average daily net assets of the Series. For the fiscal period April 3, 1997
(commencement of operations) to December 31, 1997, the fee earned by the
Manager from the S&P 500 Index Series was $148,645, all of which was
voluntarily waived, and the fee earned by the Manager from the Aggregate Bond
Index Series was $88,609, of which $37,562 was voluntarily waived. For the
fiscal period April 9, 1997 (commencement of operations) to December 31, 1997,
the fee earned by the Manager from the Small Cap Index Series was $36,425, all
of which was voluntarily waived, and the fee earned by the Manager from the
International Index Series was $100,102, of which $35,546 was voluntarily
waived.
The Management Agreement obligates the Manager to provide investment advisory
services and to pay all compensation of and furnish office space for officers
and employees of the Trust connected with investment and economic research,
trading and investment management of the Trust, as well as the fees of all
Trustees who are affiliated persons of the Manager or any of their affiliates.
The Trust pays all other expenses incurred in the operation of the Trust,
including, among other things, taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder reports and its
registration statement (except to the extent paid by Merrill Lynch Funds
Distributor, Inc. as Placement Agent), charges of the Custodian, any Sub-
custodian and Transfer Agent, expenses of redemption of shares, registration and
other regulatory fees, expenses of registering the shares under federal, state
or foreign laws, fees and expenses of
37
unaffiliated Trustees, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Trust. The Placement Agent will pay the
expenses of the Trust incurred in connection with the placement of its shares.
Unless earlier terminated as described below, the Management Agreement will
remain in effect for two years from the date of its adoption. Thereafter, it
will remain in effect from year to year if approved annually (a) by the Trustees
or, with respect to any Series, by a majority of the outstanding shares of the
Series and (b) by a majority of the Trustees who are not parties to such
contract or interested persons (as defined in the Investment Company Act) of any
such party. Such contracts are not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or,
with respect to any Series, by the vote of the shareholders of the Series.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, has been selected as the independent auditors of the
Trust. The selection of independent auditors is subject to ratification by the
Trust's shareholders in years when an annual meeting of shareholders is held. In
addition, employment of such auditors may be terminated without any penalty by
vote of a majority of the outstanding shares of the Trust at a meeting called
for the purpose of terminating such employment. The independent auditors are
responsible for auditing the annual financial statements of the Trust.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York 10022, is
counsel for the Trust.
CUSTODIAN
Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsboro, New Jersey
08536, acts as the custodian of the assets of S&P 500 Index Series, Small Cap
Index Series and Aggregate Bond Index Series. State Street Bank and Trust
Comnpany ("State Street"), P.O. Box 351, Boston Massachusetts 02101, acts as the
custodian of the assets of International Index Series. Under its contract with
the Trust, State Street is authorized to establish separate accounts in foreign
currencies and to cause foreign securities owned by International Index Series
to be held in its offices outside the United States and with certain foreign
banks and securities depositories. Each custodian is responsible for
safeguarding and controlling cash and securities, handling the receipt and
dilivery of securities and collecting interest and dividends on investments.
Item 17. Brokerage Allocation and Other Practices.
The Manager is responsible for making portfolio decisions for each Series,
placing the Series' brokerage business, evaluating the reasonableness of
brokerage commissions and negotiating the amount of any commissions paid subject
to a policy established by the Trust's Trustees and officers. The Trust has no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities. Orders for transactions in portfolio
securities are placed for the Trust with a number of brokers and dealers,
including Merrill Lynch. In placing orders, it is the policy of the Trust to
obtain the most favorable net results, taking into account various factors,
including price, commissions, if any, size of the transaction and difficulty of
execution. Where practicable, the Manager surveys a number of brokers and
dealers in connection with proposed portfolio transactions and selects the
broker or dealer which offers the Trust the best
38
price and execution or other services which are of benefit to the Trust.
Securities firms also may receive brokerage commissions on transactions
including covered call options written by the Trust and the sale of underlying
securities upon the exercise of such options.
The Trust does not use any particular broker or dealer, and brokers who provide
supplemental investment research to the Manager may receive orders for
transactions by the Trust. Such supplemental research services ordinarily
consist of: quantitative and modeling information assessments and analyses of
the business or prospects of a company, industry or economic sector. Information
so received will be in addition to and not in lieu of the services required to
be performed by the Manager under the Management Agreement. If in the judgment
of the Manager the Trust will be benefited by supplemental research services,
the Manager is authorized to pay brokerage commissions to a broker furnishing
such services which are in excess of commissions which another broker may have
charged for effecting the same transaction. The expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information, and the Manager may use such information in servicing its other
accounts. For the fiscal period April 3, 1997 to December 31, 1997, the Series
did not acquire any Securities of brokers or dealers which executed its
portfolio transactions during that period.
The Trust anticipates that brokerage transactions involving securities of
companies domiciled in countries other than the United States will be conducted
primarily on the principal stock exchanges of such countries. Brokerage
Commissions and other transaction costs on foreign stock exchange transactions
are higher than in the United States, although the Trust will endeavor to
achieve the best net results in effecting its portfolio transactions. There is
generally less government supervision and regulation of foreign stock exchanges
and brokers than in the United States.
A Series may invest in certain securities traded in the over-the-counter market
and, where possible, deal directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Trust generally are prohibited from dealing with the Trust
as principal in purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Trust, including
Merrill Lynch, will not serve as the Trust's dealer in such transactions.
However, affiliated persons of the Trust may serve as its broker in the
over-the-counter transactions conducted on an agency basis.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as amended,
Merrill Lynch may execute transactions for the Trust on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Trust at
least annually setting forth the compensation it has received in connection with
such transactions.
For the fiscal period April 3, 1997 (commencement of operations) to December 31,
1997, the Series paid brokerage commissions of $118,903 and $0 for the S&P 500
Index Series and the Aggregate Bond Index Series, respectively. For the fiscal
period April 9, 1997 (commencement of operations) to December 31, 1997, the
Trust paid brokerage commissions of $60,361 and $146,336 for the Small Cap Index
Series and the International Index Series, respectively. The Series paid no
commissions to Merrill Lynch.
The Trustees have considered the possibility of seeking to recapture for the
benefit of the Trust brokerage commissions, dealer spreads and other expenses of
possible portfolio transactions, such as underwriting commissions, by conducting
such portfolio transactions through affiliated entities, including Merrill
Lynch. For example, brokerage commissions received by Merrill Lynch could be
offset against the management fee paid by the Trust to the Manager. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time.
Portfolio Turnover. Although the Series will use a passive, indexing approach to
investing, each Series may engage in a substantial number of portfolio
transactions. The rate of portfolio turnover will be a limiting factor when the
Manager considers whether to purchase or sell securities for a
39
Series only to the extent that the Manager will consider the impact of
transaction costs on a Series' tracking error. Changes in the securities
comprising a Series' index will tend to increase that Series' portfolio turnover
rate, as the Manager restructures the Series' holdings to reflect the changes in
the index. A high rate of turnover would result in correspondingly greater
brokerage commission expenses. Portfolio turnover rate is calculated by dividing
the lesser of the Series' annual sales or purchases of portfolio Securities
(exclusive of purchases and sales of Government securities and of all other
securities, including options, whose maturity or expiration dates at the time of
acquisition were one year or less) by the monthly average value of the
securities in the Series during the fiscal year. For the fiscal period April 3,
1997 (commencement of operations) to December 31, 1997, the portfolio turnover
of the S&P 500 Index Series and the Aggregate Bond Index Series was 24.31% and
86.58%, respectively. For the fiscal period April 9, 1997, (commencement of
operations) to December 31, 1997, the portfolio turnover of the Small Cap Index
Series and the International Index Series was 16.45% and 14.79%,
respectively.
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust that establishes the Trust, a Delaware business
trust, the Trustees are authorized to issue beneficial interests in each Series
of the Trust. Investors are entitled to participate, in proportion to their
investment, in distributions of taxable income, loss, gain and deduction with
respect to the Series in which they have invested. Upon liquidation or
dissolution of a Series, investors are entitled to share in proportion to their
investment in such Series' net assets available for distribution to its
investors. Interests in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series generally may not be transferred.
Each investor is entitled to a vote in proportion to the amount of its interest
in a Series or in the Trust, as the case may be. Investors in the Trust, or in
any Series, do not have cumulative voting rights, and investors holding more
than 50% of the aggregate beneficial interests in the Trust may elect all of the
Trustees of the Trust if they choose to do so and in such event the other
investors in the Trust would not be able to elect any Trustee. The Trust is not
required and has no current intention to hold annual meetings of investors but
the Trust will hold special meetings of investors when in the judgment of the
Trustees it is necessary or desirable to submit matters for an investor vote.
A Series shall be dissolved (i) by the affirmative vote of the Holders holding
not less than two-thirds of the beneficial interests in the Series, at any
meeting of such Holders or by an instrument in writing, without a meeting signed
by the Trustees and consented to by the Holders holding not less than two-thirds
of the beneficial interests in such Series, (ii) by the Trustees by written
notice of such dissolution to the Holders in such Series, (iii) upon the
complete withdrawal of a Holder from the Series, or (iv) upon the bankruptcy or
dissolution of a Holder in the Series; provided that in the case of (iii) or
(iv) the Holders in such Series may unanimously vote to continue the Series. The
Trust shall be dissolved upon the dissolution of the last remaining Series.
The Declaration of Trust provides that obligations of the Trust and the Series
are not binding upon the Trustees individually but only upon the property of the
Series and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
40
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust provides that
the Trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Series, their Holders,
Trustees, officers, employees and agents covering possible tort and other
liabilities.
The Trust currently consists of four Series. The Trust reserves the right to
create and issue interests in a number of additional Series. As indicated above,
Holders of each Series participate equally in the earnings and assets of the
particular Series. Holders of each Series are entitled to vote separately to
approve advisory agreements or changes in investment policy, but Holders of all
Series vote together in the election or selection of Trustees and accountants
for the Trust. Upon liquidation or dissolution of a Series, the Holders of such
Series are entitled to share in proportion to their investment in the net assets
of such Series available for distribution to Holders.
DIVIDENDS AND DISTRIBUTIONS.
It is the Trust's intention to distribute all of its net investment income, if
any. Dividends from such net investment income will be paid at least annually
with respect to each of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Dividends with respect to the Aggregate Bond Series
will be declared daily and paid monthly. All net realized long- or short-term
capital gains, if any, are distributed to Series interestholders at least
annually. From time to time, a Series may declare a special distribution at or
about the end of the calendar year in order to comply with certain Federal
income tax requirements. All Dividends and Distributions will be credited to the
accounts of interestholders or paid to interestholders, in each case as the
interestholder directs.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Trust are not offered to the public and are issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Trust may be made only by a limited number of institutional investors, including
investment companies, common or commingled trust funds, group trusts and certain
other entities that are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The number of Holders of any Series shall be limited to
fewer than 100. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
The net asset value of each Series is determined on each Pricing Day. During the
12 months following the date of this Registration Statement, the weekdays that
the New York Stock Exchange is expected to be closed are New Year's Day,
Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
41
The net asset value of each Series is determined once each day as of 15 minutes
after the close of regular trading on the New York Stock Exchange (normally,
4:00 p.m. New York time). For further information concerning the Series' net
asset value, and the valuation of the Series' assets, see Part A.
WITHDRAWALS
An investor in the Trust may withdraw all or a portion of its investment in any
Series on any Pricing Day at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to the Series.
The proceeds of the withdrawal will be paid by the Series normally on the
business day on which the withdrawal is effected, but in any event within seven
days. Investments in any Series of the Trust may not be transferred.
Item 20. Tax Status.
The Trust is organized as a Delaware business trust. Each Series is treated as a
separate partnership under the Internal Revenue Code of 1986 (the "Code") and,
thus, is not subject to income tax. The Series have received rulings from the
Internal Revenue Service establishing their status as partnerships. Based upon
the status of each Series as a partnership, each investor in a Series will be
taxable on its share (as determined in accordance with the governing instruments
of such Series) of such Series's ordinary income and capital gain in determining
its income tax liability. The determination of such share will be made in
accordance with the Code and regulations promulgated thereunder.
Although, as described above, the Series will not be subject to federal income
tax, they will file appropriate income tax returns. Each prospective Investor
Fund which is a regulated investment company ("RIC") will be required to agree,
in its subscription agreement, that, for purposes of determining its required
distribution under Code Section 4982(a), it will account for its share of items
of income, gain, loss and deduction of a Series as they are taken into account
by the Series.
All of the Series may invest in futures contracts or options. Certain options,
futures contracts and options on futures contracts are "section 1256 contracts."
Any gains or losses on section 1256 contracts are generally considered 60%
long-term and 40% short-term capital gains or losses ("60/40"). Also, section
1256 contracts held by a Series at the end of each taxable year are treated for
federal income tax purposes as being sold on such date for their fair market
value. The resultant paper gains or losses are also treated as 60/40 gains or
losses. When the section 1256 contract is subsequently disposed of, the actual
gain or loss will be adjusted by the amount of any preceding year-end gain or
loss.
42
Foreign currency gains or losses on non-U.S. dollar denominated bonds and other
similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by a Series may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Series. In addition, losses realized by the
Series on positions that are part of a straddle may be deferred, rather than
being taken into account in calculating taxable income for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of hedging
transactions to the Series are not entirely clear. The Series may make one or
more of the elections available under the Code which are applicable to
straddles. If the Series makes any of the elections, the amount, character and
timing of the recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to the elections
made. The rules applicable under certain of the elections operate to accelerate
the recognition of gains or losses from the affected straddle positions.
Additionally, the conversion transaction or constructive sale rules may apply
to certain transactions (including straddles) to change the character of capital
gains to ordinary income or require the recognition of income prior to the
economic recognition of such income.
The Series may be subject to a tax on dividend or interest income received from
securities of a non-U.S. issuer withheld by a foreign country at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Series to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of each Series' assets to be invested within various
countries is not known.
The Series may make investments that produce income that is not matched by a
corresponding cash receipt by the Series, such as investments in obligations
having original issue discount or market discount (if a Series elects to accrue
the market discount on a current basis with respect to such instruments).
Because such income may not be matched by a corresponding cash receipt, the
Series may be required to borrow money or dispose of other securities to be able
to make distributions to investors.
Each Series' taxable income will in most cases be determined on the basis of
reports made to such Series by the issuers of the securities in which such
Series invests. The tax treatment of certain securities in which a Series may
invest is not free from doubt, and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of such Series could
result in adjustments to the income of the Series.
Under the Trust, each Series is to be managed in compliance with the provisions
of the Code applicable to RICs as though such requirements were applied at the
Series level. Thus, consistent with its investment objectives, each Series will
meet the income and diversification of assets tests of the Code applicable to
RICs. The Series have received rulings from the Internal
Revenue Service that Holders of interests in the Series
43
that are RICs will be treated as owners of their proportionate shares of the
Series' assets and income for purposes of the Code's requirements applicable
thereto.
Item 21. Underwriters.
The exclusive placement agent for each Series of the Trust is Merrill Lynch
Funds Distributor, Inc., which receives no compensation for serving in this
capacity. Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Series.
Item 22. Calculations of Performance Data.
Beneficial interests in the Trust are not offered to the public and are issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Accordingly, the
Trust will not advertise the Series' performance. However, certain of the
Trust's Holders may from time to time advertise their performance, which will be
based upon the Trust's performance.
Total return figures are based on historical performance and are not intended to
indicate future performance. Average annual total return is determined in
accordance with a formula specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods are computed by
finding the average annual compounded rates of return (based on net investment
income and any realized and unrealized capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested to
the redeemable value of such investment at the end of each period. Average
annual total return is computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.
Annual, average annual and annualized total return and aggregate total return
performance data, both as a percentage and as a dollar amount, are based on a
hypothetical $1,000 investment and computed as described above, except that as
required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted. Actual annual or
annualized total return data generally will be lower than average annual total
return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time.
Yield quotations will be computed based on a 30-day period by dividing (a) the
net income based on the yield of each security earned during the period by (b)
the average number of shares outstanding during the period that were entitled to
receive dividends multiplied by the maximum offering price per share on the last
day of the period.
Item 23. Financial Statements
Independent Auditors' Report and Financial Statements of S&P 500
Index Series
Independent Auditors' Report and Financial Statements of Small Cap
Index Series
Independent Auditors' Report and Financial Statements of Aggregate Bond
Index Series
Independent Auditors' Report and Financial Statements of International
Index Series
44
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch S&P 500 Index Series (one of the
series constituting Merrill Lynch Index Trust) as of December 31, 1997, the
related statements of operations and changes in net assets, and the financial
highlights for the period April 3, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch S&P
500 Index Series of the Merrill Lynch Index Trust as of December 31, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the period April 3, 1997 to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
45
SCHEDULE OF INVESTMENTS
Common
Stocks
Merrill Lynch S&P 500 Index Series
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
+ 3Com Corporation.............................. 26,738 $ 934,159
ALLTEL Corporation............................ 14,325 588,220
+ ALZA Corporation.............................. 6,600 209,963
AMP Inc....................................... 17,005 714,210
+ AMR Corporation............................... 7,046 905,411
ASARCO Inc.................................... 3,119 69,983
AT&T Corp..................................... 125,542 7,689,448
Abbott Laboratories........................... 59,119 3,875,989
Adobe Systems Inc............................. 5,629 231,493
+ Advanced Micro Devices, Inc................... 10,958 196,559
Aeroquip-Vickers Inc.......................... 2,161 106,024
Aetna, Inc.................................... 11,485 810,410
Ahmanson (H.F.) & Company..................... 7,297 488,443
Air Products and Chemicals, Inc............... 8,475 697,069
+ AirTouch Communications, Inc.................. 39,014 1,621,519
Alberto-Culver Company (Class B).............. 4,321 138,542
Albertson's, Inc.............................. 18,979 899,130
Alcan Aluminium Ltd........................... 17,539 484,515
Allegheny Teledyne, Inc....................... 13,469 348,510
Allergan, Inc................................. 5,044 169,289
AlliedSignal, Inc............................. 43,601 1,697,714
Allstate Corporation.......................... 33,143 3,011,870
Aluminum Company of America................... 13,330 938,099
Amerada Hess Corporation...................... 7,085 388,789
American Electric Power Company, Inc.......... 14,655 756,564
American Express Company...................... 35,923 3,206,128
American General Corporation.................. 18,826 1,017,781
American Greetings Corporation
(Class A)................................... 5,691 222,660
American Home Products Corp................... 50,213 3,841,295
American International Group, Inc............. 54,220 5,896,425
American Stores Company....................... 21,102 433,910
Ameritech Corporation......................... 42,298 3,404,989
Amgen Inc..................................... 20,343 1,101,065
Amoco Corporation............................. 37,636 3,203,765
Anadarko Petroleum Corporation................ 4,604 279,405
+ Andrew Corporation............................ 7,008 168,192
Anheuser-Busch Companies, Inc................. 37,869 1,666,236
Aon Corporation............................... 12,962 759,897
Apache Corporation............................ 6,969 244,351
+ Apple Computer, Inc........................... 9,834 129,071
+ Applied Materials, Inc........................ 28,158 848,260
Archer-Daniels-Midland Company................ 43,093 934,579
+ Armco Inc..................................... 8,345 $ 41,203
Armstrong World Industries, Inc............... 3,162 236,360
Ashland Inc................................... 5,798 311,280
Atlantic Richfield Company.................... 24,776 1,985,177
Autodesk, Inc................................. 3,736 138,232
Automatic Data Processing, Inc................ 22,628 1,388,794
+ AutoZone, Inc................................. 11,663 338,227
Avery Dennison Corporation.................... 7,932 354,957
Avon Products, Inc............................ 10,222 627,375
BB&T Corporation.............................. 10,590 678,422
Baker Hughes, Inc............................. 13,032 568,521
Ball Corporation.............................. 2,344 82,773
Baltimore Gas and Electric Company............ 11,388 387,904
Banc One Corporation.......................... 45,367 2,463,995
Bank of New York Co., Inc. (The).............. 29,113 1,683,095
BankAmerica Corporation....................... 53,599 3,912,727
BankBoston Corporation........................ 11,251 1,056,891
Bankers Trust NY Corporation.................. 7,571 851,264
Bard (C.R.), Inc.............................. 4,405 137,932
Barnett Banks, Inc............................ 14,907 1,071,441
Barrick Gold Corporation...................... 28,803 536,456
Battle Mountain Gold Company.................. 17,749 104,275
Bausch & Lomb Inc............................. 4,279 169,555
Baxter International, Inc..................... 21,645 1,091,720
+ Bay Networks, Inc............................. 16,354 418,049
Becton, Dickinson & Company................... 9,453 472,650
Bell Atlantic Corporation..................... 60,028 5,462,548
BellSouth Corporation......................... 76,643 4,315,959
Bemis Company, Inc............................ 4,066 179,158
Beneficial Corporation........................ 4,101 340,896
+ Bethlehem Steel Corporation................... 8,696 75,003
Biomet, Inc................................... 8,598 220,324
Black & Decker Corporation (The).............. 7,328 286,250
Block (H & R), Inc............................ 8,023 359,531
Boeing Company (The).......................... 77,261 3,780,960
Boise Cascade Corporation..................... 4,345 131,436
+ Boston Scientific Corporation................. 15,042 690,052
Briggs & Stratton Corporation................. 1,953 94,843
Bristol-Myers Squibb Co....................... 76,850 7,271,931
Brown-Forman Corporation (Class B)............ 5,321 293,985
Browning-Ferris Industries, Inc............... 15,263 564,731
Brunswick Corporation......................... 7,670 232,497
Burlington Northern Santa Fe Corp............. 12,072 1,121,942
46
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Common
Stocks
(continued)
Merrill Lynch S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
Burlington Resources Inc...................... 13,645 $ 611,467
CBS Corporation............................... 54,414 1,601,812
CIGNA Corporation............................. 5,752 995,456
CINergy Corporation........................... 12,165 466,072
CPC International Inc......................... 11,080 1,193,870
CSX Corporation............................... 16,864 910,656
CVS Corporation............................... 13,283 850,942
+ Cabletron Systems, Inc........................ 12,177 182,655
Caliber System, Inc........................... 3,013 146,695
Campbell Soup Company......................... 35,363 2,055,474
Cardinal Health, Inc.......................... 8,451 634,881
Carolina Power & Light Company................ 11,620 493,124
Case Corporation.............................. 5,804 350,779
Caterpillar, Inc.............................. 28,774 1,397,337
+ Cendant Corporation........................... 61,144 2,101,825
Centex Corporation............................ 2,291 144,190
Central and South West Corporation............ 16,403 443,906
+ Ceridian Corporation.......................... 5,867 268,782
Champion International Corp................... 7,430 336,672
+ Charming Shoppes, Inc......................... 8,190 38,391
Chase Manhattan Corp. (The)................... 32,575 3,566,963
Chevron Corporation........................... 50,761 3,908,597
Chrysler Corporation.......................... 51,205 1,801,776
Chubb Corporation............................. 13,152 994,620
Cincinnati Financial Corporation.............. 4,213 592,980
Cincinnati Milacron Inc....................... 3,072 79,680
Circuit City Stores--Circuit City Group....... 7,629 271,306
+ Cisco Systems, Inc............................ 77,770 4,335,650
Citicorp...................................... 35,310 4,464,508
+ Clear Channel Communications, Inc............. 7,573 601,580
Clorox Company................................ 7,981 630,998
Coastal Corporation (The)..................... 8,186 507,020
Coca-Cola Company............................. 191,161 12,736,102
Cognizant Corporation......................... 12,533 558,502
Colgate-Palmolive Company..................... 22,863 1,680,431
Columbia Gas System, Inc. (The)............... 4,266 335,148
Columbia/HCA Healthcare Corp.................. 50,051 1,482,761
Comcast Corporation (Class A)................. 26,942 850,357
Comerica, Inc................................. 8,120 732,830
Compaq Computer Corporation................... 58,510 3,302,158
Computer Associates International, Inc........ 42,254 2,234,180
+ Computer Sciences Corporation................. 6,001 501,084
ConAgra, Inc.................................. 36,480 1,197,000
Conseco, Inc.................................. 14,562 661,661
Consolidated Edison Company of
New York, Inc................................ 18,130 743,330
Consolidated Natural Gas Company.............. 7,379 446,430
Cooper Industries, Inc........................ 9,353 458,297
Cooper Tire & Rubber Company.................. 6,092 148,493
Coors (Adolph) Company (Class B).............. 2,898 96,359
CoreStates Financial Corp..................... 15,289 1,224,076
Corning, Inc.................................. 17,867 663,312
+ Costco Companies, Inc......................... 16,413 732,430
Countrywide Credit Industries, Inc............ 8,342 357,663
Crane Co...................................... 3,538 153,461
Crown Cork & Seal Company, Inc................ 9,906 496,538
Cummins Engine Co., Inc....................... 2,952 174,353
Cyprus Amax Minerals Co....................... 7,203 110,746
+ DSC Communications Corporation................ 9,116 218,784
DTE Energy Company............................ 11,195 388,327
Dana Corporation.............................. 8,117 385,558
Darden Restaurants, Inc....................... 11,820 147,750
+ Data General Corporation...................... 3,695 64,432
Dayton Hudson Corp............................ 16,854 1,137,645
Deere & Company............................... 19,470 1,135,344
+ Dell Computer Corporation..................... 25,230 2,119,320
Delta Air Lines, Inc.......................... 5,720 680,680
Deluxe Corporation............................ 6,287 216,902
+ Digital Equipment Corporation................. 11,423 422,651
Dillard's Inc. (Class A)...................... 8,549 301,352
Disney (Walt) Company (The)................... 52,169 5,167,992
Dominion Resources, Inc....................... 14,448 614,943
Donnelley (R.R.) & Sons Co.................... 11,308 421,223
Dover Corporation............................. 17,175 620,447
Dow Chemical Company (The).................... 17,526 1,778,889
Dow Jones & Company, Inc...................... 7,419 398,308
Dresser Industries, Inc....................... 13,565 568,882
Duke Energy Corporation....................... 27,776 1,538,096
Dun & Bradstreet Corp. (The).................. 13,159 407,107
duPont (E.I.) de Nemours & Company............ 87,462 5,253,186
EG & G, Inc................................... 3,532 73,510
+ EMC Corporation............................... 38,332 1,051,734
Eastern Enterprises........................... 1,567 70,515
Eastman Chemical Company...................... 6,060 360,949
Eastman Kodak Company......................... 25,112 1,527,124
Eaton Corporation............................. 5,954 531,395
Echlin Inc.................................... 4,868 176,161
+ Echo Bay Mines Ltd............................ 10,750 26,203
Ecolab Inc.................................... 4,991 276,689
Edison International.......................... 29,483 801,569
Emerson Electric Co........................... 34,248 1,932,872
47
Engelhard Corporation......................... 11,166 $ 194,009
Enron Corp.................................... 24,579 1,021,565
Entergy Corporation........................... 18,853 564,412
Equifax Inc................................... 11,607 411,323
Exxon Corporation++........................... 190,596 11,662,093
+ FMC Corporation............................... 2,870 193,187
FPL Group, Inc................................ 14,090 833,952
+ Federal Express Corporation................... 8,881 542,296
Federal Home Loan Mortgage
Corporation.................................. 53,708 2,252,379
Federal National Mortgage Association......... 81,986 4,678,326
+ Federated Department Stores, Inc.............. 16,196 697,440
Fifth Third BanCorp........................... 11,901 972,907
First Chicago NBD Corporation................. 22,486 1,877,581
First Data Corporation........................ 33,084 967,707
First Union Corporation....................... 48,495 2,485,369
+ FirstEnergy Corp.............................. 17,762 515,098
Fleet Financial Group, Inc.................... 19,308 1,446,893
Fleetwood Enterprises, Inc.................... 2,748 116,618
Fluor Corporation............................. 6,479 242,153
Ford Motor Company............................ 92,750 4,515,766
Fort James Corporation........................ 16,139 617,317
Fortune Brands Inc............................ 13,277 492,079
Foster Wheeler Corporation.................... 3,134 84,814
Freeport-McMoRan Copper &
Gold Co., Inc. (Class B)..................... 14,948 235,431
Frontier Corporation.......................... 12,688 305,305
+ Fruit of the Loom, Inc. (Class A)............. 5,658 144,986
GPU, Inc...................................... 9,299 391,720
GTE Corporation............................... 74,011 3,867,075
Gannett Co., Inc.............................. 21,891 1,353,137
Gap, Inc. (The)............................... 31,060 1,100,706
General Dynamics Corporation.................. 4,840 418,358
General Electric Company...................... 252,957 18,560,720
General Mills, Inc............................ 12,230 875,974
General Motors Corporation.................... 54,666 3,314,126
General Re Corporation........................ 6,062 1,285,144
General Signal Corporation.................... 3,861 162,886
Genuine Parts Company......................... 13,811 468,711
Georgia-Pacific Corporation................... 7,158 434,849
Giant Food Inc. (Class A)..................... 4,647 156,546
Gillette Company (The)........................ 43,289 4,347,839
Golden West Financial Corporation............. 4,415 431,842
Goodrich (B.F.) Company (The)................. 5,551 230,020
Goodyear Tire & Rubber Co. (The).............. 12,087 769,035
Grace (W.R.) & Co............................. 5,738 461,550
Grainger (W.W.), Inc.......................... 3,840 373,200
Great Atlantic & Pacific Tea Co., Inc......... 2,949 87,548
Great Lakes Chemical Corporation.............. 4,625 207,547
Green Tree Financial Corporation.............. 10,539 275,990
Guidant Corporation........................... 11,437 711,953
HBO & Company................................. 15,445 741,360
+ HEALTHSOUTH Corporation....................... 30,425 844,294
Halliburton Company........................... 20,248 1,051,631
Harcourt General, Inc......................... 5,471 299,537
Harland (John H.) Company (The)............... 2,382 50,022
Harnischfeger Industries, Inc................. 3,801 134,223
+ Harrah's Entertainment, Inc................... 7,795 147,131
Harris Corporation............................ 6,169 283,003
Hartford Financial Services
Group, Inc. (The)............................ 9,124 853,664
Hasbro, Inc................................... 9,805 308,858
Heinz (H.J.) Company.......................... 28,380 1,442,059
Helmerich & Payne, Inc........................ 1,925 130,659
Hercules Inc.................................. 7,466 373,767
Hershey Foods Corporation..................... 11,051 684,471
Hewlett-Packard Company....................... 80,398 5,024,875
Hilton Hotels Corporation..................... 19,347 575,573
Home Depot, Inc. (The)........................ 56,543 3,328,969
Homestake Mining Company...................... 11,323 100,492
Honeywell Inc................................. 9,847 674,520
Household International Inc................... 8,270 1,054,942
Houston Industries Inc........................ 22,030 587,926
+ Humana, Inc................................... 12,643 262,342
Huntington Bancshares Inc..................... 14,781 532,116
+ ITT Corporation............................... 8,981 744,300
ITT Industries, Inc........................... 9,127 286,360
Ikon Office Solutions, Inc.................... 10,242 288,056
Illinois Tool Works, Inc...................... 19,262 1,158,128
Inco Limited.................................. 12,917 219,589
Ingersoll-Rand Company........................ 12,814 518,967
Inland Steel Industries, Inc.................. 3,773 64,613
Intel Corporation............................. 126,450 8,883,113
International Business Machines Corp.......... 75,141 7,856,931
International Flavors & Fragrances Inc........ 8,464 435,896
International Paper Company................... 23,356 1,007,228
Interpublic Group of Companies, Inc........... 9,735 484,925
Jefferson-Pilot Corporation................... 5,458 425,042
Johnson & Johnson............................. 103,947 6,847,509
Johnson Controls, Inc......................... 6,439 307,462
Jostens, Inc.................................. 2,994 69,049
48
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Common
Stocks
(continued)
Merrill Lynch S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
+ KLA-Tencor Corporation........................ 6,540 $ 252,607
Kaufman and Broad Home Corporation............ 2,997 67,245
Kellogg Company............................... 31,759 1,576,040
Kerr-McGee Corporation........................ 3,714 235,143
KeyCorp Limited............................... 16,980 1,202,396
Kimberly-Clark Corporation.................... 42,309 2,086,363
King World Productions, Inc................... 2,834 163,664
+ Kmart Corporation............................. 37,699 435,895
Knight-Ridder, Inc............................ 6,527 339,404
Kroger Co. (The).............................. 19,699 727,632
+ LSI Logic Corporation......................... 10,941 216,085
Laidlaw, Inc. (Class B)....................... 25,383 345,843
Lilly (Eli) & Company......................... 85,741 5,969,717
Limited, Inc. (The)........................... 21,016 535,908
Lincoln National Corporation.................. 7,873 615,078
Liz Claiborne, Inc............................ 5,165 215,962
Lockheed Martin Corporation................... 14,985 1,476,022
Loews Corporation............................. 8,874 941,753
Longs Drug Stores Corporation................. 3,009 96,664
Louisiana-Pacific Corporation................. 8,466 160,854
Lowe's Companies, Inc......................... 13,490 643,304
Lucent Technologies, Inc...................... 49,560 3,958,605
MBIA, Inc..................................... 6,892 460,472
MBNA Corporation.............................. 38,738 1,058,032
MCI Communications Corporation................ 53,833 2,304,725
MGIC Investment Corp.......................... 8,814 586,131
Mallinckrodt Inc.............................. 5,637 214,206
Manor Care, Inc............................... 4,913 171,955
Marriott International, Inc................... 9,828 680,589
Marsh & McLennan Companies, Inc............... 13,128 978,856
Masco Corporation............................. 12,741 648,198
Mattel, Inc................................... 22,432 835,592
May Department Stores Company (The)........... 17,876 941,842
Maytag Corporation............................ 7,340 273,874
McDermott International, Inc.................. 4,329 158,550
McDonald's Corporation........................ 53,179 2,539,297
McGraw-Hill Companies, Inc.................... 7,680 568,320
Mead Corporation (The)........................ 8,105 226,940
Medtronic, Inc................................ 36,251 1,896,380
Mellon Bank Corporation....................... 19,676 1,192,857
Mercantile Stores Company, Inc................ 2,838 172,763
Merck & Co., Inc.............................. 92,616 9,840,450
Meredith Corporation.......................... 4,127 147,282
Merrill Lynch & Co., Inc...................... 25,750 1,878,141
+ Micron Technology, Inc........................ 16,335 424,710
+ Microsoft Corporation++....................... 93,267 12,054,760
Millipore Corporation......................... 3,349 113,657
Minnesota Mining &
Manufacturing Company........................ 31,586 2,592,026
+ Mirage Resorts, Inc........................... 13,866 315,451
Mobil Corporation............................. 60,629 4,376,656
Monsanto Company.............................. 45,833 1,924,986
Moore Corporation Limited
(NY Registered Shares)....................... 6,852 103,636
Morgan (J.P.) & Co., Inc...................... 13,730 1,549,774
Morgan Stanley, Dean Witter,
Discover and Co. Inc......................... 45,789 2,707,275
Morton International, Inc..................... 10,285 353,547
Motorola, Inc................................. 46,140 2,632,864
NACCO Industries Inc. (Class A)............... 631 67,635
NICOR Inc..................................... 3,750 158,203
Nalco Chemical Company........................ 5,172 204,617
National City Corporation..................... 16,515 1,085,861
+ National Semiconductor Corporation............ 12,615 327,202
National Service Industries, Inc.............. 3,339 165,489
NationsBank Corporation....................... 54,984 3,343,714
+ Navistar International Corporation............ 5,817 144,334
New York Times Company
(Class A) (The).............................. 7,423 490,846
Newell Co..................................... 12,265 521,262
Newmont Mining Corporation.................... 12,094 355,261
+ NextLevel Systems, Inc........................ 11,432 204,347
+ Niagara Mohawk Power Corp..................... 11,138 116,949
Nike Inc. (Class B)........................... 22,448 881,084
Nordstrom, Inc................................ 5,963 360,016
Norfolk & Southern Corporation................ 29,143 897,969
Northern States Power Company................. 5,754 335,170
Northern Telecom Limited...................... 20,248 1,802,072
Northrop Grumman Corporation.................. 5,125 589,375
Norwest Corporation........................... 58,380 2,254,927
+ Novell, Inc................................... 27,019 202,642
Nucor Corporation............................. 6,773 327,221
ONEOK, Inc.................................... 2,373 95,810
Occidental Petroleum Corporation.............. 26,183 767,489
Omnicom Group, Inc............................ 12,520 530,535
+ Oracle Corporation............................ 75,785 1,690,953
+ Oryx Energy Company........................... 8,171 208,360
Owens-Corning Fiberglass Corp................. 4,116 140,458
+ Owens-Illinois, Inc........................... 10,838 411,167
PACAAR, Inc................................... 6,000 315,000
PECO Energy Company........................... 17,170 416,372
49
PG & E Corporation............................ 33,867 $ 1,030,827
PNC Bank Corp................................. 23,576 1,345,305
PP&L Resources, Inc........................... 12,821 306,903
PPG Industries, Inc........................... 13,767 786,440
PacifiCorp.................................... 22,921 626,030
Pacific Enterprises, Inc...................... 6,438 242,230
Pall Corporation.............................. 9,826 203,275
+ Parametric Technology Corporation............. 9,836 465,980
Parker-Hannifin Corporation................... 8,614 395,167
Penney (J.C.) Company, Inc.................... 19,318 1,165,117
Pennzoil Co................................... 3,670 245,202
Peoples Energy Corporation.................... 2,699 106,273
Pep Boys-Manny, Moe & Jack (The).............. 4,881 116,534
PepsiCo, Inc.................................. 117,259 4,272,625
Perkin-Elmer Corporation (The)................ 3,372 239,623
Pfizer Inc.................................... 99,959 7,453,193
Pharmacia & Upjohn Inc........................ 39,219 1,436,396
Phelps Dodge Corporation...................... 4,542 282,739
Philip Morris Companies, Inc.................. 187,387 8,490,973
Phillips Petroleum Company.................... 20,319 988,011
Pioneer Hi-Bred International, Inc............ 5,081 544,937
Pitney Bowes Inc.............................. 11,193 1,006,670
Placer Dome, Inc.............................. 18,474 234,389
Polaroid Corporation.......................... 3,492 170,017
Potlatch Corporation.......................... 2,229 95,847
Praxair, Inc.................................. 12,190 548,550
Procter & Gamble Company (The)................ 103,880 8,290,922
Progressive Corporation....................... 5,568 667,464
Providian Financial Corporation............... 7,353 332,264
Public Service Enterprise Group, Inc.......... 17,924 567,967
Pulte Corporation............................. 1,638 68,489
Quaker Oats Company (The)..................... 10,703 564,583
Ralston Purina Company........................ 8,207 762,738
Raychem Corporation........................... 6,645 286,150
Raytheon Company (Class A).................... 12,913 636,772
Raytheon Company (Class B).................... 13,288 671,044
+ Reebok International Ltd...................... 4,314 124,297
Republic of New York Corp..................... 4,234 483,470
Reynolds Metals Company....................... 5,693 341,580
Rite Aid Corporation.......................... 9,639 565,689
Rockwell International Corporation............ 16,127 842,636
Rohm & Haas Company........................... 4,731 452,993
+ Rowan Companies, Inc.......................... 6,682 203,801
Royal Dutch Petroleum Co.
(NY Registered Shares)....................... 165,738 8,980,928
Rubbermaid Inc................................ 11,558 288,950
Russell Corporation........................... 2,816 74,800
Ryder System, Inc............................. 5,913 193,651
SAFECO Corporation............................ 10,909 530,450
SBC Communications Inc........................ 70,844 5,189,323
Safety-Kleen Corp............................. 4,494 123,304
Sara Lee Corporation.......................... 37,083 2,088,236
Schering-Plough Corporation................... 56,554 3,513,417
Schlumberger Ltd.............................. 38,233 3,077,756
Schwab (Charles) Corporation (The)............ 20,527 860,851
Scientific-Atlanta, Inc....................... 6,097 102,125
+ Seagate Technology, Inc....................... 18,887 363,575
Seagram Company Ltd. (The).................... 27,551 890,242
Sears, Roebuck and Co......................... 30,284 1,370,351
Service Corporation International............. 19,440 718,065
Shared Medical Systems Corporation............ 1,928 127,248
Sherwin-Williams Company (The)................ 13,334 370,018
Sigma-Aldrich Corporation..................... 7,724 307,029
+ Silicon Graphics, Inc......................... 14,471 179,983
Snap-on, Inc.................................. 4,701 205,081
Sonat Inc..................................... 6,641 303,826
Southern Company (The)........................ 53,341 1,380,198
Southwest Airlines Co......................... 16,914 416,507
Spring Industries, Inc........................ 1,555 80,860
Sprint Corporation............................ 33,220 1,947,522
+ St. Jude Medical, Inc......................... 7,101 216,580
St. Paul Companies, Inc....................... 6,476 531,437
Stanley Works (The)........................... 6,864 323,895
State Street Corporation...................... 12,403 721,700
+ Stone Container Corporation................... 7,656 79,909
Sun Company, Inc.............................. 5,529 232,564
+ Sun Microsystems, Inc......................... 28,956 1,154,620
SunAmerica, Inc............................... 15,064 643,986
SunTrust Banks, Inc........................... 16,298 1,163,270
SuperValu Stores Inc.......................... 4,679 195,933
Synovus Financial Corp........................ 13,492 441,863
Sysco Corporation............................. 13,219 602,291
TJX Companies, Inc............................ 12,609 433,434
TRW, Inc...................................... 9,518 508,023
Tandy Corporation............................. 7,990 308,114
Tektronix, Inc................................ 3,914 155,337
+ Tele-Communications, Inc. (Class A)........... 39,202 1,095,206
+ Tellabs, Inc.................................. 14,026 741,625
Temple-Inland Inc............................. 4,397 230,018
+ Tenet Healthcare Corporation.................. 23,592 781,485
Tenneco, Inc.................................. 13,181 520,649
50
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
Common
Stocks
(concluded)
Merrill Lynch S&P 500 Index Series (concluded)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
Texaco Inc.................................... 42,359 $ 2,303,271
Texas Instruments Inc......................... 30,163 1,357,335
Texas Utilities Company....................... 19,048 791,682
Textron Inc................................... 12,738 796,125
+ Thermo Electron Corporation................... 11,696 520,472
Thomas & Betts Corporation.................... 4,245 200,576
Time Warner Inc............................... 43,269 2,682,678
Times Mirror Company (The) (Class A).......... 7,392 454,608
Timken Company (The).......................... 4,868 167,337
Torchmark Corporation......................... 10,822 455,200
+ Toys `R' Us, Inc.............................. 22,074 693,951
Transamerica Corporation...................... 4,886 520,359
Travelers Group, Inc.......................... 88,633 4,775,103
Tribune Company............................... 9,484 590,379
+ Tricon Global Restaurants, Inc................ 11,730 340,903
Tupperware Corporation........................ 4,715 131,431
Tyco International Ltd........................ 41,155 1,854,547
U S West Communications Group, Inc............ 37,342 1,685,058
+ U S West Media Group Inc...................... 46,920 1,354,815
UNUM Corporation.............................. 10,724 583,117
US Bancorp.................................... 18,936 2,119,648
+ USAirways Group, Inc.......................... 7,055 440,937
USF & G Corporation........................... 8,708 192,120
UST Inc....................................... 14,242 526,064
USX-Marathon Group, Inc....................... 22,292 752,355
USX-US Steel Group, Inc....................... 6,619 206,844
Unicom Corp................................... 16,714 513,955
Unilever N.V. (NY Registered Shares).......... 49,479 3,089,345
Union Camp Corporation........................ 5,358 287,658
Union Carbide Corporation..................... 9,522 408,851
Union Electric Company........................ 10,588 $ 457,931
Union Pacific Corporation..................... 19,082 1,191,432
Union Pacific Resources Group Inc............. 19,611 475,567
+ Unisys Corporation............................ 13,588 188,533
United Healthcare Corporation................. 14,556 723,251
United States Surgical Corporation............ 5,851 171,507
United Technologies Corporation............... 18,007 1,311,135
Unocal Corp................................... 19,075 740,348
V.F. Corporation.............................. 9,442 433,742
+ Viacom, Inc. (Class B)........................ 27,300 1,131,244
Wachovia Corporation.......................... 15,774 1,279,666
Wal-Mart Stores, Inc.......................... 174,175 6,869,027
Walgreen Co................................... 38,021 1,192,909
Warner-Lambert Company........................ 21,047 2,609,828
Washington Mutual Savings Bank................ 19,889 1,269,167
Waste Management Inc.......................... 35,169 967,147
Wells Fargo & Company......................... 6,701 2,274,571
Wendy's International, Inc.................... 10,215 245,798
+ Western Atlas Inc............................. 4,212 311,688
Westvaco Corporation.......................... 7,865 247,256
Weyerhaeuser Company.......................... 15,399 755,513
Whirlpool Corporation......................... 5,797 318,835
Whitman Corporation........................... 7,848 204,538
Willamette Industries, Inc.................... 8,594 276,619
Williams Companies, Inc. (The)................ 24,704 700,976
Winn-Dixie Stores, Inc........................ 11,538 504,066
+ Woolworth Corporation......................... 10,420 212,307
+ WorldCom, Inc................................. 69,824 2,112,176
Worthington Industries, Inc................... 7,453 122,043
Wrigley (Wm.) Jr. Company (Class B)........... 8,961 712,960
Xerox Corporation............................. 25,188 1,859,189
- --------------------------------------------------------------------------------
Total Common Stocks (Cost - $537,951,365) - 96.9% 583,872,599
================================================================================
Commercial
Paper*
================================================================================
Face
Amount Short-Term Obligations
================================================================================
$16,349,000 General Motors Acceptance Corp., 6.75% due
1/02/1998 16,345,935
================================================================================
Total Short-Term Obligations (Cost--$16,345,935)--2.7% 16,345,935
================================================================================
Total Investments (Cost--$554,297,300)--99.6% 600,218,534
Variation Margin on Financial Futures Contracts**--0.0% (806)
51
Other Assets Less Liabilities--0.4% 2,582,773
------------
Net Assets--100.0% $602,800,501
============
================================================================================
+ Non-income producing security.
++ Portion of securities held as collateral for open financial futures
contracts.
* Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Fund.
** Financial futures contracts purchased as of December 31, 1997 were
as follows:
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
78 S&P 500 Stock Index March 1998 $19,092,450
- --------------------------------------------------------------------------------
Total Financial Futures Contracts
Purchased (Total Contract Price-- $18,962,809) $19,092,450
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
S&P 500
INDEX SERIES As of December 31, 1997
=================================================================================================================================
Assets: Investments, at value (identified cost--$554,297,300) (Note 1a).......................... $600,218,534
Cash..................................................................................... 50,750
Receivables:
Contributions.......................................................................... $2,639,531
Dividends.............................................................................. 844,810
Securities sold........................................................................ 174,405 3,658,746
----------
Deferred organization expenses (Note 1e)................................................. 13,247
------------
Total assets............................................................................. 603,941,277
------------
=================================================================================================================================
Liabilities: Payables:
Withdrawals............................................................................ 809,352
Securities purchased................................................................... 148,701
Variation margin (Note 1b)............................................................. 806 958,859
----------
Accrued expenses and other liabilities................................................... 181,917
------------
Total liabilities ....................................................................... 1,140,776
------------
=================================================================================================================================
Net Assets: Net assets............................................................................... $602,800,501
============
=================================================================================================================================
Net Assets Partners' capital........................................................................ $556,749,626
Consist of: Unrealized appreciation on investments--net.............................................. 46,050,875
------------
Net assets............................................................................... $602,800,501
============
=================================================================================================================================
See Notes to Financial Statements.
52
Merrill Lynch S&P 500 Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
MERRILL LYNCH
S&P 500
INDEX SERIES For the Period April 3, 1997+ to December 31, 1997
=========================================================================================================================
Investment Income Dividends (net of $32,040 foreign withholding tax)......................... $ 4,811,633
(Notes 1c & 1d): Interest and discount earned............................................... 1,457,105
-----------
Total income............................................................... 6,268,738
-----------
=========================================================================================================================
Expenses: Accounting services (Note 2)............................................... $ 192,752
Investment advisory fees (Note 2).......................................... 148,645
Custodian fees............................................................. 101,973
Professional fees.......................................................... 30,104
Pricing fees............................................................... 9,450
Trustees' fees and expenses................................................ 5,797
Amortization of organization expenses (Note 1e)............................ 2,338
Other...................................................................... 2,760
----------
Total expenses before reimbursement........................................ 493,819
Reimbursement of expenses (Note 2)......................................... (148,645)
----------
Total expenses after reimbursement......................................... 345,174
-----------
Investment income--net..................................................... 5,923,564
-----------
=========================================================================================================================
Realized & Realized gain from investments--net........................................ 20,857,044
Unrealized Gain on Unrealized appreciation on investments--net................................ 46,050,875
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations....................... $72,831,483
===========
=========================================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
53
STATEMENT OF CHANGES IN NET ASSETS
MERRILL LYNCH For the Period
S&P 500 April 3, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
=============================================================================================================================
Operations: Investment income--net................................................................. $ 5,923,564
Realized gain on investments--net...................................................... 20,857,044
Unrealized appreciation on investments--net............................................ 46,050,875
------------
Net increase in net assets resulting from operations................................... 72,831,483
------------
=============================================================================================================================
Net Capital Increase in net assets derived from net capital contributions.......................... 529,969,018
Contributions: ------------
=============================================================================================================================
Net Assets: Total increase in net assets........................................................... 602,800,501
Beginning of period.................................................................... --
------------
End of period.......................................................................... $602,800,501
============
=============================================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
54
Merrill Lynch S&P 500 Index Fund, December 31, 1997
FINANCIAL HIGHLIGHTS
MERRILL LYNCH For the Period
S&P 500 The following ratios have been derived from April 3, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
=================================================================================================================================
Ratios to Average Expenses, net of reimbursement............................................................ .12%*
Net Assets: ========
Expenses.................................................................................. .17%*
========
Investment income--net.................................................................... 1.99%*
========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands).................................................. $602,801
Data: ========
Portfolio turnover........................................................................ 24.31%
========
Average commission rate paid.............................................................. $ .0166
========
=================================================================================================================================
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Series (the "Series") is part of Merrill Lynch Index
Trust (the "Trust"). The Trust is registered under the Investment Company Act of
1940 and is organized as a Delaware business trust. The following is a summary
of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Other investments, including futures contracts and related options, are stated
at market value. Short-term securities are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair market value, as determined in good
faith by or under the direction of the Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell stock index
futures contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the
55
Series agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Series as unrealized gains or
losses. When the contract is closed, the Series records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes - The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in 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.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Series pays a monthly fee
at an annual rate of 0.05% of the average daily value of the Series' net assets.
For the period ended December 31, 1997, MLAM earned fees of $148,645, all of
which was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 3, 1997 to December 31, 1997 were $605,389,191 and $82,632,635,
respectively.
Net realized and unrealized gains as of December 31, 1997 were as follows:
- -----------------------------------------------------------------------
Realized Unrealized
Gains Gains
- -----------------------------------------------------------------------
Long-term investments ............... $15,194,809 $45,921,234
Financial futures contracts ......... 5,662,235 129,641
----------- -----------
Total ............................... $20,857,044 $46,050,875
=========== ===========
- -----------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $45,650,104, of which $59,621,968 related to appreciated
securities and $13,971,864 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$554,568,430.
56
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Small Cap Index Series (one of the
series constituting Merrill Lynch Index Trust) as of December 31, 1997, the
related statements of operations and changes in net assets, and the financial
highlights for the period April 9, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Small
Cap Index Series of the Merrill Lynch Index Trust as of December 31, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the period April 9, 1997 to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
57
SCHEDULE OF INVESTMENTS
Merrill Lynch Small Cap Index Series
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
AAR Corporation 2,100 $ 81,375
ABM Industries, Inc. 2,900 88,631
ABR Information Services, Inc. 2,500 59,688
+ ABT Building Products Corporation 1,800 32,400
ACC Corp. 1,500 75,750
ACNielsen Corporation 5,800 141,375
ADAC Laboratories 2,300 45,425
+ ADVO, Inc. 3,800 74,100
AGL Resources, Inc. 5,800 118,538
AK Steel Holding Corporation 4,400 77,825
ALBANK Financial Corporation 1,600 82,300
AMCOL International Corp. 4,350 69,056
AMCORE Financial Inc. 3,000 75,375
AMETEK, Inc. 3,100 83,700
+ AMRESCO, Inc. 4,100 124,025
+ ANADIGICS, Inc. 1,500 45,188
+ ANTEC Corporation 2,800 43,750
+ APAC Teleservices, Inc. 1,700 22,950
ASA Holdings, Inc. 2,300 65,406
+ ATL Ultrasound, Inc. 1,600 73,600
Aames Financial Corporation 2,100 27,169
+ Abacus Direct Corporation 1,400 57,400
+ Acceptance Insurance Holdings, Inc. 1,700 41,119
+ Access Health, Inc. 1,700 49,938
+ Acme Metals, Inc. 3,700 36,538
+ Actel Corp. 2,200 27,775
+ Action Performance Companies, Inc. 1,500 56,813
+ Acuson Corporation 2,300 38,094
Acxiom Corp. 5,100 98,175
+ Ade Corporation 700 12,250
+ Adtran, Inc. 3,000 82,500
+ Advanced Tissue Sciences, Inc. 3,300 40,425
+ Affiliated Computer Services, Inc. 4,000 105,250
+ Affymetrix, Inc. 2,500 77,813
+ Aftermarket Technology Corp. 2,000 36,250
+ Agouron Pharmaceuticals, Inc. 2,600 76,375
Air Express International Corporation 3,500 106,750
Airborne Freight Corporation 2,000 124,250
+ AirTran Holdings, Inc. 2,800 11,200
+ Alaska Air Group, Inc. 1,100 42,625
Albany International Corp. (Class A) 3,000 69,000
Albemarle Corporation 2,500 59,688
+ Alexander's, Inc. 400 36,325
+ Algos Pharmaceutical Corporation 1,500 45,000
Aliant Communications, Inc. 3,800 119,225
+ Alkermes, Inc. 2,000 39,750
+ Allen Telecom Inc. 3,500 64,531
+ Alliance Pharmaceutical Corporation 5,500 39,875
+ Alliance Semiconductor Corporation 2,500 11,406
+ Alliant Techsystems, Inc. 1,900 105,925
Allied Capital Commercial Corporation 1,920 42,720
Allied Group, Inc. 3,150 90,169
+ Allied Waste Industries, Inc. 7,700 179,506
Alpharma, Inc. (Class A) 1,634 35,540
+ Alternative Resources Corp. 1,700 39,206
+ Amati Communications Corporation 2,100 41,344
+ Amerco 1,400 35,875
+ America West Holdings Corp. (Class B) 3,800 70,775
+ American Business Information, Inc. (Class A) 1,500 14,625
+ American Business Information, Inc. (Class B) 1,500 15,375
58
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
American Health Properties, Inc. 1,800 $ 49,613
+ American Management Systems, Inc. 4,300 83,850
American Mobile 1,700 11,900
+ American Oncology Resources, Inc. 4,400 70,400
+ American Pad & Paper Company 3,400 32,725
+ American Radio Systems Corp. 1,900 101,294
+ American Residential Services, Inc. 1,800 28,125
+ AmeriCredit Corp. 2,700 74,756
+ Amerin Corporation 2,500 70,000
+ AmeriSource Health Corp. (Class A) 2,500 145,625
Ames Department Stores, Inc. 3,600 63,000
+ Amphenol Corp. (Class A) 1,700 94,669
+ Amylin Pharmaceuticals, Inc. 2,000 10,875
Analysts International Corp. 2,700 93,150
Anchor Bancorp, Inc. 1,900 69,113
+ Anchor Gaming 600 33,450
+ Andrx Corporation 1,000 34,250
+ Anixter International Inc. 4,900 80,850
+ AnnTaylor Stores Corporation 2,700 36,113
Apogee Enterprises, Inc. 3,800 45,125
Apple South, Inc. 3,100 40,688
Applebee's International, Inc. 3,200 57,800
Applied Industrial Technologies, Inc. 2,850 76,238
+ Applied Magnetics Corp. 3,500 38,938
Applied Power Inc. (Class A) 1,800 124,200
+ Apria Healthcare Group, Inc. 5,100 68,531
AptarGroup, Inc. 2,200 122,100
Aquarion Company 2,400 82,950
Arbor Drugs, Inc. 5,200 96,200
+ Arbor Software Corp. 1,200 48,600
+ Arcadia Financial Ltd. 3,000 22,313
Arctic Cat, Inc. 2,400 23,250
Arden Realty Group, Inc. 7,700 236,775
Argonaut Group, Inc. 1,900 64,363
+ Armco, Inc. 10,400 51,350
Arnold Industries, Inc. 2,600 44,850
Arrow International, Inc. 1,600 59,200
+ Arterial Vascular Engineering, Inc. 3,100 201,500
Arvin Industries, Inc. 2,300 76,619
+ Ascent Entertainment Group, Inc. 3,200 33,200
Aspect Development, Inc. 900 46,800
Aspect Telecommunications Corp. 6,900 144,038
Aspen Technologies, Inc. 2,200 75,350
Associated Banc-Corp 4,671 257,489
Associated Estates Realty Corp. 4,000 94,750
+ Associated Group, Inc. (Class A) 2,600 77,025
Astoria Financial Corp. 1,900 105,925
+ Asyst Technologies, Inc. 900 19,575
Atlantic Energy, Inc. 5,300 112,294
+ Atlas Air, Inc. 800 19,200
Atmos Energy Corporation 3,300 99,825
+ Atwood Oceanics, Inc. 1,400 66,325
+ Auspex Systems, Inc. 3,200 32,000
Authentic Fitness Corp. 3,100 57,156
+ Avant Corporation 2,300 38,525
+ Avid Technology, Inc. 2,500 66,875
+ Aztar Corporation 4,100 25,625
BB&T Corporation 1,588 101,731
+ BE Aerospace, Inc. 2,700 72,225
B.F. Goodrich Company (The) 1,680 69,615
+ BISYS Group, Inc. 3,300 109,725
+ BJ's Wholesale Club, Inc. 3,500 109,813
BMC Industries, Inc. 3,300 53,213
BREED Technologies, Inc. 2,700 49,275
+ BT Office Products International, Inc. 2,100 16,275
+ Baan Company, N.V. 640 20,960
Baldor Electric Company 4,267 92,533
Ball Corp. 3,100 109,469
Ballard Medical Products 3,500 84,875
BancorpSouth, Inc. 2,000 94,500
+ BancTec, Inc. 2,600 69,713
Bank of Granite Corp. 1,400 43,050
Bank United Corp. (Class A) 4,500 220,219
Banknorth Group, Inc. 1,000 64,250
Banta Corporation 3,200 86,400
+ Barnett Banks, Inc. 2,200 48,400
+ Barr Laboratories, Inc. 700 23,888
+ Barrett Resources Corp. 3,300 99,825
Bassett Furniture Industries, Inc. 1,500 45,000
Bay Apartment Communities, Inc. 2,100 81,900
Bay State Gas Company 2,400 89,100
Belden, Inc. 3,700 130,425
+ Bell & Howell Co. (Series B) 1,600 38,700
+ Benchmark Electronics, Inc. 1,700 37,931
+ Benton Oil & Gas Co. 4,500 58,219
Berkley (W.R.) Corporation 1,900 83,363
Berkshire Realty Company, Inc. 2,300 27,600
Berry Petroleum Co. (Class A) 3,900 68,006
+ Best Buy Co., Inc. 3,200 118,000
+ Big Flower Press Holdings, Inc. 2,300 55,488
+ Billing Information Concepts 2,300 110,400
+ Biomatrix, Inc. 1,100 33,000
+ Bio-Rad Laboratories, Inc. (Class A) 1,400 36,575
+ Bio Technology General Corp. 7,700 82,775
59
Birmingham Steel Corp. 2,900 45,675
+ Black Box Corporation 1,800 63,675
Black Hills Corporation 2,700 95,175
Block Drug Company, Inc. (Class A) 927 39,398
Blount International, Inc. (Class A) 2,600 69,388
Bob Evans Farms, Inc. 5,000 110,625
Boole & Babbage, Inc. 2,300 68,713
+ Borland International, Inc. 3,100 22,669
+ Boston Beer Company, Inc. (Class A) 2,000 15,625
+ Boston Technology, Inc. 2,500 62,813
Bowne & Co., Inc. 1,800 71,775
+ Boyd Gaming Corporation 3,800 25,175
Brady (W.H.) Company (Class A) 2,800 86,800
Brightpoint, Inc. 4,600 63,825
+ Brinker International, Inc. 7,500 120,000
+ Bristol Hotel Company 3,100 90,094
+ Broderbund Software, Inc. 2,500 64,063
Brush Wellman, Inc. 2,300 56,350
Buckeye Technologies Inc. 2,400 111,000
+ Budget Group, Inc. 1,600 55,300
+ Buffets, Inc. 4,700 44,063
Burlington Coat Factory Warehouse Corp. 2,040 33,533
+ Burlington Industries, Inc. 6,600 91,163
Burnham Pacific Properties, Inc. 7,200 110,250
Burr-Brown Corp. 2,500 80,313
CBL & Associates Properties, Inc. 1,900 46,906
CCB Financial Corp. 800 86,000
+ CCC Information Services Group, Inc. 2,500 49,375
+ CDI Corporation 1,500 68,625
+ CDW Computer Centers, Inc. 1,100 57,338
+ CHS Electronics, Inc. 2,250 38,531
CILCORP, Inc. 2,300 112,413
CKE Restaurants, Inc. 4,600 193,775
CMAC Investment Corp. 2,800 169,050
CNB Bancshares, Inc. 1,965 94,688
+ CNET, Inc. 800 23,600
COMSAT Corporation 4,600 111,550
+ CONMED Corporation 1,700 44,625
+ COR Therapeutics, Inc. 3,400 76,500
CORESTAFF, Inc. 3,300 87,450
+ CORT Business Services Corp. 2,400 95,550
CPI Corporation 2,000 45,250
CRIIMI MAE, Inc. 3,000 45,000
+ CSG Systems International, Inc. 2,700 108,000
+ CSS Industries, Inc. 1,700 54,188
+ CUNO Incorporated 2,300 35,075
+ Cable Design Technologies 1,800 69,975
+ Cable Michigan, Inc. 300 6,825
+ Cablevision System Corp. 1,500 143,625
Cabot Oil & Gas Corp. 3,300 64,144
Calgon Carbon Corporation 5,500 59,125
+ California Microwave, Inc. 1,600 31,000
California Water Service Co. 1,000 59,063
CalMat Company 2,300 64,113
+ Calpine Corporation 2,800 41,650
Cambrex Corporation 1,600 73,600
Camden Property Trust 2,432 75,392
+ Canandaigua Brands, Inc. (Class A) 1,900 105,213
+ Canandaigua Wine Company, Inc. 1,100 62,700
Capital Bancorp/Miami, Florida 1,100 63,594
Capital Re Corporation 1,700 105,506
CapMAC Holdings Inc. 1,600 55,600
+ CapStar Hotel Company 3,600 123,525
Caraustar Industries, Inc. 3,100 106,175
+ Carbide/Graphite Group, Inc. (The) 1,300 43,875
+ Caribiner International, Inc. 1,200 53,400
Carlisle Companies, Inc. 2,600 111,150
+ Carmike Cinemas, Inc. (Class A) 2,500 71,719
Carpenter Technology Corporation 1,900 91,319
+ Carson Pirie Scott & Company 2,100 105,263
Carter-Wallace, Inc. 2,600 43,875
Casey's General Stores, Inc. 3,700 93,888
Cash America International, Inc. 5,600 72,450
Castle (A.M.) & Company 2,000 45,750
+ Castle & Cooke, Inc. 3,000 50,625
Catalina Marketing Corporation 2,900 134,125
+ C-Cube Microsystems, Inc. 3,700 60,356
+ CellNet Data Systems, Inc. 3,800 29,450
+ CellStar Corporation 1,300 25,838
+ Cellular Communications International, Inc. 1,100 50,875
+ Centennial Cellular Corporation (Class A) 1,800 36,900
CenterPoint Properties Corp. 1,200 42,150
+ Central Garden & Pet Company 1,900 49,875
Central Hudson Gas & Electric 2,600 114,075
Central Louisiana Electric 2,900 93,888
Central Maine Power Company 5,300 80,825
Central Parking Corporation 1,500 67,969
Century Aluminum Company 2,900 39,150
+ Cephalon, Inc. 3,100 35,263
+ Cerner Corporation 2,700 57,038
+ Champion Enterprises, Inc. 5,600 115,150
+ Chancellor Media Corp. 1,181 88,132
+ Charming Shoppes, Inc. 11,500 53,906
Charter One Financial, Inc. 1,051 66,344
60
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
+ CheckFree Holdings Corporation 4,500 $121,500
+ Checkpoint Systems, Inc. 3,800 66,500
+ Cheesecake Factory (The) 2,000 61,000
ChemFirst Inc. 2,700 76,275
Chesapeake Corporation 1,900 65,313
Chesapeake Energy Corp. 3,400 25,713
Chicago Miniature Lamp, Inc. 1,100 37,125
+ Chips & Technologies, Inc. 1,900 27,431
Chittenden Corporation 2,250 78,750
+ Choice Hotels International, Inc. 5,000 80,000
Church & Dwight Co., Inc. 2,200 61,738
+ Ciber, Inc. 900 52,200
+ Cidco, Inc. 1,600 31,200
Cincinnati Milacron, Inc. 3,400 88,188
+ Cirrus Logic, Inc. 5,500 58,438
CitFed Bancorp, Inc. 1,950 76,050
+ Citrix Systems, Inc. 2,800 212,800
+ Cityscape Financial Corp. 1,200 600
Claire's Stores, Inc. 4,500 87,469
Clarcor, Inc. 2,400 71,100
+ Claremont Technology Group, Inc. 1,100 20,350
+ Clarify Inc. 2,100 24,413
+ Cliffs Drilling Company 1,500 74,813
+ Closure Medical Corporation 1,100 28,463
+ Coach USA, Inc. 2,200 73,700
+ Coast Savings Financial, Inc. 2,200 150,838
+ Coeur D'Alene Mines Corporation 6,900 62,100
+ Cognex Corporation 4,100 111,725
+ Coherent, Inc. 1,300 45,663
Cohu, Inc. 1,000 30,625
+ Cole National Corporation 1,600 47,900
+ Collins & Aikman Corp. 7,600 65,550
Colonial BancGroup, Inc. 2,700 92,981
Colonial Properties Trust 2,400 72,300
+ Columbia Laboratories, Inc. 3,000 47,625
Commerce Bancorporation Inc. 2,000 102,000
Commerce Group, Inc. 2,200 71,775
Commercial Federal Corp. 3,000 106,688
Commercial Metals Co. 1,900 59,969
+ Commnet Cellular, Inc. 1,400 49,788
Commonwealth Bancorp, Inc. 2,200 43,725
+ Commonwealth Telephone Enterprises, Inc. 1,000 25,875
Community First Bankshares, Inc. 2,700 143,775
+ Compdent Corporation 900 18,253
+ Computer Horizons Corporation 2,750 123,750
+ Computer Products, Inc. 2,500 56,563
Computer Task Group, Inc. 1,800 64,013
+ Computervision Corporation 5,200 19,825
+ Comverse Technology, Inc. (New Shares) 2,600 101,400
+ Concentra Managed Care, Inc. 2,671 90,146
+ Consolidated Freightways Corporation 2,800 38,150
+ Consolidated Graphics, Inc. 800 37,300
+ Consolidated Products, Inc. 3,250 53,219
+ Converse, Inc. 2,100 12,600
+ Cooper Companies, Inc. 1,300 53,138
Coors (Adolph) Co. (Class B) 3,600 119,700
+ CopyTele, Inc. 4,100 14,350
Cornerstone Properties, Inc. 3,500 67,156
Cousins Properties, Inc. 2,100 61,556
+ Covance, Inc. 6,200 123,225
+ Coventry Ventures, Inc. 4,400 67,100
Crawford & Company (Class B) 5,800 118,538
+ Creative BioMolecules, Inc. 3,400 25,075
+ Credence Systems Corp. 2,200 65,175
+ Credit Acceptance Corp. 1,600 12,400
+ Crescent Operating, Inc. 570 13,965
Cross Timbers Oil Company 3,800 94,763
Cullen/Frost Bankers, Inc. 2,100 127,444
+ Culligan Water Technologies, Inc. 2,694 135,374
+ Curative Health Services, Inc. 1,300 39,488
+ Cygnus, Inc. 1,900 37,763
+ Cymer, Inc. 2,600 39,000
Cytogen Corp. 4,300 6,988
+ Cytyc Corporation 1,700 42,288
DII Group, Inc. 2,200 59,950
D.R. Horton, Inc. 1,200 20,850
DSP Communications, Inc. 4,500 54,000
+ Dal-Tile International Inc. 3,800 46,550
+ Dames & Moore Group 1,900 25,175
Daniel Industries 900 17,325
+ Data Dimensions, Inc. 1,100 18,975
Data General Corporation 3,600 62,775
Data Transmission Network Corp. 1,400 39,200
+ Datascope Corp. 1,900 49,163
Dekalb Genetics Corporation (Class B) 3,000 117,750
Delmarva Power & Light Company 6,000 138,375
+ Delphi Financial Group, Inc. (Class A) 2,500 112,500
Delta & Pine Land Company 4,710 143,655
Deltic Timber Corporation 1,600 43,800
Department 56, Inc. 2,800 80,500
Devon Energy Corporation 2,800 107,800
Devry, Inc. 3,800 121,125
Dexter Corporation (The) 2,300 99,331
+ Dialogic Corporation 1,200 52,500
61
Diamond Multimedia Systems, Inc. 3,200 28,400
Digital Microwave Corp. 5,100 73,950
Dime Bancorp, Inc. 1,644 49,731
Dimon, Inc. 5,000 131,250
Dionex Corporation 1,800 90,450
+ Documentum, Inc. 1,000 42,125
+ Dominick's Supermarkets, Inc. 1,700 62,050
Donaldson Company, Inc. 2,200 99,138
Downey Financial Corp. 1,900 54,031
+ Dress Barn, Inc. (The) 2,500 70,938
Dreyers Grand Ice Cream, Inc. 2,800 67,550
Dynatech Corporation 1,700 79,688
Dynex Capital, Inc., 3,800 50,588
EG & G, Inc. 4,700 97,819
+ ENCAD, Inc. 1,300 35,750
ESS Technology, Inc. 1,600 12,150
E'Town Corporation 2,000 80,375
+ E* Trade Group, Inc. 3,200 73,600
+ EXCEL Communications, Inc. 1,063 15,414
Eagle Hardware & Garden, Inc. 3,000 58,125
Earthgrains Company (The) 2,100 98,700
Eastern Enterprises 2,200 99,000
Eastern Utilities Associates 4,100 107,625
Eaton Vance Corp. 1,700 64,175
Elcor Corp. 2,250 54,000
+ Electro Scientific Industries, Inc. 1,000 38,000
Electroglas, Inc. 3,200 49,400
Emmis Broadcasting Corp. (Class A) 1,000 45,625
Empire District Electric Company (The) 4,400 86,350
+ Encore Wire Corporation 900 27,619
Enhanced Financial Services Group, Inc. 1,700 101,150
Envoy Corporation 2,600 75,725
Enzo Biochem, Inc. 2,100 30,713
Equitable Resources, Inc. 3,700 130,888
Equity Inns Inc. 4,000 59,000
+ Essex International Inc. 1,800 53,550
Esterline Technologies Corporation 1,200 43,200
Etec Systems, Inc. 2,400 111,600
Ethan Allen Interiors, Inc. 3,200 123,400
Exabyte Corporation 2,700 17,381
Excel Realty Trust, Inc. 1,600 50,400
Executive Risk Inc. 1,800 125,663
Exide Corporation 1,900 49,163
Expeditors International of Washington, Inc. 2,800 107,800
Express Scripts, Inc. (Class A) 1,300 78,000
F & M National Corp. 2,600 89,213
FBL Financial Group, Inc. 1,900 76,238
+ FEI Company 1,800 22,388
F.N.B. Corporation 1,700 63,963
+ FPA Medical Management, Inc. 2,100 39,113
+ FSI International, Inc. 2,500 29,375
Fabri-Centers of America, Inc. (Class A) 1,900 42,394
Fair Isaac & Company, Inc. 1,200 39,975
+ Fairchild Corporation (The) (Class A) 1,500 37,313
+ Fairfield Communities, Inc. 1,600 70,600
Fedders Corporation 6,800 42,500
Federal Mogul Corp. 3,300 133,650
FelCor Suite Hotels, Inc. 1,900 67,450
Ferro Corporation 4,050 98,466
Fidelity National Financial, Inc. 4,840 150,645
+ Figgie International, Inc. 4,400 57,750
+ FileNet Corporation 2,400 72,300
Financial Security Assurance Holdings Ltd. 3,300 159,225
Fingerhut Companies, Inc. 4,800 102,600
+ First American Financial Corporation 1,400 103,425
First Brands Corporation 4,200 113,138
First Citizens Bancshares, Inc. 600 62,419
First Commonwealth Financial Corp. 3,000 105,188
First Federal Savings Bank of Colorado 2,900 68,875
First Financial Bancorp Ohio 1,490 71,893
First Industrial Realty Trust, Inc. 2,400 86,700
First Midwest Bancorp, Inc. 1,900 83,125
+ First Plus Financial Group Inc. 2,200 84,425
First Western Bancorp, Inc. 2,400 68,400
FirstBank Puerto Rico 2,200 74,938
Firstbank of Illinois Co. 2,400 88,350
Fisher Scientific International, Inc. 2,000 95,500
Fleetwood Enterprises, Inc. 2,800 118,825
Fleming Companies, Inc. 3,800 51,063
Florida Rock Industries, Inc. 1,400 31,850
Flowserve Corporation 4,132 115,438
+ Foodmaker, Inc. 5,600 84,350
+ Footstar, Inc. 3,400 91,375
+ Forcenergy Inc. 1,400 36,663
Foremost Corporation of America 1,000 69,750
Forest Oil Corporation 3,000 49,500
Fort Wayne National Corp. 2,600 119,600
+ Forte Software, Inc. 2,200 16,775
Franchise Finance Corporation of America 4,500 121,500
+ Franklin Covey Co. 3,000 66,000
+ Fred Meyer, Inc. 1,890 68,749
+ Freeport-McMoRan Sulphur Inc. 507 5,959
Fremont General Corporation 2,700 147,825
+ Friedman's, Inc. (Class A) 1,700 23,163
62
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Frontier Insurance Group, Inc. 3,400 $ 77,775
Fuller (H.B.) Company 1,500 74,250
Fulton Financial Corporation 3,000 97,500
Fund American Enterprises Inc. 600 72,600
+ Furniture Brands International, Inc. 5,200 106,600
Furon Company 2,000 41,750
Fusion Systems Corporation
(Contingent Value Rights) (b) 600 413
G & K Services, Inc. (Class A) 2,200 92,400
+ GC Companies, Inc. 1,300 61,588
+ GT Interactive Software Corp. 2,700 17,213
+ Gadzooks Inc. Company 1,000 21,000
+ Galey & Lord, Inc. 3,000 53,625
Gallagher (Arthur J.) & Co. 2,400 82,650
+ Galoob Lewis Toys, Inc. 3,600 36,675
+ Garden Ridge Corp. 2,000 28,500
+ Gaylord Container Corp. 6,200 35,650
+ GelTex Pharmaceuticals, Inc. 1,500 39,750
GenCorp, Inc. 2,200 55,000
General Cable Corp. 1,600 57,900
General Chemical Group, Inc. (The) 1,700 45,475
+ Genesco Inc. 3,200 40,800
+ GenRad, Inc. 2,800 84,525
+ Gentex Corporation 3,800 102,125
Geon Company (The) 3,300 77,137
Georgia Gulf Corporation 3,700 113,313
+ Geotek Communications, Inc. 5,300 8,116
Gerber Scientific, Inc. 3,600 71,550
+ Getchell Gold Corp. 3,500 84,000
+ Gibson Greetings, Inc. 2,600 56,875
+ Gilead Sciences, Inc. 2,800 107,100
+ Glenayre Technologies, Inc. 5,500 54,313
Glimcher Realty Trust Inc. 2,000 45,125
+ Global DirectMail Corp. 1,500 25,969
+ Global Industrial Techologies, Inc. 2,800 47,425
+ Global Industries Ltd. 6,400 108,800
+ Golden Books Family Entertainment, Inc. 2,000 20,625
+ Graham-Field Health Products, Inc. 2,100 35,044
+ Grand Casinos, Inc. 5,000 68,125
Great Atlantic & Pacific
Tea Company, Inc. (The) 1,800 53,438
Great Financial Corp. 3,100 158,100
Greif Brothers Corporation (Class A) 2,100 70,350
+ Griffon Corporation 4,300 62,888
+ Grubb & Ellis Company 2,500 34,219
Guaranty Life Company 2,000 57,000
+ Guilford Pharmaceuticals, Inc. 1,700 34,213
+ Guitar Center Inc. 2,200 50,600
+ Gulf South Medical Supply, Inc. 2,200 81,950
+ Gymboree Corp. 2,700 73,913
+ HA-LO Industries, Inc. 1,500 39,000
HBO & Company 1,380 66,240
HCC Insurance Holdings, Inc. 3,000 63,750
+ HCIA Inc. 1,200 14,250
+ HEALTHSOUTH Corporation 4,132 114,663
+ HMT Technology Corporation 3,900 50,700
HNC Software Inc. 1,700 73,100
HSB Group Inc. 1,800 99,338
HUBCO, Inc. 1,957 76,568
+ Hadco Corporation 1,300 58,825
+ Haemonetics Corporation 2,700 37,800
+ Hambrecht & Quist Group 1,700 62,050
Hancock Fabrics, Inc. 8,600 124,700
Hancock Holding Co. 600 36,300
+ Handleman Company 4,300 29,831
Hanna (M.A.) Company 4,400 111,100
+ Harbinger Corp. 2,100 59,063
+ Harken Energy Corporation 6,900 48,300
+ Harland (John H.) Co. (The) 3,300 69,300
Harman International Industries, Inc. 1,800 76,388
Hartford Life, Inc. (Class A) 2,200 99,688
+ Hartmarx Corporation 1,900 14,488
Hawaiian Electric Industries, Inc. 3,000 122,625
+ Hayes Lemmerz International Inc. 3,400 95,200
Health Care Property Investors, Inc. 1,900 71,844
Healthcare Realty Trust Inc. 1,300 37,619
Healthplan Services Corporation 1,700 35,700
+ Heartport, Inc. 1,600 32,600
Hecla Mining Company 8,000 39,500
Heftel Broadcasting Corp. (Class A) 2,200 102,850
Heilig-Meyers Company 5,600 67,200
Helix Technology Corporation 2,600 50,700
Henry (Jack) & Associates 1,000 27,250
+ Henry Schein, Inc. 900 31,500
Herbalife International, Inc. (Class A) 367 7,700
+ Herbalife International, Inc. (Class B) 733 15,767
Hexcel Corporation 2,200 54,863
Highlands Insurance Group, Inc. 2,500 70,938
Highwaymaster Communications, Inc. 2,200 12,513
Highwoods Properties, Inc. 2,100 78,094
+ Hollywood Entertainment Corp. 2,800 29,750
Hologic, Inc. 1,500 31,031
+ Homebase, Inc. 3,500 27,563
+ Homeside, Inc. 2,300 63,394
63
Horizon Group, Inc. 5,000 54,688
Hospitality Properties Trust 1,700 55,888
Host Marriott Corporation 4,100 60,988
Houghton Mifflin Company 2,900 111,288
Huffy Corporation 3,900 52,650
Hughes Supply, Inc. 1,950 68,128
Hugoton Energy Corp. 5,000 45,938
Human Genome Sciences, Inc. 2,200 87,450
Huntington Bancshares Inc. 3,222 115,992
Hutchinson Technology, Inc. 1,900 41,563
+ Hvide Marine, Inc. (Class A) 1,400 36,050
+ Hyperion Software Corp. 2,300 82,225
+ I2 Technologies, Inc. 400 21,100
+ I-Stat Corporation 1,500 23,719
ICN Pharmaceuticals, Inc. 4,400 214,775
ICOS Corporation 3,800 69,588
+ IDEC Pharmaceuticals Corporation 1,700 58,438
IDEX Corp. 3,100 108,113
+ IDEXX Laboratories, Inc. 4,100 65,344
IES Industries, Inc. 3,100 114,119
+ IHOP Corp. 2,000 65,000
IMC Global, Inc. 2,160 70,740
IMC Global, Inc. (Warrants) (a) 800 3,100
+ IMC Mortgage Company 2,600 30,875
+ IN Focus Systems, Inc. 1,400 42,525
INMC Mortgage Holdings, Inc. 3,100 72,656
+ INTERSOLV, Inc. 2,300 46,575
IRT Property Company 7,100 83,869
+ IXC Communications, Inc. 1,600 50,200
+ Imation Corp. 4,200 67,200
Imnet Systems, Inc. 1,100 17,875
Imperial Bancorp 2,100 103,556
Imperial Credit Industries, Inc. 2,000 41,000
+ Imperial Holly Corporation 735 7,997
+ Inacom Corp. 800 22,450
Incyte Pharmaceuticals, Inc. 2,000 90,000
+ Industri-Matematik International Corp. 2,800 82,600
+ Information Management Resources, Inc. 1,200 45,000
+ Information Resources, Inc. 3,100 41,463
+ Inhale Therapeutic Systems 1,600 41,600
Innovex, Inc. 1,500 34,406
+ Input/Output, Inc. 4,300 127,656
Insignia Financial Group, Inc. (Class A) 2,400 55,200
Inso Corporation 1,400 16,188
+ Integrated Circuit Systems, Inc. 1,800 51,300
+ Integrated Device Technology, Inc. 7,700 72,669
Integrated Health Services, Inc. 4,119 128,461
+ Integrated Process Equipment Corp. 1,600 25,200
+ Integrated Systems Inc. 1,700 23,375
Inter-Tel Inc. 2,000 38,750
InterDigital Communications Corp. 5,100 15,619
Interface, Inc. (Class A) 2,100 60,900
Intergraph Corporation 4,100 41,000
+ Interim Services, Inc. 7,200 186,300
Intermedia Communications, Inc. 1,400 85,050
International Dairy Queen, Inc. (Class A) 2,100 56,241
International Multifoods Corporation 1,900 53,794
+ International Network Services 2,500 57,813
+ International Rectifier Corporation 5,400 63,788
Interneuron Pharmaceuticals, Inc. 2,800 26,600
Interra Financial, Inc. 1,200 82,800
+ Interstate Hotels Company 2,700 94,669
Interstate Power Company 2,800 104,825
Invacare Corporation 3,300 71,775
Investors Financial Services Corporation 700 32,200
Ionics, Incorporated (Ordinary) 2,000 78,250
Irvine Apartment Communities, Inc. 1,700 54,081
Isis Pharmaceuticals, Inc. 2,100 25,856
Itron, Inc. 2,500 45,000
J&L Specialty Steel, Inc. 2,600 26,163
+ JDA Software Group, Inc. 1,100 38,500
JLG Industries, Inc. 4,400 62,150
JP Foodservice, Inc. 5,842 215,789
+ Jabil Circuit, Inc. 600 23,850
+ Jacobs Engineering Group, Inc. 2,100 53,288
+ Jacor Communications, Inc. 3,200 170,000
Jefferies Group, Inc. 2,000 81,875
John Alden Financial Corporation 2,400 57,600
Jones Medical Industries, Inc. 2,000 76,500
Jostens, Inc. 3,800 87,638
+ Journal Register Company 5,200 109,200
Juno Lighting, Inc. 3,100 54,250
Just For Feet, Inc. 3,000 39,375
K2, Inc. 2,600 59,150
KCS Energy, Inc. 2,400 49,800
Kaman Corporation (Class A) 4,500 73,688
Kaufman and Broad Home Corporation 3,900 87,506
Kaydon Corporation 3,600 117,450
Kellwood Company 2,500 75,000
Kelly Services, Inc. 1,700 51,000
Kemet Corporation 4,700 91,063
Kennametal Inc. 2,600 134,713
Kent Electronics Corporation 4,300 108,038
Keystone Financial, Inc. 6,000 241,500
64
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Kilroy Realty Corporation 1,700 $ 48,875
Kimball International, Inc. 4,600 84,813
Kimberly-Clark Corp. 1,134 55,920
+ Kirby Corporation 3,600 69,525
+ Knoll, Inc. 1,200 38,550
Koger Equity Inc. 2,000 43,875
Kuhlman Corporation 2,100 82,163
Kulicke and Soffa Industries, Inc. 2,400 44,700
+ LCA-Vision Inc. (New Shares) 1,543 1,736
+ LHS Group Inc. 1,000 59,750
LNR Property Corp. 2,500 59,062
LTC Properties, Inc. 7,100 147,325
Laboratory Corp. of America Holdings 6,600 11,138
+ Lamar Advertising Co. 1,500 59,625
Landry's Seafood Restaurants, Inc. 3,000 72,000
Lands' End, Inc. 1,700 59,606
Landstar System, Inc. 2,200 58,025
+ Learning Company, Inc. (The) 3,500 56,219
+ Learning Tree International Inc. 1,100 31,763
Legato Systems, Inc. 1,800 79,200
Legg Mason, Inc. 4,066 227,442
Lennar Corporation 2,500 53,906
Level One Communications, Inc. 2,150 60,738
Libbey, Inc. 2,100 79,538
Liberty Property Trust 2,200 62,837
Life Re Corp. 1,000 65,187
Life Technologies, Inc. 1,100 36,575
+ Ligand Pharmaceuticals 2,900 37,337
Lilly Industries, Inc. (Class A) 4,300 88,687
Lincoln Electric Company 2,800 100,800
Lindsay Manufacturing Co. 1,500 65,062
+ Linens `N Things 1,500 65,437
Liposome Company, Inc. 3,000 13,875
+ Littelfuse, Inc. 3,000 74,625
+ Lo-jack Corp. 2,300 33,925
Lomak Petroleum, Inc. 2,300 37,375
+ Lone Star Industries, Inc. 1,700 90,312
+ Lone Star Steakhouse & Saloon, Inc. 3,400 59,500
+ Lone Star Technologies, Inc. 2,100 59,587
Long Island Bancorp, Inc. 2,500 124,062
Longs Drug Stores Corp. 3,100 99,587
Longview Fibre Company 5,200 78,975
Luby's Cafeterias, Inc. 3,300 57,956
Lukens Inc. 1,500 42,844
+ Lycos Inc. 1,400 57,925
+ Lydall, Inc. 3,100 60,450
MAF Bancorp, Inc. 2,050 72,519
+ MAXXAM Group, Inc. 500 21,812
MDU Resources Group, Inc. 3,600 113,850
MMI Companies Inc. 1,600 40,200
+ MRV Communications Inc. 2,000 47,750
Mac Frugals Bargains Close-Outs, Inc. 2,700 111,037
+ MacDermid, Inc. 700 59,412
Macerich Company (The) 1,900 54,150
+ Macromedia Inc. 3,100 25,769
Madison Gas & Electric Company 3,000 69,000
Magellan Health Services, Inc. 2,900 62,350
Magna Group, Inc. 4,100 187,575
Magnetek, Inc. 2,400 46,800
+ Mail-Well Holdings Inc. 1,500 60,750
Manitowoc Company, Inc. (The) 1,750 56,875
Manufactured Home Communities, Inc. 1,600 43,200
+ Manugistics Group, Inc. 1,700 75,862
Marcus Corporation (The) 5,250 96,797
Marine Drilling Companies, Inc. 5,100 105,825
+ Mariner Health Group, Inc. 3,200 52,000
+ Marquette Medical Systems, Inc. 2,000 53,250
+ Marshall Industries 2,700 81,000
+ Martek Biosciences Corporation 1,200 9,900
Mascotech, Inc. 2,700 49,612
Mastec, Inc. 800 18,300
Material Sciences Corporation 2,500 30,469
Matthews International Corporation 1,900 83,600
+ Maverick Tube Corp. 900 22,781
+ Maxicare Health Plans, Inc. 2,200 23,925
McClatchy Newspapers, Inc. (Class A) 2,400 65,250
McDonald's & Company Investments 2,400 68,100
+ McLeodUSA Inc. 4,300 137,600
+ Medaphis Corp. 6,400 41,600
Medical Assurance, Inc. 2,200 61,875
+ Medicis Pharmaceutical Corp. 1,300 66,462
Medimmune, Inc. 2,600 111,475
+ MedPartners, Inc. 1,062 23,762
Medusa Corporation 2,100 87,806
Men's Wearhouse, Inc. (The) 1,900 66,025
Mentor Corporation 2,800 102,200
+ Mentor Graphics Corporation 6,000 58,125
+ Mercury Interactive Corp. 1,800 48,150
Merrill Corporation 1,400 32,550
Methode Electronics, Inc. (Class A) 4,100 66,625
+ Metromail Corporation 1,600 28,600
Metromedia International Group, Inc. 3,900 37,050
+ Michaels Stores, Inc. 2,200 64,350
+ Micrel Inc. 1,300 36,400
65
+ Micro Warehouse Inc. 3,300 45,994
+ Microage Inc. 1,900 28,619
Micros Systems, Inc. 1,100 49,500
Microtouch Systems Inc. 1,100 17,325
Mid Am, Inc. 3,970 102,227
Mid-America Apartment Communities, Inc. 900 25,706
Mid Atlantic Medical Services, Inc. 4,300 54,825
+ Midwest Express Holdings Inc. 1,400 54,337
+ Millennium Pharmaceuticals Inc. 2,900 55,100
+ Miller Industries Inc. 3,400 36,550
Mills Corp. 1,500 36,750
Minerals Technologies, Inc. 2,500 113,594
Minnesota Power & Light Company 3,300 143,756
+ Miravant Medical Technologies 600 24,000
Mississippi Chemical Corporation 4,200 76,650
Mobile Telecommunication Technologies Corp. 4,500 99,000
Modine Manufacturing Company 2,500 85,312
+ Mohawk Industries, Inc. 3,750 82,266
+ Moneygram Payment Systems Inc. 2,000 21,500
Morgan Keegan, Inc. 4,050 102,516
+ Motivepower Industries Inc. 2,100 48,825
+ Mueller Industries, Inc. 2,000 118,000
+ Mycogen Corp. 2,800 52,500
+ Myriad Genetics, Inc. 1,100 26,675
+ NABI, Inc. 3,100 10,559
NACCO Industries, Inc. (Class A) 700 75,031
NAC Re Corp. 1,500 73,219
+ NBTY, Inc. 2,400 80,100
+ NCS Healthcare, Inc. (Class A) 2,100 55,387
+ NFO Worldwide, Inc. 2,600 54,437
+ NL Industries, Inc. (New Shares) 2,500 34,062
+ NTL Inc. 2,900 80,837
Nash-Finch Company 3,900 74,100
National Computer System, Inc. 1,900 66,975
+ National Instruments Corp. 1,800 52,200
+ National Media Corp. 2,000 6,500
+ National Oil Well Inc. 4,000 136,750
+ National Semiconductor Corporation 1,567 40,644
+ National Steel Corp. 2,000 23,125
+ National Surgery Centers, Inc. 1,700 44,625
Nationwide Health Properties, Inc. 3,700 94,350
+ Natural Microsystems Corp. 1,200 55,800
Natures Sunshine Products, Inc. 2,100 54,600
+ Nautica Enterprises, Inc. 3,800 88,350
+ NeoPath, Inc. 1,400 18,200
+ Neoprobe Corp. 2,400 14,400
+ Network Appliance, Inc. 3,000 106,500
+ Network Equipment Technologies, Inc. 3,100 45,337
+ Networks Associates, Inc. 2,083 109,748
+ Neurex Corporation 1,900 26,362
+ Neurogen Corporation 1,300 17,550
+ Neuromedical Systems, Inc. 5,000 14,062
Nevada Power Company 4,900 130,156
New England Business Service, Inc. 2,100 70,875
New York Bancorp Inc. 1,666 66,119
Newfield Exploration Co. 4,100 95,581
+ Newpark Resources, Inc. 6,200 108,500
Newport News Shipbuilding Inc. 4,000 101,750
News Corporation Limited (The) (ADR)* 4,285 85,164
+ Nexstar Pharmaceuticals, Inc. 2,600 29,575
Nordson Corporation 1,600 72,400
Norrell Corp. 1,700 33,787
+ North Face Inc. 1,500 33,000
Northrop Grumman Corporation 677 77,855
Northwestern Public Service Company 4,200 96,600
Nova Corporation 2,200 55,000
+ NovaCare, Inc. 6,100 79,681
+ Nu Skin Asia Pacific Inc. (Class A) 1,600 29,200
+ Nuevo Energy Co. 1,900 77,425
OEA, Inc. 1,900 54,981
O M Group Inc. 3,600 131,850
+ OMI Corp. 5,300 48,694
ONBANCorp Inc. 2,100 148,050
ONEOK, Inc. 2,700 109,012
+ Oak Industries, Inc. 3,200 95,000
+ Oak Technology, Inc. 3,800 24,700
Oakwood Homes Corporation 5,000 165,937
Oasis Residential, Inc. 8,000 178,500
+ Object Design Inc. 2,400 20,100
+ Ocean Energy, Inc. 1,200 59,175
+ Oceaneering International, Inc. 3,100 61,225
Ocwen Asset Investment Corp. 1,200 24,600
+ Ocwen Financial Corporation 2,800 71,225
+ Offshore Logistics, Inc. 3,600 76,950
Ogden Corporation 4,600 129,662
Old National Bancorp 2,700 130,612
Omega Healthcare Investors, Inc. 1,600 61,800
Omnipoint Corporation 2,600 60,450
Omniquip International Inc. 1,900 37,881
One Valley Bancorp, Inc. 2,450 94,937
+ Orbital Sciences Corp. 3,800 113,050
+ Oregon Metallurgical Corporation 1,700 56,737
Oregon Steel Mills, Inc. 2,900 61,806
+ Organogenesis, Inc. 2,593 68,390
66
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Oriental Financial Group Inc. 1,425 $ 42,127
Orion Capital Corporation 4,100 190,394
+ Orthodontic Center 4,800 79,800
Otter Tail Power Company 1,700 64,387
+ Outdoor Systems, Inc. 2,100 80,587
Overseas Shipholding Group, Inc. 3,600 78,525
Owens & Minor, Inc. 4,700 68,150
+ Oxigene Inc. 700 12,425
+ P-COM, Inc. 4,400 75,900
+ PFF Bancorp, Inc. 2,100 41,737
P.H. Glatfelter Company 2,400 44,700
+ PHP Healthcare Corp. 1,000 15,062
+ PMC-Sierra, Inc. 4,100 127,100
+ PMT Services, Inc. 4,200 58,275
+ PRI Automation, Inc. 1,200 34,650
+ PSINet, Inc. 2,800 14,350
+ Pacific Gateway Exchange Inc. 1,400 75,337
+ Pacific Sunwear of California 1,500 44,344
+ PageMart Wireless, Inc. (Class A) 2,900 22,837
+ Paging Network, Inc. 9,200 98,900
+ Palm Harbor Homes, Inc. 1,325 37,431
+ Panavision Inc. 2,500 64,531
+ Papa John's International, Inc. 2,100 73,237
+ Paragon Health Network, Inc. 3,048 59,626
+ Paragon Trade Brands, Inc. 2,100 27,037
+ Parexel International Corporation 2,100 77,700
Park Electrochemical Corporation 2,100 59,587
+ Parker Drilling Company 6,800 82,875
+ PathoGenesis Corp. 1,600 59,400
Patriot American Hospitality, Inc. 2,399 69,121
+ Patterson Dental Co. 2,000 90,500
+ Patterson Energy, Inc. 1,200 46,425
+ Paxar Corporation 4,625 68,508
+ Pediatrix Medical Group Inc. 1,800 76,950
Penncorp Financial Group, Inc. 2,600 92,787
Peoples Heritage Financial Group, Inc. 2,500 115,000
+ Perceptron, Inc. 900 19,462
+ Periphonics Corporation 1,900 16,625
+ Perrigo Co. 6,400 85,600
+ Personnel Group of America, Inc. 1,500 49,500
+ Petco Animal Supplies, Inc. 2,100 50,400
+ Pharmaceutical Product Development, Inc. 2,100 32,287
+ PharMerica, Inc. 2,000 20,750
+ Philip Services Corp. 4,004 57,557
Phillips-Van Heusen Corp. 4,200 59,850
Phoenix Duff & Phelps Corp. 6,300 50,400
Phoenix Technologies Ltd. 2,200 26,675
Photronics, Inc. 1,800 43,650
+ Physician Sales & Service 3,600 77,400
+ Physicians Resource Group, Inc. 3,400 14,875
+ Physio-Control International Corp. 2,100 33,337
+ Picturetel Corp. 4,500 29,250
Piedmont Natural Gas Company, Inc. 3,500 125,781
Pier 1 Imports, Inc. 7,700 174,212
Pioneer Group, Inc. 2,300 64,687
Pioneer Natural Resources Company 742 21,472
Pioneer Standard Electronics 3,900 59,475
Piper Jaffray Companies, Inc. 2,300 83,806
Pittston Minerals Group 3,100 81,375
+ Plantronics, Inc. 1,600 64,000
+ Platinum Technology, Inc. 6,100 172,325
+ Playboy Enterprises, Inc. (Class B) 2,600 40,787
+ Playtex Products, Inc. 3,300 33,825
+ Plexus Corporation 2,200 32,725
Polaris Industries, Inc. 2,600 79,462
+ Policy Management Systems Corporation 1,600 111,300
+ Polymer Group, Inc. 3,700 35,150
+ Pool Energy Services Co. 2,400 53,400
Post Properties, Inc. 615 24,984
+ Powertel, Inc. 1,300 21,775
+ Premier Parks Inc. 1,200 48,600
+ Premiere Technologies, Inc. 2,100 58,012
+ Premisys Communications, Inc. 2,400 62,700
+ Prepaid Legal Services, Inc. 2,400 82,050
Presidential Life Corporation 1,800 36,450
Price Enterprises, Inc. 8,000 146,000
+ PriceSmart, Inc. 275 4,709
+ Pride Petroleum Services, Inc. 4,400 111,100
+ Primark Corp. 4,000 162,750
+ Prime Hospitality Corp. 4,700 95,762
+ Proffitt Systems, Inc. 5,400 153,562
+ Progress Software Corporation 2,200 47,575
+ Protein Design Labs, Inc. 1,900 76,000
Provident Bankshares Corp. 1,130 72,179
+ Proxim, Inc. 1,200 13,575
Public Service Company of New Mexico 5,400 127,912
Pulitzer Publishing Company 1,300 81,656
Pulte Corp. 700 29,269
Quaker State Corporation 4,000 57,000
+ Quality Food Centers, Inc. 1,500 100,500
Quanex Corporation 2,000 56,250
Queens County Bancorp, Inc. 1,500 60,750
+ Quest Diagnostics Incorporated 3,100 52,312
67
Quick & Reilly Group, Inc. 1,800 77,400
+ Quick Response Services, Inc. 1,000 37,000
+ RCN Corporation 1,200 41,100
+ REMEC, Inc. 1,400 31,500
RFS Hotel Investors, Inc. 2,200 43,862
+ RMI Titanium Co. 1,500 30,000
+ RadiSys Corporation 800 29,800
+ Rainforest Cafe, Inc. 1,500 49,500
+ Ralcorp Holdings Inc. 3,500 59,281
+ Rambus Inc. 1,300 59,475
+ Rational Software Corporation 7,500 85,312
Raymond James Financial, Inc. 3,400 134,937
+ Read-Rite Corp. 4,700 74,025
Realty Income, Corp. 2,300 58,506
+ Reckson Associates Realty Corp. 2,000 50,750
+ Red Roof Inns, Inc. 4,000 61,250
Redwood Trust, Inc. 1,000 20,375
Regal-Beloit Corp. 2,500 73,906
Regency Realty Corp. 1,300 35,994
+ Regeneron Pharmaceuticals, Inc. 2,100 17,981
Regis Corporation 1,900 47,737
+ Registry Resources, Inc. 900 41,287
Reinsurance Group of America 2,800 119,175
Reliance Steel & Aluminum Co. 1,450 43,137
ReliaStar Financial Corporation 1,326 54,615
+ Remedy Corp. 2,100 44,100
+ Renal Care Group, Inc. 3,200 102,400
+ Renal Treatment Centers, Inc. 3,200 115,600
+ Renters Choice, Inc. 1,800 36,900
+ Respironics, Inc. 2,500 55,937
+ Rexall Sundown, Inc. 3,000 90,562
Richfood Holdings Inc. (Class A) 5,000 141,250
Riggs National Corporation 7,000 188,125
+ Rio Hotel & Casino, Inc. 2,200 46,200
+ Risk Capital Holdings, Inc. 2,300 51,175
+ Robert Mondavi (Class A) 900 43,875
+ Roberts Pharmaceutical Corporation 4,300 41,119
+ Robotic Visions Systems, Inc. 2,100 24,150
Rochester Gas and Electric Corporation 3,900 132,600
Rock-Tenn Co. (Class A) 3,700 75,850
Rollins, Inc. 2,700 54,844
Rollins Truck Leasing Corp. 5,400 96,525
+ Romac International, Inc. 2,000 48,875
Roper Industries Inc. 3,300 93,225
Roslyn Bancorp, Inc. 4,500 104,625
+ Ruby Tuesday, Inc. 2,600 66,950
+ Rural/Metro Corp. 2,000 66,750
+ Ryan's Family Steak House, Inc. 8,100 69,356
Ryland Group, Inc. (The) 3,700 87,412
+ S3 Inc. 6,100 30,500
S&T Bancorp Inc. 1,700 73,525
SCPIE Holdings Inc. 1,600 46,300
+ SEACOR SMIT, Inc. 1,500 90,375
SEI Corporation 1,900 79,800
SEMCO Energy, Inc. 3,055 55,372
+ SFX Broadcasting, Inc. (Class A) 1,100 88,275
+ SMART Modular Technologies, Inc. 3,400 78,200
+ SPS Technologies, Inc. 1,700 74,162
SPX Corp. 1,700 117,300
+ Sabratek Corporation 1,000 28,750
+ Sabre Group Holdings Inc. 2,700 77,962
+ Safeguard Scientifics, Inc. 2,700 84,712
+ Safeskin Corp. 1,800 102,150
Safety-Kleen Corp. 5,200 142,675
+ Samsonite Corp. 1,800 56,925
+ SanDisk Corporation 2,600 52,812
+ SangStat Medical Corp. 1,600 64,800
+ Sanmina Corp. 1,700 115,175
Saul Centers, Inc. 7,500 136,406
+ Sawtek Inc. 800 21,100
+ Scholastic Corp. 1,200 45,000
Schulman (A.), Inc. 3,900 97,987
Schweitzer-Mauduit International, Inc. 2,700 100,575
+ Scientific Games Holdings Corp. 1,100 22,275
+ Scios Inc. 4,400 44,000
+ Scopus Technology, Inc. 2,100 25,200
Scotsman Industries, Inc. 2,300 56,206
+ Scotts Co. (The) 3,300 99,825
+ Seitel, Inc. 2,600 44,525
Selective Insurance Group, Inc. 3,400 91,800
+ Sepracor, Inc. 2,800 112,175
+ Sequa Corporation (Class A) 700 45,544
+ Sequent Computer Systems, Inc. 3,900 78,000
+ Sequus Pharmaceuticals, Inc. 5,500 40,906
+ Serologicals Corporation 1,800 46,800
+ Service Merchandise Company, Inc. 8,200 17,425
+ Shiva Corporation 2,600 22,262
+ Shoney's, Inc. 4,500 14,344
+ ShopKo Stores, Inc. 2,200 47,850
+ Showbiz Pizza Time, Inc. 2,900 66,700
Showboat, Inc. 2,500 73,437
+ Siebel Systems, Inc. 2,100 87,806
+ Sierra Health Services, Inc. 2,200 73,975
Sierra Pacific Resources 3,900 146,250
Sigcorp, Inc. 3,200 94,000
68
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Silgan Holdings, Inc. 2,000 $ 65,000
+ Silicon Valley Bancshares 1,000 56,250
+ Silicon Valley Group, Inc. 2,900 65,612
+ Siliconix Inc. 1,300 55,900
+ Sinclair Broadcast Group, Inc. (Class A) 1,000 46,625
+ Sitel Corporation 4,700 42,887
Smith (A.O.) Corp. 1,800 76,050
Smith (Charles E) Residential Realty, Inc. 1,900 67,450
+ Smithfield Foods, Inc. 2,700 89,100
Smucker J.M. Company (The) (Class A) 3,100 73,237
+ Snyder Communications, Inc. 1,900 69,350
Snyder Oil Corp. 5,900 107,675
+ Sola International, Inc. 2,900 94,250
+ Sonic Corp. 1,600 45,000
Sothebys Holdings, Inc. 4,400 81,400
+ Source Services Corporation 2,400 51,900
Southdown, Inc. 2,000 118,000
Southwestern Energy Company 5,600 72,100
Sovereign Bancorp, Inc. 10,100 209,575
+ Spacelabs Medical, Inc. 2,400 45,600
+ Spectrian Corporation 1,000 19,250
+ SpeedFam International, Inc. 1,600 42,400
+ Spine-Tech, Inc. 1,000 51,437
+ Splash Technology Holdings, Inc. 1,400 31,500
+ Sports Authority, Inc. (The) 3,900 57,525
Springs Industries, Inc. (Class A) 1,400 72,800
St. John Knits, Inc. 2,400 96,000
St. Mary Land & Exploration Company 1,900 66,500
St. Paul Bancorp Inc. 3,200 84,000
+ StaffMark, Inc. 1,700 53,762
+ Stage Stores, Inc. 2,400 89,700
Standard Pacific Corp. 2,000 31,500
Standard Products Company (The) 2,200 56,375
+ Stanford Telecommunications, Inc. 1,100 18,631
Stanhome, Inc. 2,000 51,375
+ Steel Dynamics, Inc. 2,800 44,800
Stewart & Stevenson Services, Inc. 3,100 79,050
+ Stillwater Mining Co. 2,200 36,850
Stone & Webster, Inc. 800 37,500
Storage Realty Trust Inc. 4,000 105,250
Storage USA, Inc. 2,600 103,837
+ Stratus Computer, Inc. 2,700 102,094
Stride Rite Corp. (The) 5,900 70,800
+ Structural Dynamics Research Corp. 3,300 74,250
Sturm, Ruger & Company, Inc. 2,800 51,625
+ Suiza Foods Corp. 1,400 83,387
Summit Bancorp. 1,476 78,597
Summit Properties, Inc. 1,600 33,800
+ Summit Technology, Inc. 5,400 24,469
+ Sun Healthcare Group, Inc. 4,300 83,312
+ Sunburst Hospitality Corp. 1,600 15,800
+ Sunglass Hut International, Inc. 4,200 26,512
+ Sunrise Assisted Living, Inc. 800 34,500
+ Sunrise Medical, Inc. 2,000 30,875
Superior Industries International, Inc. 2,600 69,712
+ Superior Services, Inc. 2,300 66,412
Susquenhanna Bancshares, Inc. 2,600 99,450
+ Swift Energy Company 1,870 39,387
+ Swift Transportation Co., Inc. 1,900 61,512
+ Sykes Enterprises, Inc. 1,200 23,400
+ Sylvan Learning Systems, Inc. 1,900 74,100
+ Symantec Corp. 6,100 133,819
+ Synetic, Inc. 1,900 69,350
+ Synopsys, Inc. 1,369 48,942
+ System Software Associates, Inc. 4,300 37,625
+ Systems & Computer Technology Corp. 1,700 84,362
+ TBC Corporation 4,500 43,031
TCA Cable TV, Inc. 1,400 64,400
+ TCI Satellite Entertainment, Inc. (Class A) 4,800 33,000
TETRA Tech, Inc. 2,750 55,000
TETRA Technologies, Inc. 2,000 42,125
TJ International, Inc. 2,900 70,687
TNP Enterprises, Inc. 3,000 99,750
TR Financial Corporation 2,100 69,825
Talbots, Inc. 1,300 23,562
Technitrol, Inc. 1,700 51,000
+ Technology Solutions Co. 1,950 51,431
Tejas Gas Corp. 1,800 110,250
+ Tekelec 800 24,400
Tel-Save Holdings 4,400 87,450
Telxon Corporation 2,300 54,912
Tennant Co. 1,700 61,837
Terra Industries, Inc. 4,000 52,250
Tesoro Petroleum Corporation 3,800 58,900
Texaco Inc. 2,846 154,751
Texas Industries, Inc. 2,200 99,000
Texas Regional Bancshares, Inc. (Class A) 1,550 47,275
+ Theragenics Corporation 1,100 39,600
TheraTech, Inc. 5,200 41,600
+ Thermo Cardiosystems Inc. 1,800 48,150
+ ThermoLase Corporation 1,500 15,750
Thomas Industries, Inc. 3,600 71,100
Thornburg Mortgage Asset Corp. 1,400 23,100
+ Timberland Company (Class A) 600 34,837
69
+ Titan Exploration, Inc. 3,100 29,450
+ Titanium Metals Corporation 1,800 51,975
+ Toll Brothers, Inc. 3,300 88,275
+ Tom Brown, Inc. 3,000 57,750
Toro Company (The) 1,900 80,987
+ Total Renal Care Holdings, Inc. 4,000 110,000
+ Tower Automotive, Inc. 1,600 67,300
+ Toy Biz, Inc. 1,500 11,625
+ Tracor, Inc. 2,000 60,750
Trans Financial, Inc. 2,100 81,637
+ Trans World Airlines, Inc. 5,200 52,650
+ Transition Systems, Inc. 2,200 48,675
+ Transkaryotic Therapies, Inc. 2,000 70,250
+ TransMontaigne Oil Company 2,900 43,500
Trenwick Group, Inc. 1,450 54,556
+ Triad Guaranty, Inc. 1,600 46,400
+ Triangle Pacific 2,500 84,687
+ Triangle Pharmaceuticals, Inc. 1,100 16,087
+ Triarc Companies, Inc. (Class A) 3,300 89,925
+ Trico Marine Services, Inc. 1,700 49,937
+ Trigon Healthcare, Inc. 4,400 114,950
+ Trimble Navigation Ltd. 2,800 61,075
Trinet Corporate Realty Trust, Inc. 1,100 42,556
+ TriQuint Semiconductor, Inc. 900 18,225
+ Triumph Group, Inc. 1,500 49,875
True North Communications, Inc. 3,100 76,725
+ Trump Hotels & Casino Resorts, Inc. 2,700 18,056
Trust Company of New Jersey (The) 2,900 72,500
TrustCo Bank Corp. N.Y. 3,680 100,280
Trustmark Corporation 3,100 143,375
+ Tuboscope Vetco International Corp. 5,700 137,156
+ Tucson Electric Power Co. 3,600 65,250
+ Twinlab Corporation 2,100 51,975
UGI Corp. (New Shares) 3,400 99,662
UMB Financial Corp. 1,365 74,392
USBancorp, Inc. 800 58,400
+ USCS International, Inc. 2,200 37,400
US Freightways Corp. 3,000 97,500
UST Corporation 2,600 72,150
+ U.S. Bioscience Inc. 2,600 23,562
+ U.S. Home Corporation 1,600 62,800
+ U.S. Office Products Co. 10,650 209,006
U.S. Trust Corporation 3,700 231,712
+ Ultratech Stepper, Inc. 1,900 37,762
Unifirst Corp. 2,700 75,769
Union Planters Corporation 723 49,119
+ Uniphase Corp. 3,400 140,675
+ United Auto Group, Inc. 2,800 50,750
United Bankshares, Inc. 1,700 81,175
United Companies Financial Corporation 2,200 34,100
United Illuminating Company (The) 2,600 119,437
+ United International Holdings Inc. (Class A) 3,700 42,550
United States Satellite Broadcasting
Company, Inc. 3,600 28,575
+ United Stationers, Inc. 1,000 48,125
+ United Video Satellite Group, Inc. (Class A) 1,300 37,375
+ Unitrode Corporation 3,000 64,500
Universal Foods Corporation 2,600 109,850
Universal Outdoor, Inc. 1,800 93,600
Urban Shopping Centers, Inc. 1,100 38,362
+ VWR Scientific Products Corporation 1,700 48,025
+ Vail Resorts, Inc. 3,100 80,406
+ Valence Technology, Inc. 5,000 25,312
Valmont Industries, Inc. 3,800 74,100
+ Vanguard Cellular Systems, Inc. (Class A) 2,600 33,150
+ Vanstar Corporation 5,400 61,087
+ Vantive Corporation 1,700 42,925
+ Varco International, Inc. 3,400 72,887
Veeco Instruments Inc. 800 17,600
+ Veritas DGC Inc. 2,200 86,900
+ Veritas Software Corp. 2,250 114,750
+ Veritex Pharmaceuticals, Inc. 3,200 105,600
Vesta Insurance Group, Inc. 1,400 83,125
+ Veterinary Centers of America, Inc. 2,100 28,219
+ Viasoft, Inc. 1,900 80,275
+ Vical, Inc. 1,800 21,600
+ Vicor Corporation 3,900 105,787
+ Videoserver, Inc. 1,600 25,400
Vintage Petroleum, Inc. 3,400 64,600
+ Visio Corp. 2,500 95,937
+ Vitalink Pharmacy Services, Inc. 1,500 36,187
+ Vivus, Inc. 3,200 34,000
+ Volt Information Sciences, Inc. 900 48,487
WD-40 Company 2,500 72,500
+ WMS Industries, Inc. 2,400 50,700
WPL Holdings, Inc. 3,300 109,312
WPS Resources Corporation 2,800 94,675
Wabash National Corporation 3,000 85,312
Wachovia Corporation 875 70,984
Wackenhut Corporation (Class A) 1,300 30,144
+ Wackenhut Corrections Corporation 1,200 32,250
Walden Residential Properties, Inc. 6,700 170,850
+ Wall Data Inc. 2,300 31,337
+ Walter Industries, Inc. 2,900 59,812
70
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
+ Wang Laboratories, Inc. 3,800 $ 84,075
Warnaco Group, Inc. (The) (Class A) 1,069 33,546
Washington Gas Light Company 4,500 139,219
Washington Real Estate Investment Trust 2,700 45,225
Washington Water Power Company (The) 5,600 136,150
+ Waters Corp. 2,800 105,350
Watsco, Inc. 1,800 44,437
Watts Industries Inc. (Class A) 2,400 67,950
Wausau-Mosinee Paper Corporation 3,200 64,400
Webb (Del E.) Corporation 1,600 41,600
Webster Financial Corporation 1,400 93,100
Weeks Corp. 2,300 73,600
Wellman, Inc. 2,800 54,600
Werner Enterprises, Inc. 3,200 65,600
Wesbanco, Inc. 2,200 66,000
West America Bancorp. 1,400 143,150
+ West Marine, Inc. 1,200 26,850
+ Westell Technologies, Inc. (Class A) 1,500 19,125
Western Investment Real Estate Trust 7,200 99,000
+ Western Wireless Corporation 8,700 151,162
Westinghouse Air Brake Company 2,100 53,812
+ Westwood One, Inc. 2,900 107,662
+ Wet Seal, Inc. (The) (Class A) 1,200 35,400
Whitney Holding Corp. 2,200 125,400
+ Whittman-Hart, Inc. 800 27,400
+ Whole Foods Market, Inc. 2,600 132,925
Wicor, Inc. 2,100 97,519
Wiley (John) & Sons, Inc. (Class A) 1,700 92,225
+ Williams-Sonoma, Inc. 2,200 92,125
+ Wilmar Industries Inc. 1,300 31,037
+ Wind River Systems, Inc. 2,200 87,312
Windmere-Durable Holdings Inc. 2,800 63,175
+ Winstar Communications, Inc. 2,800 69,825
+ Wolverine Tube, Inc. 2,200 68,200
+ Wonderware Corporation 1,600 22,600
+ World Access, Inc. 1,900 45,362
+ World Color Press, Inc. 4,500 119,531
+ Wyman-Gordon Company 2,100 41,212
Wynn's International, Inc. 2,600 82,875
X-Rite, Inc. 3,000 54,750
+ Xircom, Inc. 4,200 42,262
Xtra Corporation 1,700 99,662
+ Xylan Corp. 3,200 48,400
+ Yahoo! Inc. 1,650 114,262
+ Yellow Corporation 2,900 72,681
+ Young Broadcasting Inc. (Class A) 1,100 42,625
+ Zale Corporation 3,500 80,500
+ Zebra Technologies Corporation (Class A) 2,200 65,450
+ Zenith Electronics Corporation 2,700 14,681
Zenith National Insurance Corp. 1,600 41,200
Zila, Inc. 3,000 17,812
+ Zilog, Inc. 2,200 41,937
+ Zitel Corporation 1,700 16,150
+ Zoltek Companies, Inc. 1,100 30,662
Zurn Industries, Inc. 1,900 59,731
Zygo Corp. 1,200 22,500
---------------------------------------------------------------------------
Total Common Stocks (Cost--$75,752,189) -- 87.0% 83,317,890
================================================================================
SHORT-TERM Face
OBLIGATIONS Amount Issue
================================================================================
COMMERCIAL $4,500,000 CIT Group Holdings, Inc. (The),
PAPER** 6.75% due 1/02/1998 4,499,156
2,386,000 General Electric Capital Corp.,
6.75% due 1/02/1998 2,385,553
4,500,000 General Motors Acceptance Corp.,
6.75% due 1/02/1998 4,499,156
================================================================================
Total Short-Term Obligations (Cost--$11,383,865)
-- 11.9% 11,383,865
================================================================================
Total Investments (Cost--$87,136,054)
-- 98.9% 94,701,755
Variation Margin on Financial Futures Contracts++
-- 0.1% 70,200
Other Assets Less Liabilities -- 1.0% 973,154
Net Assets -- 100.0% $95,745,109
================================================================================
71
* American Depositary Receipts (ADR).
** Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Series.
(a) Warrants entitle the Series to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to
adjustment under certain conditions until the expiration date.
(b) The rights may be exercised until 3/31/1999.
+ Non-income producing security.
++ Financial futures contracts purchased as of December 31, 1997 were as
follows:
-----------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
-----------------------------------------------------------------
54 Russell 2000 March 1998 $11,916,450
-----------------------------------------------------------------
(Total Contract Price -- $11,717,292) $11,916,450
===========
-----------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
SMALL CAP
INDEX SERIES As of December 31, 1997
==================================================================================================================
Assets: Investments, at value (identified cost--$87,136,054) (Note 1a).. $ 94,701,755
Cash on deposit for financial futures contracts (Note 1b)....... 351,000
Receivables:
Contributions................................................. $ 1,141,603
Securities sold............................................... 107,647
Dividends..................................................... 88,795
Variation margin (Note 1b).................................... 70,200
Investment adviser (Note 2)................................... 16,544 1,424,789
------------
Deferred organization expenses (Note 1e)........................ 5,540
------------
Total assets.................................................... 96,483,084
------------
==================================================================================================================
Liabilities: Payables:
Withdrawals................................................... 387,959
Securities purchased.......................................... 288,292 676,251
------------
Accrued expenses and other liabilities.......................... 61,724
------------
Total liabilities .............................................. 737,975
------------
==================================================================================================================
Net Assets: Net assets...................................................... $ 95,745,109
============
==================================================================================================================
Net Assets Partners' capital............................................... $ 87,980,250
Consist of: Unrealized appreciation on investments--net..................... 7,764,859
------------
Net assets...................................................... $ 95,745,109
============
==================================================================================================================
See Notes to Financial Statements.
72
Merrill Lynch Small Cap Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
MERRILL LYNCH
SMALL CAP
INDEX SERIES For the Period April 9, 1997+ to December 31, 1997
==================================================================================================================
Investment Income Dividends....................................................... $ 571,104
(Note 1d): Interest and discount earned.................................... 321,624
------------
Total income.................................................... 892,728
------------
==================================================================================================================
Expenses: Custodian fees.................................................. $ 45,748
Investment advisory fees (Note 2)............................... 36,425
Accounting services (Note 2).................................... 31,090
Pricing fees.................................................... 9,445
Professional fees............................................... 5,081
Trustees' fees and expenses..................................... 2,203
Amortization of organization expenses (Note 1e)................. 968
------------
Total expenses before reimbursement............................. 130,960
------------
Reimbursement of expenses (Note 2).............................. (47,367)
------------
Total expenses after reimbursement.............................. 83,593
------------
Investment income--net.......................................... 809,135
------------
==================================================================================================================
Realized & Realized gain from investments--net............................. 1,553,214
Unrealized Gain Unrealized appreciation on investments--net..................... 7,764,859
On Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations............ $ 10,127,208
============
==================================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
MERRILL LYNCH For the Period
SMALL CAP April 9, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
==================================================================================================================
Operations: Investment income--net.......................................... $ 809,135
Realized gain on investments--net............................... 1,553,214
Unrealized appreciation on investments--net..................... 7,764,859
------------
Net increase in net assets resulting from operations............ 10,127,208
------------
==================================================================================================================
Net Capital Increase in net assets derived from net capital contributions... 85,617,901
Contributions: ------------
==================================================================================================================
Net Assets: Total increase in net assets.................................... 95,745,109
Beginning of period............................................. --
------------
73
End of period*.................................................. $ 95,745,109
============
==================================================================================================================
*Undistributed investment income--net............................ $ 809,135
============
==================================================================================================================
+Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
MERRILL LYNCH For the Period
SMALL CAP The following ratios have been derived from April 9, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
==================================================================================================================
Ratios to Average Expenses, net of reimbursement.................................. .18%*
=========
Net Assets: Expenses........................................................ .29%*
=========
Investment income--net.......................................... 1.78%*
=========
==================================================================================================================
Supplemental Net assets, end of period (in thousands)........................ $ 95,745
Data: =========
Portfolio turnover.............................................. 16.45%
=========
Average commission rate paid.................................... $ .0237
=========
==================================================================================================================
*Annualized.
+Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
SMALL CAP
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Small Cap Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. The following is a
summary of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options, or in
the case of options traded in the over-the-counter market, the last bid price.
Other investments, including futures contracts and related options, are stated
at market value. Short-term securities
74
Merrill Lynch Small Cap Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
SMALL CAP
INDEX SERIES
are valued at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
market value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell stock index
futures contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.08% of the average daily value of the Series' net
assets. For the period April 9, 1997 to December 31, 1997, MLAM earned fees of
$36,425, all of which were voluntarily waived. MLAM also reimbursed the Series
for additional expenses of $10,942.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 9, 1997 to December 31, 1997 were $83,077,981 and $8,333,748,
respectively. Net realized and unrealized gains (losses) as of December 31, 1997
were as follows:
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments.................. $ 1,005,756 $ 7,565,701
Options purchased...................... (6,669,500) --
Options written........................ 6,684,215 --
Financial futures contracts............ 532,743 199,158
------------- ------------
Total.................................. $ 1,553,214 $ 7,764,859
============= ============
- --------------------------------------------------------------------------------
75
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $7,561,637, of which $12,291,868 related to appreciated
securities and $4,730,231 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$87,140,118.
Transactions in options written for the period ended December 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Nominal Value
Call Options Covered by Call Premiums
Written Options Written Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period.................... -- --
Options written........................ 100,000 $ 4,949,585
Options closed......................... (100,000) (4,949,585)
------------- ------------
Outstanding call options written,
end of period.......................... -- $ --
============= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nominal Value
Put Options Covered by Call Premiums
Written Options Written Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period.................... -- --
Options written........................ 100,000 $ 3,599,630
Options expired........................ (100,000) (3,599,630)
------------- ------------
Outstanding put options written,
end of period.......................... -- $ --
============= ============
- --------------------------------------------------------------------------------
76
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Aggregate Bond Index Series (one
of the series constituting Merrill Lynch Index Trust) as of December 31, 1997,
the related statements of operations and changes in net assets, and the
financial highlights for the period April 3, 1997 (commencement of operations)
to December 31, 1997. These financial statements and the financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Aggregate Bond Index Series of the Merrill Lynch Index Trust as of December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for the period April 3, 1997 to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
77
Merrill Lynch Aggregate Bond Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS
Merrill Lynch Aggregate Bond Index Series
- ------------------------------------------------------------------------------------------------------------------------------------
Face Interest Maturity Value
Issue Amount Rate Date(s) Cost (Note 1a)
====================================================================================================================================
US Government
Obligations--48.83%
====================================================================================================================================
United States Treasury Bonds $18,810,000 8.75 % 5/15/2017 $ 22,890,325 $ 24,661,603
6,970,000 6.625 2/15/2027 6,771,640 7,566,771
3,100,000 6.375 8/15/2027 3,043,422 3,269,539
1,200,000 6.125 11/15/2027 1,210,875 1,233,192
====================================================================================================================================
United States Treasury Notes 7,020,000 6.25 6/30/1998 7,036,305 7,046,325
6,330,000 5.75 12/31/1998 6,327,625 6,338,925
10,000,000 6.25 5/31/1999 10,034,994 10,079,700
1,330,000 6.00 6/30/1999 1,336,792 1,336,650
9,950,000 5.875 8/31/1999 9,940,594 9,981,044
11,000,000 6.375 5/15/2000 11,065,830 11,165,000
16,840,000 6.00 8/15/2000 16,838,939 16,961,080
1,900,000 5.75 11/15/2000 1,901,586 1,903,553
16,300,000 6.50 5/31/2002 16,362,893 16,776,286
1,850,000 6.25 6/30/2002 1,852,833 1,886,704
2,100,000 6.00 7/31/2002 2,091,984 2,121,987
5,400,000 6.25 8/31/2002 5,413,547 5,510,538
3,500,000 5.875 9/30/2002 3,488,125 3,519,145
2,800,000 5.75 10/31/2002 2,796,719 2,802,632
1,500,000 5.75 11/30/2002 1,499,734 1,501,170
5,350,000 6.25 2/15/2007 5,158,501 5,520,505
4,200,000 6.625 5/15/2007 4,250,664 4,445,448
4,500,000 6.125 8/15/2007 4,481,047 4,624,470
====================================================================================================================================
Total Investments in US Government Obligations--48.83% 145,794,974 150,252,267
====================================================================================================================================
US Government Agency
Mortgage-Backed
Obligations*--29.24%
====================================================================================================================================
Federal Home Loan Mortgage 311,995 6.50(1) 9/01/2002 312,092 313,845
Corporation Participation 1,280,494 6.50 2/01/2011--5/01/2012 1,267,294 1,286,039
Certificates--Gold Program 7,035,000 6.50 TBA(3) 7,010,864 7,045,975
1,585,908 7.00(2) 7/01/2004--11/01/2004 1,599,394 1,609,189
7,384,978 7.00 5/01/2012--12/01/2027 7,379,925 7,470,397
700,000 7.00 TBA(3) 710,828 710,828
6,129,326 7.50 8/01/2012--12/01/2027 6,226,190 6,279,892
400,000 7.50 TBA(3) 409,375 409,375
6,357,719 8.00 5/01/2012--11/01/2027 6,538,407 6,587,340
900,000 8.00 TBA(3) 931,750 931,359
3,898,196 9.50 2/01/2019--10/01/2024 4,190,349 4,212,840
====================================================================================================================================
Federal National Mortgage Association 226,121 5.50 6/01/2011 211,000 219,125
Mortgage-Backed Securities 99,409 6.00(2) 11/01/2004 97,949 98,291
3,266,253 6.00 1/01/2026--11/01/2027 3,007,549 3,148,757
200,000 6.00 TBA(3) 192,563 192,563
1,880,817 6.50(2) 5/01/2004--10/01/2004 1,871,065 1,886,102
2,029,841 6.50 3/01/2027--11/01/2027 1,966,620 2,004,467
78
500,000 6.50 TBA(3) 493,203 493,203
10,991,268 7.00 4/01/2027--12/01/2027 10,887,234 11,070,186
100,000 7.00 TBA(3) 100,797 100,718
9,419,811 7.50 8/01/2027--11/01/2027 9,513,456 9,629,832
891,222 9.50 12/01/2017--1/01/2025 958,516 958,979
====================================================================================================================================
Government National Mortgage Association 1,859,649 6.00 3/15/2011--2/15/2012 1,805,336 1,841,629
Mortgage-Backed Securities 870,975 6.50 4/15/2026 821,439 861,987
718,000 6.50 TBA(3) 706,613 710,590
2,610,892 7.00 11/15/2027--12/15/2027 2,625,081 2,632,093
300,000 7.00 TBA(3) 302,156 302,156
4,143,384 7.50 3/15/2027--12/15/2027 4,186,484 4,244,359
300,000 7.50 TBA(3) 307,172 307,311
5,957,759 8.00 1/01/2020--10/15/2027 6,088,872 6,175,574
4,632,159 8.50 7/15/2025--10/15/2027 4,831,853 4,865,510
775,423 9.00 4/15/2018--11/15/2019 832,805 842,654
493,538 9.50 2/15/2027 535,797 535,360
====================================================================================================================================
Total Investments in US Government Agency Mortgage-Backed Obligations--29.24% 88,920,028 89,978,525
====================================================================================================================================
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes
=================================================================================================================================
Asset-Backed AAA Aaa $1,000,000 Standard Credit Card Master Trust, 5.50%
Securities**--0.32% due 1/07/1999 990,000 993,430
=================================================================================================================================
Banking--2.60% A- A1 1,000,000 Chase Manhattan Corp., 9.75% due 11/01/2001 1,112,050 1,114,530
A A1 500,000 Citicorp, 9.50% due 2/01/2002 553,875 556,870
A A1 500,000 Citicorp, 7.625% due 5/01/2005 527,890 534,575
BBB+ A3 1,020,000 Fleet/Norstar Financial Group, Inc., 8.125%
due 7/01/2004 1,066,374 1,108,648
A A2 500,000 NationsBank Corp., 6.50% due 8/15/2003 500,435 504,810
AA- Aa3 1,835,000 Norwest Corporation, 5.75% due 2/01/2003 1,730,864 1,796,465
A+ A1 1,050,000 Republic New York Corp., 7.53% due 12/04/2026 1,047,322 1,069,110
AA Aa2 230,000 Swiss Bank Corp. N.Y., 7.50% due 7/15/2025 225,195 249,424
BBB+ A1 1,000,000 Wells Fargo Capital, 8.125% due 12/01/2026 (a) 967,500 1,076,170
---------- ----------
7,731,505 8,010,602
=================================================================================================================================
Financial Services-- BBB+ A2 200,000 Heller Financial, Inc., 7% due 5/15/2002 197,878 203,024
1.53% A+ A1 275,000 International Lease Finance Corp., 6.625%
due 4/01/1999 274,461 276,493
A Baa1 1,000,000 Lehman Brothers, Inc., 10% due 5/15/1999 1,055,900 1,048,320
BBB+ Baa1 1,000,000 Paine Webber Group, Inc., 7.74% due 1/30/2012 1,063,050 1,097,720
A A2 2,000,000 Salomon Smith Barney Holdings, Inc., 7.125%
due 10/01/2006 1,996,200 2,071,740
---------- ----------
4,587,489 4,697,297
=================================================================================================================================
79
Merrill Lynch Aggregate Bond Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Aggregate Bond Index Series (continued)
---------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes Cost (Note la)
=================================================================================================================================
Financial Services-- AA- Aa3 $ 500,000 Associates Corp. N.A., 7.46% due 3/28/2000 $ 513,070 $ 515,405
Consumer--1.47% AA- Aa3 500,000 Associates Corp. N.A., 7.125% due 5/15/2000 509,825 512,530
A+ Aa3 200,000 CIT Group Holdings, Inc., 5.875% due 10/15/2008 178,758 188,574
A+ A1 1,000,000 Commercial Credit Co., 6.125% due 3/01/2000 985,890 998,390
A- Baa1 500,000 Finova Capital Corp., 6.45% due 6/01/2000 502,715 501,780
A A2 1,250,000 Household Finance Corp., 7.75% due 6/01/1999 1,279,177 1,275,987
A+ Aa3 500,000 Travelers Capital II, 7.75% due 12/01/2036 507,205 518,515
------------ ------------
4,476,640 4,511,181
=================================================================================================================================
Foreign Government BBB+ A3 600,000 People's Republic of China, 6.625% due 1/15/2003 589,332 590,880
Obligations--1.40% AA Aa2 1,000,000 Province of British Columbia, 7.25% due 9/01/2036 1,019,840 1,101,540
AA- Aa3 500,000 Province of Ontario, 7.375% due 1/27/2003 524,060 524,330
AA- Aa3 500,000 Province of Ontario, 7.625% due 6/27/2004 531,870 537,070
A A3 400,000 Province of Saskatchewan, 9.125% due 2/15/2021 513,708 519,076
AA Aa3 1,000,000 Republic of Italy, 6.875% due 9/27/2023 967,770 1,049,510
------------ ------------
4,146,580 4,322,406
=================================================================================================================================
Industrial-- A+ A1 1,000,000 Anheuser-Busch Co., Inc., 6.75% due 11/01/2006 969,880 1,009,730
Consumer Goods-- A A2 500,000 Philip Morris Companies, Inc., 9% due 1/01/2001 534,935 534,220
0.73% A A2 365,000 Philip Morris Companies, Inc., 6.95% due 6/01/2006 367,606 378,016
BBB- Baa3 300,000 RJR Nabisco, Inc., 8.75% due 7/15/2007 319,341 325,329
------------ ------------
2,191,762 2,247,295
=================================================================================================================================
Industrial-- AA- A1 500,000 Consolidated Natural Gas Co., 6.625% due 12/01/2008 493,905 510,915
Energy--0.97% BBB+ Baa2 500,000 Enron Corp., 6.625% due 10/15/2003 499,400 503,110
AA Aa2 100,000 Mobil Corp., 7.25% due 3/15/1999 101,251 101,369
BBB Baa2 500,000 Occidental Petroleum Corp., 10.125% due 11/15/2001 562,455 564,120
A- A3 1,000,000 Phillips Petroleum Co., 8.86% due 5/15/2022 1,088,410 1,129,440
BBB- Baa3 150,000 USX Corp., 8.125% due 7/15/2023 165,882 167,502
------------ ------------
2,911,303 2,976,456
=================================================================================================================================
Industrial-- A A3 150,000 Chrysler Corp., 7.45% due 3/01/2027 157,253 160,359
Manufacturing-- AA- Aa3 1,000,000 E.I. du Pont de Nemours, 7.95% due 1/15/2023 1,009,260 1,053,260
3.05% A A1 500,000 Ford Motor Credit Co., 8% due 6/15/2002 531,655 532,615
A A1 1,000,000 Ford Motor Credit Co., 7.75% due 11/15/2002 1,025,760 1,060,990
A A1 500,000 Ford Motor Credit Co., 7.20% due 6/15/2007 522,220 527,140
AAA Aaa 300,000 General Electric Capital Corp., 8.375% due 3/01/2001 316,032 319,116
A- A3 1,600,000 General Motors Acceptance Corp., 5.45% due 3/01/1999 1,571,584 1,588,832
A- A3 100,000 General Motors Acceptance Corp., 9.375% due 4/01/2000 106,398 106,414
BBB- Baa2 500,000 Georgia-Pacific Corp., 7.375% due 12/01/2025 512,055 509,435
A A1 1,000,000 International Business Machines Corp., 7.125%
due 12/01/2096 948,080 1,034,560
BBB+ A3 500,000 Lockheed Martin Corp., 7.25% due 5/15/2006 522,245 524,045
A A2 900,000 Lucent Technologies, Inc., 6.90% due 7/15/2001 895,563 923,292
80
BBB Baa3 500,000 Seagate Technology, Inc., 7.45% due 3/01/2037 505,315 513,510
A- A2 500,000 Xerox Capital Trust I, 8% due 2/01/2027 517,340 529,369
------------ ------------
9,140,760 9,382,937
=================================================================================================================================
Industrial-- BBB+ Baa1 1,500,000 Norfolk Southern Corp., 7.70% due 5/15/2017 1,538,160 1,652,520
Other--1.24% BBB Baa2 1,000,000 Union Pacific Corp., 9.625% due 12/15/2002 1,135,940 1,130,740
BB+ Baa3 650,000 United Air Lines, Inc., 9% due 12/15/2003 721,292 729,274
A A2 300,000 WMC Finance, USA, 7.25% due 11/15/2013 291,822 308,643
------------ ------------
3,687,214 3,821,177
=================================================================================================================================
Industrial-- BBB+ Baa2 1,000,000 American Stores Co., 9.125% due 4/01/2002 1,110,040 1,100,080
Services--2.50% BBB- Baa3 500,000 Circus Circus Enterprises, Inc., 7.625% due 7/15/2013 502,325 512,775
BBB- Baa3 450,000 Comcast Cable Communications, 8.375% due 5/01/2007 491,864 501,165
BBB+ Baa1 1,000,000 Dayton Hudson Co., 10% due 1/01/2011 1,227,430 1,276,770
A A2 360,000 May Department Stores Co., 7.60% due 6/01/2025 345,942 392,868
BBB Baa3 1,000,000 News America Holdings, Inc., 8.50% due 2/15/2005 1,073,535 1,096,610
A A2 200,000 Penney (J.C.) & Co., 7.95% due 4/01/2017 204,476 223,612
A- A2 500,000 Sears, Roebuck & Co., 6.25% due 1/15/2004 493,995 497,240
BBB- Ba1 500,000 TCI Communications, Inc., 6.875% due 2/15/2006 482,050 501,840
BBB- Ba1 100,000 Tele-Communications, Inc., 9.80% due 2/01/2012 110,548 124,321
BBB- Ba1 500,000 Time Warner, Inc., 7.95% due 2/01/2000 515,375 515,370
BBB- Ba1 400,000 Time Warner, Inc., 8.18% due 8/15/2007 410,104 435,384
A A2 500,000 Walt Disney Co., 6.75% due 3/30/2006 512,650 516,045
------------ ------------
7,480,334 7,694,080
=================================================================================================================================
Utilities-- BBB- Ba1 1,000,000 360 Communications Co., 7.125% due 3/01/2003 1,019,270 1,021,260
Communications-- AAA Aaa 900,000 BellSouth Telecommunications, Inc., 6.75% due 10/15/2033 796,973 873,216
1.24% A Baa1 750,000 GTE Corp., 7.83% due 5/01/2023 722,123 779,843
A A2 150,000 MCI Communications Corp., 7.50% due 8/20/2004 155,665 157,271
A Aa3 200,000 U S West Communications, Inc., 6.875% due 9/15/2033 178,850 191,516
BBB- Ba1 750,000 WorldCom, Inc., 7.75% due 4/01/2007 776,430 805,418
------------ ------------
3,649,311 3,828,524
=================================================================================================================================
Utilities-- AA- A1 1,470,000 Baltimore Gas & Electric Co., 8.375% due 8/15/2001 1,551,365 1,570,474
Gas & Electric-- BBB+ A3 100,000 Detroit Edison Co., 5.93% due 2/01/2001 96,905 99,275
2.29% BBB+ A3 500,000 Detroit Edison Co., 7.22% due 8/01/2002 518,860 518,905
A- A3 500,000 Houston Lighting & Power Co., 8.75% due 3/01/2022 538,705 561,515
A- A3 1,000,000 Pennsylvania Power & Light Resources, Inc., 8.50%
due 5/01/2022 1,056,750 1,067,710
A- A3 1,700,000 Public Service Electric & Gas Co., 6.50% due 6/01/2000 1,699,252 1,711,662
A A2 200,000 Virginia Electric and Power Co., 6.25% due 8/01/1998 200,378 200,378
AA+ A2 1,250,000 Wisconsin Electric Power Co., 7.25% due 8/01/2004 1,280,137 1,315,525
------------ ------------
6,942,352 7,045,444
=================================================================================================================================
Yankees-- AA- Aa3 425,000 Abbey National First Capital, 8.20% due 10/15/2004 450,003 464,920
Corporate--1.44% A A2 500,000 BHP Finance USA Ltd., 6.42% due 3/01/2026 497,170 501,355
A+ A2 550,000 Grand Metropolitan Investment PLC, 9% due 8/15/2011 617,518 662,084
81
Merrill Lynch Aggregate Bond Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
Merrill Lynch Aggregate Bond Index Series (concluded)
---------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes Cost (Note la)
=================================================================================================================================
Yankees-- A+ A2 $1,000,000 Hydro-Quebec, 8.875% due 3/01/2026 1,116,000 $ 1,242,780
Corporate BBB+ A3 500,000 Philips Electronics N.V., 7.75% due 5/15/2025 512,285 534,110
(concluded) A+ A1 1,000,000 Santander Finance Ltd., 7% due 4/01/2006 1,004,440 1,022,190
------------ ------------
4,197,416 4,427,439
=================================================================================================================================
Total Investments in Corporate Bonds & Notes--20.78% 62,132,666 63,958,268
=================================================================================================================================
Face Amount Short-Term Securities
=================================================================================================================================
Repurchase $11,793,000 Nikko Securities Co., purchased on 12/31/97 to yield
Agreements***-- 6.75% to 1/02/1998 11,793,000 11,793,000
3.83%
=================================================================================================================================
Total Investments in Short-Term Securities--3.83% 11,793,000 11,793,000
=================================================================================================================================
Total Investments--102.68% $308,640,668 315,982,060
============
Liabilities in Excess of Other Assets--(2.68%) (8,241,663)
------------
Net Assets--100.00% $307,740,397
============
=================================================================================================================================
* Mortgage-Backed Obligations are subject to
principal paydowns as a result of prepayments or
refinancing of the underlying mortgage
instruments. As a result, the average life may be
substantially less than the original maturity.
** Subject to principal paydowns.
*** Repurchase Agreements are fully collateralized by
US Government Agency Obligations.
(a) The security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the
Securities Act of 1933.
(1) Represents balloon mortgages that amortize on a
30-year schedule and have 5-year maturities.
(2) Represents balloon mortgages that amortize on a
30-year schedule and have 7-year maturities.
(3) Represents a "to-be-announced" (TBA) transaction.
The Series has committed to purchasing securities
for which final maturity information is not
available at this time.
Ratings of issues shown have not been audited by
Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES As of December 31, 1997
==============================================================================================================
Assets: Investments, at value (identified cost--$308,640,668) (Note 1a) $315,982,060
Cash ....................................................... 98,056
Receivables:
Interest ................................................ $3,587,396
Contributions ........................................... 473,792 4,061,188
----------
Deferred organization expenses (Note 1e) ................... 15,842
82
Prepaid expenses ........................................... 714
------------
Total assets ............................................... 320,157,860
------------
==============================================================================================================
Liabilities: Payables:
Securities purchased .................................... 12,133,853
Withdrawals ............................................. 181,211
Investment adviser (Note 2) ............................. 1,471 12,316,535
----------
Accrued expenses and other liabilities ..................... 100,928
------------
Total liabilities .......................................... 12,417,463
------------
==============================================================================================================
Net Assets: Net assets ................................................. $307,740,397
============
==============================================================================================================
Net Assets Partners' capital .......................................... $300,399,005
Consist of: Unrealized appreciation on investments--net ................ 7,341,392
------------
Net assets ................................................. $307,740,397
============
==============================================================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES For the Period April 3, 1997+ to December 31, 1997
==============================================================================================================
Investment Income Interest and discount earned............................... $ 9,531,892
(Note 1d): Other ..................................................... 54,707
------------
Total income............................................... 9,586,599
------------
==============================================================================================================
Expenses: Accounting services (Note 2)............................... $ 113,606
Investment advisory fees (Note 2).......................... 88,609
Custodian fees............................................. 34,772
Professional fees.......................................... 16,098
Pricing fees............................................... 6,615
Trustees' fees and expenses................................ 3,065
Amortization of organization expenses (Note 1e)............ 2,775
Registration fees.......................................... 250
Other ..................................................... 879
Total expenses before reimbursement........................ 266,669
----------
Reimbursement of expenses (Note 2)......................... (42,985)
----------
Total expenses after reimbursement......................... 223,684
------------
Investment income--net..................................... 9,362,915
------------
==============================================================================================================
Realized & Realized gain from investments--net........................ 870,626
Unrealized Gain on Unrealized appreciation on investments--net................ 7,341,392
Investments - Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations....... $ 17,574,933
============
==============================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
83
Merrill Lynch Aggregate Bond Index Fund, December 31, 1997
STATEMENT OF CHANGES IN NET ASSETS
MERRILL LYNCH For the Period
AGGREGATE BOND April 3, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
===============================================================================================================
Operations: Investment income--net............................................... $ 9,362,915
Realized gain on investments--net.................................... 870,626
Unrealized appreciation on investments--net.......................... 7,341,392
------------
Net increase in net assets resulting from operations................. 17,574,933
------------
===============================================================================================================
Net Capital Increase in net assets derived from net capital contributions........ 290,165,464
Contributions: ------------
===============================================================================================================
Net Assets: Total increase in net assets......................................... 307,740,397
Beginning of period.................................................. --
------------
End of period........................................................ $307,740,397
============
===============================================================================================================
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
MERRILL LYNCH For the Period
AGGREGATE BOND The following ratios have been derived from April 3, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
===============================================================================================================
Ratios to Average Expenses, net of reimbursement ................................. .15%*
Net Assets: ===========
Expenses ....................................................... .18%*
===========
Investment income--net ......................................... 6.34%*
===========
===============================================================================================================
Supplemental Net assets, end of period (in thousands) ....................... $ 307,740
Data: ===========
Portfolio turnover ............................................. 86.58%
===========
===============================================================================================================
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
84
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Series (the "Series") is part of Merrill
Lynch Index Trust (the "Trust"). The Trust is registered under the Investment
Company Act of 1940 and is organized as a Delaware business trust. The following
is a summary of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Other investments, including futures contracts and related options, are stated
at market value. Short-term securities are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair market value, as determined in good
faith by or under the direction of the Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell financial futures
contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
(f) Dollar rolls--The Series may sell securities for delivery in the current
month and simultaneously contract to repurchase substantially similar (same
type, coupon and maturity) securities on a specific future date.
85
Merrill Lynch Aggregate Bond Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.06% of the average daily value of the Series' net
assets. For the period April 3, 1997 to December 31, 1997, MLAM earned fees of
$88,609, of which $37,562 was voluntarily waived. MLAM also reimbursed the
Series for additional expenses of $5,423.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 3, 1997 to December 31, 1997 were $458,285,968 and $162,247,751,
respectively.
Net realized and unrealized gains as of December 31, 1997 were as follows:
- ------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- ------------------------------------------------------------------------
Long-term investments .............. $ 870,626 $ 7,341,392
----------- -----------
Total .............................. $ 870,626 $ 7,341,392
=========== ===========
- ------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $7,333,370, of which $7,369,835 related to appreciated
securities and $36,465 related to depreciated securities. At December 31, 1997,
the aggregate cost of investments for Federal income tax purposes was
$308,648,690.
86
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch International Index Series (one of
the series constituting Merrill Lynch Index Trust) as of December 31, 1997, the
related statements of operations and changes in net assets, and the financial
highlights for the period April 9, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
International Index Series of the Merrill Lynch Index Trust as of December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for the period April 9, 1997 to December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
87
SCHEDULE OF INVESTMENTS
Merrill Lynch International Index Series
-----------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
==============================================================================================
Australia Australian Gas Light Company (The) 28,500 $ 198,522
Boral Limited 36,500 92,195
Broken Hill Proprietary Company Ltd. 32,500 301,494
CSR Limited 37,800 127,961
Coca-Cola Amatil, Ltd. 18,700 139,584
Coles Myer Ltd. 18,200 87,321
Foster's Brewing Group Ltd. 54,000 102,650
ICI Australia Ltd. 13,300 93,077
National Australia Bank Limited 26,500 369,700
The News Corporation Ltd. 49,600 273,493
The News Corporation Ltd. (Preferred) 42,500 210,107
Normandy Mining Ltd. 68,300 66,250
North Ltd. 37,800 99,465
Pacific Dunlop Ltd. 45,500 96,267
Pioneer International Ltd. 46,100 125,746
Rio Tinto Ltd. 12,000 139,858
Santos Ltd. 19,400 79,818
Schroders Property Fund 117,800 181,903
Smith (Howard) Ltd. 9,000 74,644
Sons of Gwalia Ltd. 20,800 47,393
Tabcorp Holdings Limited 30,400 142,491
WMC Limited 30,200 105,182
Westpac Banking Corporation 36,600 233,882
-----------------------------------------------------------------------
Total Investments in Australia
(Cost--$3,754,697)--2.4% 3,389,003
==============================================================================================
Austria Austria Mikro Systeme International AG 700 35,474
Bank Austria AG 4,467 221,052
Bank Austria AG (Class A) 5,600 283,791
Bank Austria AG (Preferred) 2,866 127,539
EA--Generali AG 800 210,246
Flughafen Wien AG 2,550 101,362
Mayr-Melnhof Karton AG 1,900 102,319
OMV AG (Class A) 2,500 346,425
Oesterreichische Elektrizitaetswirtschafts
AG (Verbund) 3,750 397,894
VA--Technologie AG (VA TECH) 1,500 227,809
Wienerberger Baustoffindustrie AG 1,150 220,821
-----------------------------------------------------------------------
Total Investments in Austria
(Cost--$2,240,917)--1.6% 2,274,732
==============================================================================================
Belgium Barco NV (Belgian American Radio Corp.) 800 146,924
Bekaert NV 200 119,105
Cimenteries CBR
Cementbedrijven SA 2,400 215,848
Electrabel SA 2,200 509,210
Etablissements Delhaize
Freres & Cie 'Le Lion' SA 2,600 132,015
Fortis AG 900 187,895
Generale de Banque SA 500 217,752
Glaverbel SA 500 78,323
Groupe Bruxelles Lambert SA 700 101,334
Petrofina SA 700 258,535
Royale Belge SA 600 170,961
Solvay SA 2,000 125,857
Union Miniere SA (b) 900 62,470
-----------------------------------------------------------------------
Total Investments in Belgium
(Cost--$2,212,407)--1.6% 2,326,229
==============================================================================================
Denmark D/S Norden A/S 9 415,146
D/S Svendborg A/S 6 394,126
Danisco A/S 2,400 133,127
Den Danske Bank A/S 1,500 199,909
FLS Industries A/S 3,000 71,556
Novo Nordisk A/S (Class B) 2,300 329,022
Tele Danmark A/S (Class B) 4,600 285,376
Unidanmark A/S 1,800 132,164
-----------------------------------------------------------------------
Total Investments in Denmark
(Cost--$1,460,487)--1.4% 1,960,426
==============================================================================================
Finland Kesko OY 9,700 150,464
Merita OY (Class A) 30,800 168,488
Nokia OY AB (Series A) 5,300 376,521
Nokia OY AB (Series K) 3,000 214,777
Outokumpu OY 6,750 79,922
Rauma OY 3,800 59,293
Sampro Insurance Company Ltd. 3,000 96,650
UPM-Kymmene OY 8,750 174,438
-----------------------------------------------------------------------
Total Investments in Finland
(Cost--$1,230,227)--0.9% 1,320,553
==============================================================================================
88
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch International Index Series (continued)
-----------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
==============================================================================================
France Accor SA 1,150 $ 213,798
Alcatel Alsthom Cie Generale
d'Electricite SA 5,450 692,682
Axa SA 10,800 835,614
Banque Nationale de Paris SA (BNP) 7,400 393,298
Bouygues SA 1,150 130,304
+Canal+ 1,150 213,798
Carrefour Supermarche SA 1,250 652,102
Compagnie de Saint-Gobain SA 3,250 461,663
Compagnie Financiere de Paribas SA 6,100 530,038
Compagnie Generale des Eaux SA 4,400 614,055
Compagnie Generale des Etablissements
Michelin SA (Class B) 4,800 241,635
Comptoirs Modernes SA 400 204,685
Elf Aquitaine SA 9,050 1,052,500
Eridania Beghin-Say SA 1,300 203,240
+France Telecom SA 26,315 954,405
Generale des Eaux SA (Warrants)(a) 1,500 1,019
Groupe Casino Guichard Perachon SA 2,600 144,708
Groupe Danone SA 2,650 473,293
Havas SA 3,150 226,607
Imetal SA 1,200 149,128
L'Air Liquide SA 2,150 336,484
L'Oreal SA 2,250 880,337
LVMH Moet-Hennessy Louis Vuitton SA 2,950 489,625
Lafarge SA 3,900 255,875
Lagardere SCA 4,700 155,391
Legrand SA 1,050 209,163
Lyonnaise des Eaux SA 4,100 453,663
Pathe SA 550 106,729
Pernod Ricard SA 3,100 182,323
Peugeot SA 2,150 271,116
Pinault-Printemps-Redoute SA (b) 750 400,108
Promodes SA 650 269,654
Rhone-Poulenc SA (Class A) 11,500 515,102
SAGEM SA 350 155,840
Sanofi SA 3,750 417,428
Schneider SA 4,950 268,759
Sidel SA 1,300 86,177
Societe Bic SA 2,200 160,568
Societe Generale de France SA 3,250 442,765
Societe Nationale d'Exploitation Industrielle
des Tabacs et Allumettes SA 3,400 122,014
Sodexho Alliance SA 300 160,641
Thomson-CSF SA 4,000 126,067
Total SA (Class B) 8,200 892,341
Usinor-Sacilor SA 9,450 136,435
Valeo SA 2,650 179,719
-----------------------------------------------------------------------
Total Investments in France
(Cost--$15,089,984)--11.2% 16,062,896
==============================================================================================
Germany AMB Aachener und Muenchener
Beteiligungs AG 2,000 218,479
Adidas AG 2,000 263,064
Allianz AG 9,250 2,396,320
BASF AG 27,150 962,204
Bayer AG 30,850 1,152,502
Bayerische Hypotheken-und
Wechsel-Bank AG 12,200 595,486
Bayerische Vereinsbank AG 12,100 791,733
Beiersdorf AG 4,450 192,962
Bugerus AG 250 112,019
CKAG Colonia Konzern AG 1,150 109,962
Continental AG 5,650 124,697
Daimler-Benz AG 21,900 1,536,458
Degussa AG 4,400 220,147
Deutsche Bank AG 20,050 1,415,583
Deutsche Telekom AG 95,000 1,787,720
Dresdner Bank AG 19,550 902,074
Friedrich Grohe AG (Preferred) 500 121,192
Heidelberger Zement AG 2,700 192,128
Hochtief AG 3,400 134,201
Karstadt AG 700 238,976
Linde AG 400 244,163
Lufthansa AG 16,450 315,502
MAN AG 550 159,301
METRO AG 9,520 341,361
Mannesmann AG 1,550 783,272
Merck KGaA 8,100 263,426
Muenchener Rueckversicherungs-
Gesellschaft AG 3,000 1,130,754
Preussag AG 700 213,642
RWE AG 14,150 759,103
RWE AG (Preferred) 9,000 380,253
SAP AG 2,650 805,106
89
SAP AG (Preferred) 1,850 605,251
SGL CARBON AG 1,050 135,424
Schering AG 3,050 294,182
Siemens AG 23,850 1,412,066
Thyssen AG 1,450 310,346
VEBA AG 21,400 1,457,360
Viag AG 1,150 619,496
Volkswagen AG 1,200 675,117
Volkswagen AG (Preferred) 400 171,670
-----------------------------------------------------------------------
Total Investments in Germany
(Cost--$22,402,898)--17.1% 24,544,702
==============================================================================================
Hong Kong Cheung Kong (Holdings) Limited 33,000 216,167
China Light & Power Company, Limited 22,000 122,104
Hang Seng Bank Limited 13,000 125,428
Hong Kong Telecommunications Ltd. 83,000 170,874
Hutchison Whampoa Ltd. 27,000 169,371
Sun Hung Kai Properties Limited 19,000 132,430
Swire Pacific Ltd. (Class A) 18,000 98,742
-----------------------------------------------------------------------
Total Investments in Hong Kong
(Cost--$1,261,299)--0.7% 1,035,116
==============================================================================================
Ireland Allied Irish Banks PLC 28,800 278,543
CRH PLC 21,300 249,025
Greencore Group PLC 41,300 193,845
Jefferson Smurfit Group PLC 46,200 130,106
-----------------------------------------------------------------------
Total Investments in Ireland
(Cost--$814,194)--0.6% 851,519
==============================================================================================
Italy Assicurazioni Generali SpA 47,100 1,156,735
Banca Commerciale Italiana SpA 115,300 400,800
Banca Popolare di Milano SpA (SCRL) 23,800 149,322
Banco Ambrosiano Veneto SpA 34,100 130,487
Benetton SpA 13,056 213,640
Bulgari SpA 18,400 93,602
Cartiere Burgo SpA 13,000 77,705
Credito Italiano SpA 138,500 427,039
Edison SpA 43,400 262,480
Ente Nazionale Idrocarburi (ENI) SpA 483,700 2,742,206
Fiat SpA 231,300 672,642
Fiat SpA (Preferred) 80,730 123,203
Fiat SpA (RNC) 67,300 111,266
Finanziario Montedison SpA 333,000 299,083
Istituto Bancario San Paolo di Torino SpA 49,400 471,886
Istituto Mobiliare Italiano SpA 37,400 443,929
Istituto Nazionale delle Assicurazioni
(INA) SpA 276,500 560,283
Italcementi SpA 13,900 96,873
Italgas SpA 50,200 207,133
Mediaset SpA 77,800 382,140
Mediobanca-Banca di Credito 29,300 230,034
+Olivetti Group SpA 181,344 109,573
Parmalat Finanziaria SpA 112,200 160,449
Pirelli SpA 94,100 251,579
Riunione Adriatica di Sicurta SpA 21,600 211,825
Sirti SpA 23,000 139,102
TIM SpA (RISP) 98,400 279,760
TIM SpA (RNC) 55,365 244,092
Telecom Italia Mobile SpA 252,000 1,163,000
Telecom Italia SpA 218,333 1,394,508
-----------------------------------------------------------------------
Total Investments in Italy
(Cost--$10,777,604)--9.2% 13,206,376
==============================================================================================
Japan Acom Co., Ltd. 5,000 276,392
Advantest Corporation 2,000 113,628
Ajinomoto Co., Inc. 12,000 117,006
Alps Electric Co. Ltd. 4,000 37,774
Aoyama Trading Co., Ltd. 2,000 35,777
Asahi Bank, Ltd. 50,000 203,455
Asahi Breweries, Ltd. 12,000 175,048
Asahi Chemical Industry Co., Ltd. 32,000 108,591
Asahi Glass Co., Ltd. 29,000 138,042
Autobacs Seven Co., Ltd. 1,000 28,791
Bank of Tokyo-Mitsubishi, Ltd. 101,000 1,395,777
Bank of Yokohama, Ltd. 30,000 79,232
Bridgestone Corporation 16,000 347,639
CSK Corporation 1,000 25,643
Canon Inc. 18,000 420,115
Casio Computer Co., Ltd. 2,000 14,372
Chiba Bank Ltd. 14,000 43,532
Chugai Pharmaceutical Co., Ltd. 40,000 205,758
Citizen Watch Co., Ltd. 2,000 13,436
Cosmo Oil Company, Ltd. 38,000 57,766
Credit Saison Co., Ltd. 3,000 74,165
Dai Nippon Printing Co., Ltd. 17,000 319,770
Daiei, Inc. (The) 21,000 87,063
Daimaru, Inc. 5,000 11,823
Dainippon Ink & Chemicals, Inc. 66,000 167,217
Dainippon Screen Manufacturing Co., Ltd. 4,000 18,426
Daito Trust Construction Co., Ltd. 1,000 6,119
Daiwa House Industry Co., Ltd. 24,000 127,140
Daiwa Securities Co., Ltd. 27,000 93,282
East Japan Railway Co. 76 343,678
==============================================================================================
90
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch International Index Series (continued)
-----------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
==============================================================================================
Japan Ebara Corporation 3,000 $ 31,785
(concluded) Eisai Co., Ltd. 3,000 45,835
Fanuc Ltd. 5,000 189,635
Fuji Bank, Ltd. 63,000 255,386
Fuji Photo Film Co., Ltd. 11,000 422,265
Fujikura Ltd. 6,000 39,800
Fujita Kanko Inc. 1,000 10,749
Fujitsu Limited 40,000 429,942
Furukawa Electric Co., Ltd. 17,000 72,960
Gunma Bank, Ltd. 8,000 52,207
Hankyu Department Stores, Inc. 2,000 11,132
Hirose Electric Co., Ltd. 1,000 51,209
Hitachi Ltd. 70,000 499,808
Honda Motor Co., Ltd. 21,000 772,284
Hoya Corporation 2,000 62,956
Industrial Bank of Japan Ltd. 55,000 392,706
Isetan Company Limited 6,000 25,106
Ito Yokado Co., Ltd. 9,000 459,501
Itochu Corporation 24,000 37,774
+Japan Airlines Company, Ltd. 38,000 103,570
Japan Energy Corp. 68,000 64,215
Joyo Bank, Ltd. 24,000 84,760
Jusco Co., Ltd. 7,000 98,887
Kajima Corporation 37,000 93,459
Kaneka Corporation 48,000 217,059
Kansai Electric Power Co., Inc. (The) 18,000 305,413
Kao Corporation 14,000 90,288
Kawasaki Heavy Industries Ltd. 19,000 29,466
Kawasaki Steel Corporation 67,000 91,562
Keihin Electric Express Railway Co., Ltd. 49,000 171,171
Kinden Corporation 8,000 85,374
Kirin Brewery Company Ltd. 20,000 145,873
Kokuyo Co., Ltd. 1,000 17,274
Komatsu Ltd. 26,000 130,749
Konami Co., Ltd. 1,000 24,645
Kubota Corporation 90,000 237,697
Kurita Water Industries Ltd. 2,000 20,422
Kyocera Corporation 4,000 181,804
Lion Corporation 111,000 328,952
Makita Electric Work Ltd. 1,000 9,597
Marubeni Corporation 18,000 31,647
Marui Co., Ltd. 9,000 140,269
Matsushita Electric Industrial Co., Ltd. 45,000 659,885
Minebea Co., Ltd. 13,000 139,731
Mitsubishi Chemical Corp. 59,000 84,706
Mitsubishi Corporation 32,000 253,052
Mitsubishi Electric Corporation 40,000 102,572
Mitsubishi Estate Co., Ltd. 28,000 305,259
Mitsubishi Heavy Industries, Ltd. 71,000 296,537
Mitsubishi Logistics Corporation 3,000 31,324
Mitsubishi Materials Corporation 8,000 12,898
Mitsubishi Oil Company, Ltd. 38,000 56,307
+Mitsubishi Trust and Banking Corp. 28,000 281,612
Mitsui & Co., Ltd. 38,000 225,228
Mitsui Chemicals Inc. 600 1,106
Mitsui Fudosan Co., Ltd. 17,000 164,453
Mitsui Marine & Fire Insurance Co., Ltd. 19,000 97,152
Mitsui Mining & Smelting Co., Ltd. 10,000 40,230
Mitsui O.S.K. Lines, Ltd. 7,000 9,727
Mitsui Trust & Banking Company, Ltd. 28,000 54,388
Mitsukoshi, Ltd. 9,000 23,977
Murata Manufacturing Company, Ltd. 5,000 125,912
Mycal Corporation 4,000 33,474
NEC Corporation 34,000 362,841
NGK Spark Plug Co., Ltd. 1,000 5,681
NKK Corporation 90,000 71,862
NSK Ltd. 4,000 9,981
NTN Corporation 57,000 132,161
Namco Limited 1,000 29,098
Nankai Electric Railway Co., Ltd. 40,000 175,048
Nichido Fire & Marine Insurance Co., Ltd. 4,000 20,883
Nikon Corporation 8,000 79,232
Nippon Comsys Corporation 1,000 12,361
Nippon Express Co., Ltd. 24,000 119,770
Nippon Fire & Marine Insurance Co., Ltd. 11,000 41,297
Nippon Light Metal Company Ltd. 5,000 7,294
Nippon Oil Co., Ltd. 43,000 111,255
Nippon Paper Industries Co., Ltd. 26,000 102,203
Nippon Steel Corp. 144,000 213,374
Nippon Telegraph & Telephone Corp. 276 2,373,282
Nippon Yusen Kabushiki Kaisha Chiyoda 18,000 49,474
Nippondenso Finance NV 18,000 324,760
Nissan Food Products 1,000 18,196
Nissan Motor Co., Ltd. 51,000 211,440
91
Nitto Denko Corp. 12,000 207,294
Nomura Securities Co., Ltd. 43,000 574,434
Noritake Co., Ltd. 2,000 9,551
OJI Paper Co., Ltd. 16,000 63,754
Obayashi Corporation 35,000 119,309
Omron Corporation 7,000 109,635
Orix Corporation 1,000 69,866
Osaka Gas Co., Ltd. 38,000 86,940
Pioneer Electronic Corp. 4,000 61,727
Rohm Company, Limited 2,000 204,223
SMC Corporation 2,000 176,583
Sakura Bank Ltd. 74,000 211,916
Sankyo Company Limited 9,000 203,839
Sanyo Electric Co., Ltd. 54,000 140,960
Secom Co., Ltd. 4,000 256,123
Sega Enterprises, Ltd. 3,000 54,357
Seino Transportation Co., Ltd. 22,000 109,958
Sekisui Chemical Co., Ltd. 16,000 81,443
Sekisui House, Ltd. 21,000 135,271
Seventy-Seven Bank Ltd. 4,000 28,560
Sharp Corporation 22,000 151,678
Shimano Inc. 6,000 110,557
Shimizu Corporation 24,000 55,647
Shin-Etsu Chemical Co., Ltd. 7,000 133,820
Shiseido Company, Ltd. 13,000 177,658
Shizuoka Bank, Ltd. (The) 17,000 182,726
Sony Corporation 8,000 712,476
Sumitomo Bank, Ltd. 68,000 777,889
Sumitomo Chemical Co., Ltd. 33,000 76,008
Sumitomo Corporation 24,000 134,511
Sumitomo Electric Industries Ltd. 14,000 191,324
Sumitomo Heavy Industries, Ltd. 3,000 9,190
Sumitomo Marine & Fire
Insurance Co., Ltd. 18,000 95,355
Sumitomo Metal & Mining Co., Ltd. 25,000 82,534
Sumitomo Metal Industries, Ltd. 70,000 89,750
Taisho Pharmaceutical Co., Ltd. 5,000 127,831
Taiyo Yuden Co., Ltd. 2,000 13,896
Takara Shuzo Co., Ltd. 2,000 7,447
Takashimaya Co. 9,000 54,587
Takeda Chemical Industries, Ltd. 18,000 514,088
Teikoku Oil Co., Ltd. 57,000 148,791
Toho Co., Ltd. 1,100 117,390
Tohoku Electric Power Company, Inc. 11,000 167,217
Tokai Bank, Limited 44,000 205,390
Tokio Marine & Fire Insurance Co., Ltd. 33,000 374,971
Tokyo Broadcasting System, Inc. 4,000 50,672
Tokyo Dome Corporation 3,000 19,992
Tokyo Electric Power Co., Inc. (The) 28,000 511,631
Tokyo Electron Limited 4,000 128,369
Tokyo Gas Co., Ltd. 48,000 109,083
Tokyu Corporation 27,000 104,476
Toppan Printing Co., Ltd. 20,000 261,036
Toray Industries, Inc. 23,000 103,301
Tostem Corporation 7,000 75,240
Toto Ltd. 3,000 19,209
Toyo Seikan Kaisha, Ltd. 8,000 114,242
Toyobo Co., Ltd. 118,000 143,140
Toyoda Automatic Loom Works, Ltd. 17,000 313,244
Toyota Motor Corporation 82,000 2,354,549
UNI-CHARM Corporation 1,000 35,470
UNY Co., Ltd. 5,000 68,714
Wacoal Corp. 15,000 149,712
Yamaguchi Bank Ltd. 3,000 36,852
Yamaha Corporation 6,000 68,177
Yamaichi Securities Company Ltd. 23,000 177
Yamanouchi Pharmaceutical Co., Ltd. 4,000 85,988
Yamato Transport Co., Ltd. 23,000 309,021
Yamazaki Baking Co., Ltd. 2,000 19,501
+Yasuda Trust & Banking Co., Ltd. 29,000 28,944
Yokogawa Electric Corporation 3,000 18,564
-----------------------------------------------------------------------
Total Investments in Japan
(Cost--$39,971,369)--22.2% 31,872,451
==============================================================================================
Malaysia Commerce Asset Holding BHD 59,000 28,247
Rashid Hassain BHD 99,000 47,907
Resorts World BHD 60,000 101,158
Telekom Malaysia BHD 44,000 130,245
-----------------------------------------------------------------------
Total Investments in Malaysia
(Cost--$722,564)--0.2% 307,557
==============================================================================================
Netherlands ABN AMRO Holding N.V. 17,800 346,765
Akzo N.V. 800 137,936
Elsevier N.V. 10,800 174,709
Heineken N.V. 800 139,278
Internationale Nederlanden Groep N.V. 10,312 434,329
Koninklijke Ahold N.V. 10,800 281,772
Philips Electronics N.V. 4,000 239,890
Royal Dutch Petroleum N.V. 19,600 1,075,893
Royal PTT Nederland N.V. 6,900 287,897
Unilever N.V. 8,000 493,194
Wolters Kluwer N.V. 1,200 155,001
-----------------------------------------------------------------------
Total Investments in the Netherlands
(Cost--$3,282,921)--2.6% 3,766,664
==============================================================================================
92
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch International Index Series (continued)
-----------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
==============================================================================================
New Zealand Brierley Investments Limited 193,600 $ 138,186
Fletcher Challenge Building 34,900 71,289
Fletcher Challenge Forests Division 44,900 37,259
Fletcher Challenge Paper 63,000 82,258
Telecom Corporation of New Zealand 45,100 218,532
-----------------------------------------------------------------------
Total Investments in New Zealand
(Cost--$682,894)--0.4% 547,524
==============================================================================================
Norway Aker RGI ASA (Class A) 3,700 66,870
Aker RGI ASA (Class B) 1,900 30,982
Christiania Bank og Kreditkasse 42,000 170,077
Dyno Industriere ASA 6,400 123,495
Elkem ASA 4,200 55,932
Kvaerner ASA 2,100 107,297
Norsk Hydro ASA 11,000 537,369
+Nycomed Amersham PLC 2,667 100,388
Orkla ASA (A Shares) 2,100 181,207
+Petroleum Geo-Services ASA 1,600 101,101
+Storebrand ASA 13,700 96,807
-----------------------------------------------------------------------
Total Investments in Norway
(Cost--$1,609,177)--1.1% 1,571,525
==============================================================================================
Singapore City Development Ltd. 11,000 51,011
+Creative Technology Ltd. 1,000 20,333
DBS Land Ltd. 58,000 88,966
Keppel Corporation Ltd. 62,000 178,407
Singapore Airlines Ltd. 37,000 241,974
-----------------------------------------------------------------------
Total Investments in Singapore
(Cost--$907,701)--0.4% 580,691
==============================================================================================
Spain Acerinox S.A. 600 88,461
Autopista Concesionaria Espanola S.A.
(ACESA) 11,500 154,102
Banco Bilbao Vizcaya S.A. 24,600 794,692
Banco Central Hispanoamericano S.A. 14,400 350,069
Banco Santander S.A. 18,000 600,354
Corporacion Bancaria de Espana S.A.
(Argentaria) 4,400 267,270
Corporacion Financiera Alba S.A. 1,100 115,687
Endesa S.A. 38,400 680,637
Fomento de Construcciones y
Contratas S.A. 3,200 121,617
Gas Natural SDG S.A. 6,000 310,596
Iberdrola S.A. 34,200 449,322
Repsol S.A. (ADR) (d) 11,100 472,774
Tabacalera S.A. (Class A) 1,900 153,758
Telefonica de Espana S.A. 33,700 960,586
Union Electrica-Fenosa S.A. 15,000 143,503
-----------------------------------------------------------------------
Total Investments in Spain
(Cost--$4,759,549)--4.0% 5,663,428
==============================================================================================
Sweden ABB AB (A Shares) 13,500 159,834
Astra AB 'A' Fria 23,133 400,628
Electrolux AB 1,800 124,920
H & M Hennes & Mauritz AB 3,200 141,067
Forsakrings AB Skandia 2,200 103,772
Skandinaviska Enskilda Banken AB 9,100 115,190
Skanska Banken AB (B Shares) 2,900 118,893
Svenska Cellulosa AB (SCA) (B Shares) 6,500 146,136
Svenska Handelsbanken AB 4,000 138,296
Telefonaktiebolaget LM
Ericsson (B Shares) 15,400 578,991
Volvo AB (B Shares) 6,600 177,064
-----------------------------------------------------------------------
Total Investments in Sweden
(Cost--$2,020,099)--1.5% 2,204,791
==============================================================================================
Switzerland ABB AG (Bearer) 100 125,728
Credit Suisse Group AG (Registered Shares) 1,350 209,044
Nestle SA 300 449,949
Novartis AG 400 649,538
Roche Holding AG 50 496,917
Schweizerische Bankgesellschaft AG 200 289,414
Schweizerische Rueckversicherungs-
Gesellschaft AG 100 187,187
Schweizerischer Bankverein AG 600 186,639
Zuerich Versicherungs-Gesellschaft 550 262,282
-----------------------------------------------------------------------
Total Investments in Switzerland
(Cost--$2,212,854)--2.0% 2,856,698
==============================================================================================
93
United Kingdom Abbey National PLC 16,300 292,091
B.A.T. Industries PLC 36,400 331,220
BG PLC 50,117 225,549
BTR PLC 53,100 160,479
Barclays PLC 15,100 401,292
Bass PLC 10,700 165,994
Boots Company PLC (The) 20,000 287,930
British Aerospace PLC 4,700 133,938
British Airways PLC 11,700 107,617
British Petroleum Co. PLC (The) 56,392 740,991
British Sky Broadcasting Group PLC 20,800 155,788
British Telecommunications PLC 67,700 532,079
Burmah Castrol PLC 15,900 276,827
Cable & Wireless PLC 26,400 231,987
Cadbury Schweppes PLC 15,800 159,212
Carlton Communications PLC 30,500 235,452
Diageo PLC 51,700 475,112
EMI Group PLC 26,300 219,445
General Electric Company PLC 41,300 267,610
Glaxo Wellcome PLC 37,800 894,046
Granada Group PLC 10,100 154,280
Great Universal Stores PLC 11,300 142,357
HSBC Holdings PLC 18,600 458,869
HSBC Holdings PLC 8,900 228,045
Imperial Chemical Industries PLC 14,800 231,179
Kingfisher PLC 15,500 215,890
Lloyds/TSB PLC 55,300 714,834
LucasVarity PLC 27,900 98,525
Marks and Spencer PLC 29,200 287,286
National Grid Group PLC 22,500 106,804
National Power PLC 15,900 156,694
Pearson PLC 9,200 119,528
Peninsular & Oriental Steam Navigation
Co. (The) 21,200 241,135
Prudential Corporation PLC 20,900 251,969
Railtrack Group PLC 6,700 106,416
Rank Group PLC 17,600 97,998
Reed International PLC 16,900 169,325
Reuters Holdings PLC 19,900 217,360
Rio Tinto PLC 13,000 159,930
Royal & Sun Alliance Insurance Group PLC 20,800 209,425
Royal Bank of Scotland Group PLC (The) 15,100 191,718
Sainsbury (J.) PLC 19,300 161,354
Scottish & Newcastle PLC 18,200 222,856
Scottish Power PLC 17,800 157,292
SmithKline Beecham PLC 50,800 519,825
Tesco PLC 21,372 173,762
Unilever PLC 36,400 311,490
Vodafone Group PLC 38,800 279,770
Zeneca Group PLC 10,000 351,002
-----------------------------------------------------------------------
Total Investments in the United Kingdom
(Cost--$11,550,770)--9.1% 13,031,577
==============================================================================================
SHORT-TERM Face
SECURITIES Amount Issue
==============================================================================================
Commercial $2,000,000 Eureka Securitization, Inc., 5.80%
Paper*--7.3% due 2/09/1998 $1,987,433
3,444,000 General Motors Acceptance Corp., 6.75%
due 1/02/1998 3,443,354
5,000,000 Lexington Parker Capital Corp., 5.93%
due 1/20/1998 4,984,351
==============================================================================================
94
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
Merrill Lynch International Index Series (concluded)
---------------------------------------------------------------------------
Face Value
Amount Issue (Note la)
==================================================================================================
US Government $2,000,000 Federal Home Loan Banks, 5.57% due 3/04/1998 (c) $ 1,980,815
Agency Obligations*--
1.4%
---------------------------------------------------------------------------
Total Investments in Short-Term Investments
(Cost--$12,395,953)--8.7% 12,395,953
==================================================================================================
Total Investments (Cost--$141,360,565)--98.9% 141,770,411
Unrealized Depreciation on Forward Foreign Exchange
Contracts**--(0.1%) (88,722)
Variation Margin on Financial Futures Contracts***--0.0% 27,457
Other Assets Less Liabilities--1.2% 1,708,654
------------
Net Assets--100.0% $143,417,800
============
==================================================================================================
(a) Warrants entitle the Series to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to
adjustments under certain conditions until the expiration date.
(b) Security may be offered and sold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933.
(c) Security held as collateral in connection with open financial futures
contracts.
(d) American Depositary Receipts (ADR).
* Commercial Paper and certain US Government Agency Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Series.
** Forward foreign exchange contracts as of December 31, 1997 were as follows:
- -------------------------------------------------------------
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
- -------------------------------------------------------------
A$ 386,342 March 1998 $ (2,861)
DM 3,085,130 March 1998 (30,540)
Frf 6,324,145 March 1998 (16,751)
HK$ 1,160,640 March 1998 140
(pound) 702,908 March 1998 (2,356)
Lit 1,270,490,000 March 1998 (13,609)
Pta 57,849,200 March 1998 (7,661)
Skr 1,921,815 March 1998 (6,922)
(yen) 238,459,200 March 1998 (8,162)
- -------------------------------------------------------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts -- Net
(US$ Commitment -- $7,608,087) $ (88,722)
==========
- -------------------------------------------------------------
*** Financial futures contracts purchased as of December 31, 1997 were
as follows:
- -----------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Note 1a)
- -----------------------------------------------------------------------
3 Hang Seng HKFE January 1998 $ 207,551
20 IBEX 35 MEFF January 1998 952,297
14 OMX OMLX January 1998 424,502
18 DTB DAX March 1998 4,281,354
21 CAC MATIF March 1998 2,111,165
11 FTSE LIFFE March 1998 2,341,096
113 Nikkei 300 OSAKA March 1998 2,058,726
13 MIB 30 MSE March 1998 1,858,591
9 All Ordinaries SFE March 1998 386,108
- -----------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$14,496,807) $14,621,390
===========
- -----------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
95
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES As of December 31, 1997
============================================================================================================================
Assets: Investments, at value (identified cost--$141,360,565) (Note 1a)............. $141,770,411
Cash ....................................................................... 7,584
Foreign cash (Note 1c) ..................................................... 1,410,507
Receivables:
Securities sold.......................................................... $ 737,586
Dividends................................................................ 221,955
Contributions............................................................ 135,211
Variation margin (Note 1b)............................................... 27,457 1,122,209
---------
Deferred organization expenses (Note 1f)................................... 11,163
Other assets............................................................... 2,304
------------
Total assets............................................................... 144,324,178
------------
============================================================================================================================
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b).... 88,722
Payables:
Withdrawals.............................................................. 733,235
Investment adviser (Note 2).............................................. 3,142 736,377
---------
Accrued expenses and other liabilities..................................... 81,279
------------
Total liabilities ......................................................... 906,378
------------
============================================================================================================================
Net Assets: Net assets................................................................. $143,417,800
============
============================================================================================================================
Net Assets Partners' capital.......................................................... $143,001,193
Consist of: Unrealized appreciation on investments and foreign currency
transactions--net.......................................................... 416,607
------------
Net assets................................................................. $143,417,800
============
============================================================================================================================
See Notes to Financial Statements.
96
Merrill Lynch International Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES For the Period April 9, 1997+ to December 31, 1997
============================================================================================================================
Investment Income Dividends (net of $208,452 foreign withholding tax)........................ $ 1,490,569
(Notes 1d & 1e): Interest and discount earned............................................... 613,295
Other...................................................................... 1,306
-----------
Total income............................................................... 2,105,170
-----------
============================================================================================================================
Expenses: Custodian fees............................................................. $ 127,762
Investment advisory fees (Note 2).......................................... 100,102
Accounting services (Note 2)............................................... 68,823
Pricing fees............................................................... 22,330
Professional fees.......................................................... 8,155
Trustees' fees and expenses................................................ 3,361
Other...................................................................... 1,295
----------
Total expenses before reimbursement........................................ 331,828
Reimbursement of expenses (Note 2)......................................... (35,546)
----------
Total expenses after reimbursement......................................... 296,282
-----------
Investment income--net...................................................... 1,808,888
-----------
============================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net.......................................................... 1,983,095
(Loss) on Foreign currency transactions--net........................................ (292,940) 1,690,155
Investments & ----------
Foreign Currency Unrealized appreciation (depreciation) from:
Transactions - Net Investments--net.......................................................... 534,429
(Notes 1b, 1c, 1e Foreign currency transactions--net........................................ (117,822) 416,607
& 3): ---------- -----------
Net realized and unrealized gain on investments and foreign currency
transactions............................................................. 2,106,762
-----------
Net Increase in Net Assets Resulting from Operations....................... $ 3,915,650
===========
============================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
MERRILL LYNCH For the Period
INTERNATIONAL April 9, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
============================================================================================================================
Operations: Investment income--net..................................................... $ 1,808,888
Realized gain on investments and foreign currency transactions--net........ 1,690,155
Unrealized appreciation on investments and foreign currency
transactions--net.......................................................... 416,607
------------
Net increase in net assets resulting from operations....................... 3,915,650
------------
============================================================================================================================
97
Net Capital Increase in net assets derived from net capital contributions.............. 139,502,150
Contributions: ------------
============================================================================================================================
Net Assets: Total increase in net assets............................................... 143,417,800
Beginning of period........................................................ --
------------
End of period.............................................................. $143,417,800
============
============================================================================================================================
FINANCIAL HIGHLIGHTS
MERRILL LYNCH For the Period
INTERNATIONAL The following ratios have been derived from April 9, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
============================================================================================================================
Ratios to Average Expenses, net of reimbursement............................................. .33%*
Net Assets: =========
Expenses................................................................... .36%*
=========
Investment income--net...................................................... 1.99%*
=========
============================================================================================================================
Supplemental Net assets, end of period (in thousands)................................... $ 143,418
Data: =========
Portfolio turnover......................................................... 14.79%
=========
Average commission rate paid++.............................................. $ .0118
=========
============================================================================================================================
* Annualized.
++ Includes commissions paid in foreign currencies, which have been converted
into US dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the rate shown.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH INTERNATIONAL INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch International Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. The following is a
summary of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Short-term securities are valued at amortized cost, which approximates market
value. Other investments, including futures contracts
98
Merrill Lynch International Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH INTERNATIONAL INDEX SERIES
and related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell stock index
futures contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Series is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Series' records. However, the effect on operations is recorded from the date the
Series enters into such contracts. Premium or discount is amortized over the
life of the contracts.
o Foreign currency options and futures--The Series may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-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.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in 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.
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends from
foreign securities where the ex-dividend date may have passed are subsequently
recorded when the Series has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
99
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co.") which is the limited partner.
MLAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.11% of the average daily value of the Series' net
assets. For the period April 9, 1997 to December 31, 1997, MLAM earned fees of
$100,102, of which $35,546 was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 9, 1997 to December 31, 1997 were $142,020,773 and $14,703,706,
respectively.
Net realized and unrealized gains (losses) as of December 31, 1997 were as
follows:
- ---------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- ---------------------------------------------------------------------------
Investments:
Long-term........................... $ 1,667,804 $ 409,846
Financial futures contracts......... 315,291 124,583
------------ -----------
Total investments.................... 1,983,095 534,429
------------ -----------
Currency transactions:
Foreign currency transactions....... 74,950 (29,100)
Forward foreign exchange contracts.. (367,890) (88,722)
------------ -----------
Total currency transactions.......... (292,940) (117,822)
------------ -----------
Total................................ $ 1,690,155 $ 416,607
============ ===========
- ---------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $156,303, of which $13,170,848 related to appreciated
securities and $13,014,545 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$141,614,108.
100
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A:
None.
(2) Included in Part B:
Schedule of investments and statement of assets and liabilities as of
December 31, 1997, the related statements of operations and changes in net
assets, and the financial highlights for the period April 3, 1997
(commencement of operations) to December 31, 1997 of S&P 500 Index Series.
Schedule of investments and statement of assets and liabilities as of
December 31, 1997, the related statements of operations and changes in net
assets, and the financial highlights for the period April 9, 1997
(commencement of operations) to December 31, 1997 of Small Cap Index Series.
Schedule of investments and statement of assets and liabilities as of
December 31, 1997, the related statements of operations and changes in net
assets, and the financial highlights for the period April 3, 1997 (commencement
of operations) to December 31, 1997 of Aggregate Bond Index Series.
Schedule of investments and statement of assets and liabilities as of
December 31, 1997, the related statements of operations and changes in net
assets, and the financial highlights for the period April 9, 1997 (commencement
of operations) to December 31, 1997 of International Index Series.
(3) Included in Part C:
None.
(b) Exhibits:
Exhibit
Number Description
------ -----------
1(a). Declaration of Trust of Registrant*
1(b) Certificate of Trust*
1(c) Amendment to Declaration of Trust**
2. By-Laws of Registrant*
3. Not applicable
4. Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
5 Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P.**
6. Placement Agent Agreement with Merrill Lynch Funds Distributor,
Inc.**
7. Not applicable
101
Exhibit
Number Description
------ -----------
8(a). Form of Custody Agreement with Merrill Lynch Trust Company**
8(b). Form of Custody Agreement with State Street Bank and Trust**
9 Licensing Agreement**
10. Not applicable
11. Accountant's Consent
12. Not applicable
13. Not applicable
14. Not applicable
15. Not applicable
16. Not applicable
17(a). Financial Data Schedule for S&P 500 Index Series
17(b) Financial Data Schedule to Small Cap Index Series
17(c) Financial Data Schedule for Aggregate Bond Index Series
17(d) Financial Data Schedule for International Index Series
17(b). Powers of Attorney**
18. Not applicable
- ----------------------
* Incorporated by reference to identically numbered Exhibit to
the Registrant's initial Registration Statement on Form N-1A
(File No. 811-7885).
** Incorporated by reference to identically numbered Exhibit to
Amendment No. 1 to the Registrant's Registration Statement on
Form N-1A
(File No. 811-7885).
Item 25. No person is controlled by or under common control with
Registrant.
Item 26. Number of Holders of Securities.
Number of Holders
Fund at February 28, 1998
---- --------------------
S&P 500 Index Series 1
Small Cap Index Series 2
Aggregate Bond Index Series 2
International Index Series 2
102
Item 27 Indemnification
As permitted by Section 17(h) and (i) of the
Investment Company Act of 1940, as amended (the "1940 Act"),
and pursuant to Sections 8.2, 8.3 and 8.4, of Article VIII of
the Registrant's Declaration of Trust (Exhibit 1 to this
Registrant Statement), Trustees, officers, employees and
agents of the Trust will be indemnified to the maximum extent
permitted by Delaware law and the 1940 Act.
Article VIII, Section 8.2 provides, inter alia, that
no Trustee, officer, employee or agent of the Registrant shall
be liable to the Registrant, its holders, or to any other
Trustee, officer, employee or agent for any action or omission
except for his own bad faith, wilful misfeasance, gross
negligence or reckless disregard of his duties.
Article VIII, Section 8.3 of the Registrant's
Declaration of Trust provides:
Section 8.3. Indemnification. The Trust
shall indemnify each of its Trustees, officers,
employees, and agents (including persons who serve at
its request as directors, officers or trustees of
another organization in which it has any interest, as
a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines
and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or
disposition of any action, suit or other proceeding,
whether civil or criminal, in which he may be
involved or with which he may be threatened, while in
office or thereafter, by reason of his being or
having been such a Trustee, officer, employee or
agent, except with respect to any matter as to which
he shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or
reckless disregard of his duties, such liabilities
and expenses being liabilities belonging to the
Series out of which such claim for indemnification
arises; provided, however, that as to any matter
disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any
other expenses shall be provided unless there has
been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the
conduct of his office by the court or other body
approving the settlement or other disposition or, in
the absence of a judicial determination, by a
reasonable determination, based upon a review of
readily available facts (as opposed to a full trial
-type inquiry), that he did not engage in such
conduct, which determination shall be made by a
majority of a quorum of Trustees who are neither
interested persons of the Registrant (within the
meaning of the 1940 Act) nor parties
103
to the action, suit or proceeding, or by written
opinion from independent legal counsel approved by
the Trustees. The rights accruing to any Person under
these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no
Person may satisfy any right of indemnity or
reimbursement granted herein or to which he may be
otherwise entitled except out of the Trust Property.
The Trustees may make advance payments in connection
with indemnification under this Section 8.3; Provided
that any advance payment of expenses by the Trust to
any Trustee, officer, employee or agent shall be made
only upon the undertaking by such Trustee, officer,
employee or agent to repay the advance unless it is
ultimately determined that he is entitled to
indemnification as above provided, and only if one of
the following conditions is met:
(a) the Trustee, officer, employee or agent to
be indemnified provided a security for an
undertaking; or
(b) the Trust shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review
of readily available facts, that there is
reason to believe that the Trustee, officer,
employee or agent to be indemnified
ultimately will be entitled to
indemnification, which determination shall
be made by:
(i) a majority of a quorum of Trustees
who are neither Interested Persons
of the Trust nor parties to the
Proceedings; or
(ii) an independent legal counsel in a
written opinion.
Article VIII, Section 8.4 of the Registrants
Declaration of Trust further provides:
Section 8.4. No Protection Against Certain
1940 Act Liabilities. Nothing contained in Sections
8.1, 8.2 or 8.3 hereof shall protect any Trustee or
officer of the Trust from any liability to the Trust
or its Holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office. Nothing
contained in Sections 8.1, 8.2 or 8.3 hereof or in
any agreement of the character described in Section
4.1 or 4.2 hereof shall protect any Investment
Manager or Asset Manager to the Trust or any Series
against any liability to the Trust or any Series to
which
104
he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the
performance of his or its duties to the Trust or
Series, or by reason of his or its reckless disregard
to his or its obligations and duties under the
agreement pursuant to which he serves as Investment
Manager or Asset Manager to the Trust or any Series.
As permitted by Article VIII, Section 8.7, the
Registrant may insure its Trustees and officers against
certain liabilities, and certain costs of defending claims
against such Trustees and officers, to the extent such
Trustees and officers are not found to have committed conduct
constituting conflict of interest, intentional non-compliance
with statutes or regulations or dishonest, fraudulent or
criminal acts or omissions. The Registrant will purchase an
insurance policy to cover such indemnification obligation. The
insurance policy also will insure the Registrant against the
cost of indemnification payments to Trustees and officers
under certain circumstances. Insurance will not be purchased
that protects, or purports to protect, any Trustee or officer
from liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.
The Registrant hereby undertakes that it will apply
the indemnification provisions of its Declaration of Trust and
Bylaws in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long
as the interpretation of Section 17(h) and 17(i) of such Act
remain in effect and are consistently applied.
Item 28. Business and Other Connections of Investment Advisers.
Merrill Lynch Asset Management, L.P. (the "Manager" or "MLAM")
also acts as the investment adviser for the following open-end investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap
Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate
Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology
105
Fund, Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch
Variable Series Funds, Inc.; and the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
Merrill Lynch so acts as sub-adviser to Merrill Lynch World Strategic Portfolio
and Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ
Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal
Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch World Income Fund, Inc. and The Municipal Fund
Accumulation Program, Inc.; and the following closed-end investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc.,
Debt Strategies Fund II, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Muniholdings Fund, Inc., Muniholdings Fund II, Inc., Muniholdings
California Insured Fund, Inc., Muniholdings California Insured Fund II, Inc.,
Muniholdings New York Insured Fund, Inc., Muniholdings New York Fund, Inc.,
Muniholdings Florida Insured Fund, Inc., Muniholdings Florida Insured Fund II,
Muniholdings New Jersey Insured Fund, Inc., Senior High Income Portfolio, Inc.,
and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address
of the Manager, FAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, and Merrill Lynch & Co., Inc. ("ML & Co.") is
North Tower World Financial Center, 250 Vesey Street, New York,
106
New York 10281-1201. The address of Merrill Lynch Financial Data Services
("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1995 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President and Director or
Trustee, Mr. Glenn is Executive Vice President, and Mr. Richard is Treasurer of
substantially all of the investment companies listed in the first paragraph of
Item 28, and Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are
directors, trustees or officers of one or more of such companies.
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
ML&Co............................ Limited Partner Financial Services Holding
Company; Limited Partner of FAM
- -----------------------------------------------------------------------------------------------------------------
Princeton Services............... General Partner General Partner of FAM
- -----------------------------------------------------------------------------------------------------------------
Arthur Zeikel.................... Chairman Chairman of FAM;
President of MLAM and FAM from 1977
to 1997; Chairman and Director of
Princeton Services; and President of
Princeton Services from 1993 to 1997;
Executive Vice President of ML & Co.
- -----------------------------------------------------------------------------------------------------------------
Jeffrey M Peek................... President President of FAM;
President and Director of Princeton
Services; Executive
Vice President of ML & Co.
- -----------------------------------------------------------------------------------------------------------------
Terry K. Glenn................... Executive Vice President and Executive Vice President of FAM;
Director Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
President of Princeton
Administrators; Director of FDS
- -----------------------------------------------------------------------------------------------------------------
Linda L. Federici................ Senior Vice President Senior Vice President of
FAM, Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Vincent R. Giordano ............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Elizabeth A. Griffin ............ Senior Vice President Senior Vice President of FAM:
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Norman R. Harvey ................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
=================================================================================================================
107
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
Michael J. Hennewinkel........... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
N. John Hewitt................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Philip L. Kirstein .............. Senior Vice President, Senior Vice President, General
General Counsel, Secretary Counsel and Secretary of FAM;
and Director Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services;
- -----------------------------------------------------------------------------------------------------------------
Ronald M. Kloss ................. Senior Vice President and Senior Vice President
Controller of FAM; Senior Vice President of
Princeton Services
- -----------------------------------------------------------------------------------------------------------------
Debra W. Landsman-Yaros.......... Senior Vice President Senior Vice President of FAM;
Vice President of MLFD; Senior Vice
President of Princeton Services
- -----------------------------------------------------------------------------------------------------------------
Stephen M.M. Miller............. Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Joseph T. Monagle................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Michael J. Quinn................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Managing Director and
First Vice President of Merrill,
Lynch, Pierce, Fenner & Smith
Incorporated
- -----------------------------------------------------------------------------------------------------------------
Richard L. Reller................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Director of MLFD
=================================================================================================================
108
=================================================================================================================
Other Substantial Business,
Name Positions with Manager Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Gerald M. Richard ............... Senior Vice President and Senior Vice President and
Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice President
and Treasurer of MLFD
- -----------------------------------------------------------------------------------------------------------------
Gregory D. Upah ................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
- -----------------------------------------------------------------------------------------------------------------
Ronald L. Welburn ............... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
=================================================================================================================
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: (b) Merrill Lynch
Asset Management U.K. Limited ("MLAM U.K.") acts as a sub-adviser for the
following registered investment companies: Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital
Markets, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund Inc.,
Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc.,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The Address of MLAM U.K. is Milton Gate, 1
Moor Lane, London ECZY 9HA, England.
Set forth below is a list of each executive officer and director of
MLAM U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each person has been engaged since October 31, 1995,
for his or her own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Zeikel, Albert, and Richard are officers of one or
more of the registered investment companies listed in the first two paragraphs
of this Item 28:
- -----------------------------------------------------------------------------------------------------------------------
Name Position with MLAM U.K. Other Substantial Business,
Profession, Vocation or
Employment
- -----------------------------------------------------------------------------------------------------------------------
Arthur Zeikel.......................... Director and Chairman Chairman of the Manager and FAM;
President of the Manager and FAM from 1977 to
1997; Chairman and Director of Princeton
Services; President of Princeton Services from
1993 to 1997; Executive Vice President of ML &
Co.
- -----------------------------------------------------------------------------------------------------------------------
109
- -----------------------------------------------------------------------------------------------------------------------
Alan J. Albert......................... Senior Managing Director Vice President of the Manager
- -----------------------------------------------------------------------------------------------------------------------
Nicholas C. D. Hall ................... Director Director of Merrill Lynch
Europe PLC; General
Counsel of Merrill Lynch
International Private Banking Group
- -----------------------------------------------------------------------------------------------------------------------
Gerald M. Richard...................... Senior Vice President Senior Vice President and
Treasurer of the Manager and
FAM; Senior Vice President
and Treasurer of Princeton
Services; Vice President and
Treasurer of MLFD
- -----------------------------------------------------------------------------------------------------------------------
Carol Ann Langham...................... Company Secretary None
- -----------------------------------------------------------------------------------------------------------------------
Debra Anne Searle...................... Assistant Company Secretary None
- -----------------------------------------------------------------------------------------------------------------------
110
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant, placement agent
for Merrill Lynch Index Trust and as principal underwriter for each of the
open-end investment companies referred to in the first two paragraphs of Item 28
except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc. and The Municipal Fund Accumulation
Program, Inc., and MLFD also acts as principal underwriter for the following
closed-end funds: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Municipal Strategy Fund,
Inc.
(b) Set forth below is information concerning each director and officer of MLFD.
The principal business address of each such person is Box 9081, Princeton, New
Jersey 08543-9081, except that the address of Messrs. Aldrich, Breen, Crook,
Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665.
=====================================================================================================================
(1) (2) (3)
Positions and Offices Positions and Offices
Name with the Distributor with Registrant
- ---------------------------------------------------------------------------------------------------------------------
Terry K. Glenn....................... President and Director President
- ---------------------------------------------------------------------------------------------------------------------
Richard L. Reller.................... Director None
- ---------------------------------------------------------------------------------------------------------------------
Thomas Verage........................ Director None
- ---------------------------------------------------------------------------------------------------------------------
William E. Aldrich .................. Senior Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Robert W. Crook ..................... Senior Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Michael G. Clark .................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Michael J. Brady .................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
William M. Breen .................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
James T. Fatseas .................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Debra W. Landsman-Yaros.............. Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Michelle T. Lau ..................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Gerald M. Richard.................... Vice President and Treasurer Treasurer
- ---------------------------------------------------------------------------------------------------------------------
Salvatore Venezia.................... Vice President None
- ---------------------------------------------------------------------------------------------------------------------
William Wasel........................ Vice President None
- ---------------------------------------------------------------------------------------------------------------------
Robert Harris ....................... Secretary Secretary
=====================================================================================================================
111
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its Transfer Agent, MLFDS, 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
Item 31. Management Services.
Other than as set forth under the caption "Management of the
Trust" in Part A of the Registration Statement and under "Management of the
Trust" in Part B of the Registration Statement, the Registrant is not party to
any Management-related service contract.
Item 32. Undertakings
None.
112
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant certifies that it has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 31st
day of March, 1998.
MERRILL LYNCH INDEX TRUST
(Registrant)
By: /s/ Terry K. Glenn
---------------------------------
(Terry K. Glenn, President)
113
Exhibit
Number Description
------ -----------
11 Accountant's Consent
17(a) Financial Data Schedules for S&P 500 Index Series
17(b) Financial Data Schedule for Small Cap Index Series
17(c) Financial Data Schedule for Aggregate Bond Index Series
17(d) Financial Data Schedule for International Index Series
114