UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7899
Merrill Lynch S&P 500 Index Fund
Master S&P 500 Index Series - file # 811-7885
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
S&P 500 Index Fund, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/02
Date of reporting period: 01/01/02 - 12/31/02
Item 1 - Is shareholder report attached? - Y
[LOGO] Merrill Lynch Investment Managers
Annual Report
December 31, 2002
Merrill Lynch
S&P 500
Index Fund
Merrill Lynch Index Funds, Inc.
www.mlim.ml.com
Merrill Lynch S&P 500 Index Fund
Important Tax
Information
(unaudited)
All of the ordinary income distributions paid by Merrill Lynch S&P 500 Index
Fund during the calendar year ended December 31, 2002 qualifies for the
dividends received deduction for corporations.
Please retain this information for your records.
Merrill Lynch S&P 500 Index Fund, December 31, 2002
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended December 31, 2002, Merrill Lynch S&P 500 Index Fund's Class A
and Class D Shares had total returns of -22.51% and -22.62%, respectively,
compared to the unmanaged benchmark Standard & Poor's (S&P) 500 Index's total
return of -22.10%. (Complete performance information can be found on pages 4 and
5 of this report to shareholders.)
The year 2002 represented the third consecutive year whereby the S&P 500 Index
posted a negative return with the Index falling a total of 589.43 points during
the past three years. For the year ended December 31, 2002, the S&P 500 Index
had a total return of -22.10% and a three-year annualized total return of
- -14.55%. In 2002, value outperformed growth with the S&P 500 Barra Value Index
posting a total return of -20.85% compared to -23.59% for the S&P 500 Barra
Growth Index for the same period.
All ten S&P 500 Index sectors posted negative returns in 2002, further evidence
that the decline during the year was across the whole market, although some
sectors negatively impacted performance more than others. The bear market
entered into by the technology sector in early 2000 continued to contribute to
the decline in 2002, with information technology and telecommunications posting
the worst returns for the year ended December 31, 2002, at -37.57% and -35.89%,
respectively. Sectors most resilient to the market decline were consumer
staples, which had a return of -6.31%, and materials, which had a -7.71% return
for the fiscal year.
The first quarter of 2002 was quiet and uneventful relative to the rest of the
year. A turn for the worse occurred in the second quarter as extreme volatility
overtook the markets. The excessive volatility was mainly because of
high-profile companies failing one after another and increased concerns over
accounting standards. Although U.S. markets experienced three weeks of
consecutive gains in August, the markets lost ground for the next five
consecutive weeks and closed with negative returns for the third quarter. A
significant rebound was seen in the fourth quarter with the S&P 500 Index
closing up 64.54 points at 879.82, with a total return of +8.44% for the last
quarter of 2002. Technology rebounded with telecommunications and information
technology posting the best sector returns, of +36.43% and +22.23%,
respectively. Better-than-estimated corporate earnings reports and the belief
that corporate earnings have "bottomed" spurred an improvement in market
conditions. The impressive fourth quarter rally can also be partially attributed
to the promise of fiscal stimulus from the Federal Reserve Board cutting
interest rates late in 2002.
After cutting interest rates 11 consecutive times in 2001, the Federal Reserve
Board left interest rates unchanged at 1.75% until the fourth quarter of 2002.
In the November 6, 2002 Federal Open Market Committee meeting, the Federal
Reserve Board decided to lower its target rate by an unexpected 50 basis points
(.50%) to 1.25%. Economic data indicated that greater uncertainty, in part
attributable to heightened geopolitical risks, was inhibiting spending,
production and employment. At its November 7, 2002 meeting, the Governing
Council of the European Central Bank (ECB) declined to match the half-point rate
reduction by the U.S. Federal Reserve Board and left its rate unchanged at
3.25%. However, at its December 5, 2002 meeting, the ECB cut rates by 50 basis
points to 2.75%, reflecting the persistently high degree of uncertainty. Over
time, the current accommodative stance of monetary policy, coupled with still
robust underlying growth in productivity, should be sufficient to foster an
improving business climate. However, considerable uncertainty persists about the
extent and timing of the expected pickup in production and employment.
After the worst returns of the year in September with the S&P 500 Index at
- -10.87% for the month, the fourth quarter of 2002 brought the positive returns
that investors were hoping for, but they did not come without volatility.
October and November were significantly positive months, but December again gave
way to negative returns. Looking ahead to 2003, investor confidence remains
shaken with the possibility of a military conflict with Iraq, unexpectedly high
unemployment and disappointing holiday sales. Consumer confidence fell
unexpectedly in December for the sixth time in seven months as unemployment
threatens to undermine spending and U.S. economic growth early next year.
Portfolio Matters
The Series closed on December 31, 2002 with net assets of $1.7 billion. The
principal investments of the Fund are in S&P 500 Index stocks with weightings of
individual stocks in proportion to that of the Index. Incremental cash flows are
typically invested through the use of S&P 500 Index futures contracts, which
serve as a means to invest cash balances. At December 31, 2002, the Series'
equity portfolio was valued at $1.68 billion in equity, which represented
approximately 99% of the Series' net assets. In addition, the Series held a long
position in S&P 500 March 2003 futures contracts. Through its holding of
equities and futures contracts, it is the Series' goal to be 100% invested in
the S&P 500 Index at all times.
Twenty-four changes in the composition of the S&P 500 Index were made in 2002.
In response to these changes, we added the following equities to the Series'
portfolio during the year: Plum Creek Timber Company Inc., MeadWestvaco
Corporation, ACE Limited, Rational Software Corporation, Marshall & Ilsley
Corporation, First Tennessee National Corporation, American Standard Companies,
Inc., BJ Services Company, Apollo Group, Inc., Simon Property Group, Inc., North
Fork Bancorporation, SunGard Data Systems Inc., Electronic Arts, Principal
Financial Group, Inc., eBay Inc., Prudential Financial, Goldman Sachs Group,
United Parcel Service, Inc., Anthem Inc., Monsanto Co., Travelers Property
Casualty Corp., RJ Reynolds Tobacco Holdings, Inc., Comcast Corporation and
Quest Diagnostics Incorporated.
In Conclusion
We appreciate your investment in Merrill Lynch S&P 500 Index Fund, and we look
forward to assisting you with your investment needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
January 30, 2003
2 & 3
Merrill Lynch S&P 500 Index Fund, December 31, 2002
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund, which offers two pricing
alternatives:
o Class A Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible investors.
o Class D Shares do not incur a maximum initial sales charge or deferred
sales charge and bear no ongoing distribution fee. In addition, Class D
Shares are subject to an ongoing account maintenance fee of 0.25%.
None of the past results shown should be considered a representation of
future performance. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Figures shown in each of the following tables assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance, distribution
and transfer agency fees applicable to each class, which are deducted from
the income available to be paid to shareholders. The Fund's Administrator
and the Series' Investment Adviser voluntarily waived a portion of their
administration fee and management fee, respectively. Without such waivers,
the Fund's performance would have been lower.
Recent
Performance
Results
6-Month 12-Month Since Inception
As of December 31, 2002 Total Return Total Return Total Return
=========================================================================================
ML S&P 500 Index Fund Class A Shares* -10.46 -22.51% +24.51%
- -----------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class D Shares* -10.56 -22.62 +22.82
- -----------------------------------------------------------------------------------------
Standard & Poor's 500 Index** -10.30 -22.10 +19.01
=========================================================================================
* Total investment returns are based on changes in net asset value for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund's
inception date is 4/03/97.
** This unmanaged broad-based Index is comprised of common stocks. Since
inception total return is from 4/30/97.
Average Annual
Total Return
Class A Shares % Return
================================================================================
One Year Ended 12/31/02 - 22.51%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/02 - 0.98
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/02 + 3.89
- --------------------------------------------------------------------------------
Class D Shares % Return
================================================================================
One Year Ended 12/31/02 - 22.62%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/02 - 1.21
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/02 + 3.64
- --------------------------------------------------------------------------------
Total Return Based on a $10,000 Investment--Class A & Class D Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class D Shares compared to growth of an investment in the Standard & Poor's
500 Index. Values are from April 3, 1997 to December 2002.
4/03/97** 12/97 12/98 12/99 12/00 12/01 12/02
ML S&P 500 Index
Fund+--Class A Shares* $10,000 $13,080 $16,774 $20,204 $18,299 $16,068 $12,451
ML S&P 500 Index
Fund+--Class D Shares* $10,000 $13,053 $16,701 $20,068 $18,137 $15,872 $12,282
4/30/97** 12/97 12/98 12/99 12/00 12/01 12/02
Standard & Poor's 500 Index++ $10,000 $12,256 $15,759 $19,075 $17,338 $15,277 $11,901
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in the Master S&P 500 Index Series of
Quantitative Master Series Trust. The Trust's investments are allocated
among common stocks in approximately the same weightings as the S&P 500
Index.
++ This unmanaged broad-based Index is comprised of common stocks. The
starting date for the Index in the graph is from 4/30/97.
4 & 5
Merrill Lynch S&P 500 Index Fund, December 31, 2002
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
S&P 500
INDEX FUND As of December 31, 2002
- -----------------------------------------------------------------------------------------------------------------
Assets: Investment in Master S&P 500 Index Series, at value
(identified cost--$1,876,810,970) ......................... $ 1,581,396,103
Prepaid registration fees and expenses .................... 35,740
---------------
Total assets .............................................. 1,581,431,843
---------------
- -----------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Administrative fees ..................................... $ 350,110
Distributor ............................................. 146,291 496,401
------------
Accrued expenses and other liabilities .................... 449,143
---------------
Total liabilities ......................................... 945,544
---------------
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ................................................ $ 1,580,486,299
===============
- -----------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $.0001 par value,
Consist of: 125,000,000 shares authorized ............................. $ 8,659
Class D Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ............................. 6,035
Paid-in capital in excess of par .......................... 2,042,801,388
Undistributed investment income--net ...................... $ 674,286
Accumulated realized capital losses on investments and
foreign currency transactions from the Series--net ........ (167,589,202)
Unrealized depreciation on investments from the Series--net (295,414,867)
------------
Total accumulated losses--net ............................. (462,329,783)
---------------
Net assets ................................................ $ 1,580,486,299
===============
- -----------------------------------------------------------------------------------------------------------------
Net Asset Class A--Based on net assets of $931,917,385 and 86,589,397
Value: shares outstanding ........................................ $ 10.76
===============
Class D--Based on net assets of $648,568,914 and 60,355,947
shares outstanding ........................................ $ 10.75
===============
- -----------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH
S&P 500
INDEX FUND For the Year Ended December 31, 2002
- ----------------------------------------------------------------------------------------------------------------
Investment Income Net investment income allocated from the Series:
From the Series--Net: Dividends (net of $73,209 foreign withholding tax) $ 27,547,578
Interest .......................................... 790,008
Securities lending--net ........................... 246,529
Expenses .......................................... (698,407)
-------------
Net investment income from the Series ............... 27,885,708
-------------
- ----------------------------------------------------------------------------------------------------------------
Expenses: Administration fee .................................. $ 4,298,406
Account maintenance fee--Class D .................... 1,760,483
Transfer agent fees ................................. 967,172
Printing and shareholder reports .................... 86,314
Registration fees ................................... 38,041
Directors' fees and expenses ........................ 30,031
Professional fees ................................... 21,353
Other ............................................... 107,489
-------------
Total expenses ...................................... 7,309,289
-------------
Investment income--net .............................. 20,576,419
-------------
- ----------------------------------------------------------------------------------------------------------------
Realized & Realized loss from the Series on:
Unrealized Loss Investments--net .................................. (75,631,510)
From the Series--Net: Foreign currency transactions--net ................ (168) (75,631,678)
-------------
Change in unrealized appreciation/depreciation on
investments from the Series--net .................... (403,025,960)
-------------
Total realized and unrealized loss on investments and
foreign currency from the Series--net ............... (478,657,638)
-------------
Net Decrease in Net Assets Resulting from Operations $(458,081,219)
=============
- ----------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
6 & 7
Merrill Lynch S&P 500 Index Fund, December 31, 2002
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
MERRILL LYNCH December 31,
S&P 500 -----------------------------------
INDEX FUND Increase (Decrease) in Net Assets: 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Operations: Investment income--net ............................................ $ 20,576,419 $ 15,727,609
Realized loss on investments and foreign currency transactions
from the Series--net .............................................. (75,631,678) (28,456,912)
Change in unrealized appreciation/depreciation on investments
from the Series--net .............................................. (403,025,960) (207,600,105)
--------------- ---------------
Net decrease in net assets resulting from operations .............. (458,081,219) (220,329,408)
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders: Class A ......................................................... (13,196,193) (9,962,496)
Class D ......................................................... (7,425,881) (5,037,507)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (20,622,074) (15,000,003)
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase in net assets derived from capital share transactions 177,607,344 403,132,668
Transactions: --------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ........................... (301,095,949) 167,803,257
Beginning of year ................................................. 1,881,582,248 1,713,778,991
--------------- ---------------
End of year* ...................................................... $ 1,580,486,299 $ 1,881,582,248
=============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .............................. $ 674,286 $ 720,065
=============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A
The following per share data and ratios have been ---------------------------------------------------------
derived from information provided in the financial For the Year Ended
MERRILL LYNCH statements. December 31,
S&P 500 ---------------------------------------------------------
INDEX FUND Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of year ................... $ 14.08 $ 16.18 $ 18.02 $ 15.30 $ 12.55
Operating -------- ---------- -------- -------- --------
Performance: Investment income--net ............................... .16+ .13 .13 .18 .18
Realized and unrealized gain (loss) on investments and
foreign currency transactions from the Series--net ... (3.33) (2.10) (1.82) 2.92 3.33
-------- ---------- -------- -------- --------
Total from investment operations ..................... (3.17) (1.97) (1.69) 3.10 3.51
-------- ---------- -------- -------- --------
Less dividends and distributions from:
Investment income--net ............................. (.15) (.13) (.14) (.17) (.16)
In excess of investment income--net ................ -- -- --++ -- --
Realized gain on investments from the Series--net .. -- -- -- -- (.60)
In excess of realized gain on investments from the
Series--net ........................................ -- -- (.01) (.21) --
-------- ---------- -------- -------- --------
Total dividends and distributions .................... (.15) (.13) (.15) (.38) (.76)
-------- ---------- -------- -------- --------
Net asset value, end of year ......................... $ 10.76 $ 14.08 $ 16.18 $ 18.02 $ 15.30
======== ========== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................... (22.51%) (12.19%) (9.43%) 20.45% 28.24%
Return: ======== ========== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement+++ .................... .36% .37% .38% .38% .39%
Net Assets: ======== ========== ======== ======== ========
Expenses+++ .......................................... .36% .38% .40% .38% .40%
======== ========== ======== ======== ========
Investment income--net ............................... 1.27% .97% .85% 1.03% 1.27%
======== ========== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ............... $931,917 $1,108,832 $896,356 $848,591 $682,669
Data: ======== ========== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Class D
The following per share data and ratios have been -----------------------------------------------------
derived from information provided in the financial For the Year Ended
statements. December 31,
-----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of year ................... $ 14.05 $ 16.16 $ 18.00 $ 15.28 $ 12.54
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............................... .13+ .10 .04 .13 .11
Realized and unrealized gain (loss) on investments and
foreign currency transactions from the Series--net ... (3.31) (2.12) (1.77) 2.94 3.37
-------- -------- -------- -------- --------
Total from investment operations ..................... (3.18) (2.02) (1.73) 3.07 3.48
-------- -------- -------- -------- --------
Less dividends and distributions from:
Investment income--net ............................. (.12) (.09) (.10) (.14) (.14)
In excess of investment income--net ................ -- -- --++ -- --
Realized gain on investments from the Series--net .. -- -- -- -- (.60)
In excess of realized gain on investments from the
Series--net ........................................ -- -- (.01) (.21) --
-------- -------- -------- -------- --------
Total dividends and distributions .................... (.12) (.09) (.11) (.35) (.74)
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 10.75 $ 14.05 $ 16.16 $ 18.00 $ 15.28
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................... (22.62%) (12.49%) (9.62%) 20.16% 27.95%
Return: ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement+++ .................... .61% .62% .63% .63% .64%
Net Assets: ======== ======== ======== ======== ========
Expenses+++ .......................................... .61% .63% .65% .63% .65%
======== ======== ======== ======== ========
Investment income--net ............................... 1.03% .71% .60% .77% 1.00%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ............... $648,569 $772,750 $817,423 $840,918 $435,256
Data: ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
+++ Includes the Fund's share of the Series' allocated expenses.
See Notes to Financial Statements.
8 & 9
Merrill Lynch S&P 500 Index Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Fund (the "Fund") is part of Merrill Lynch Index
Funds, Inc. (the "Corporation"). The Fund is registered under the Investment
Company Act of 1940 as a non-diversified mutual fund. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. The Fund seeks to achieve its investment
objective by investing all of its assets in Master S&P 500 Index Series (the
"Series") of Quantitative Master Series Trust, which has the same investment
objective as the Fund. The value of the Fund's investment in the Series reflects
the Fund's proportionate interest in the net assets of the Series. The
performance of the Fund is directly affected by the performance of the Series.
The financial statements of the Series, including the Schedule of Investments,
are included elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The percentage of the Series owned by the Fund at
December 31, 2002 was 91.5%. The Fund offers two classes of shares. Shares of
Class A and Class D are sold without the imposition of a front-end or deferred
sales charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class D Shares bear certain expenses related to the account maintenance of such
shares and have exclusive voting rights with respect to matters relating to
their account maintenance expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Series at
fair value. Valuation of securities held by the Series is discussed in Note 1a
of the Series' Notes to Financial Statements, which are included elsewhere in
this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Fund's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no Federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Series are
accounted for on a trade date basis.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. These
reclassifications have no effect on net assets or net asset values per share.
There were no significant reclassifications in the current year.
2. Transactions with Affiliates:
The Corporation has entered into an Administrative Services Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general partner of MLIM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund pays a monthly
fee at an annual rate of .245% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plan adopted by the Corporation in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Fund pays the Distributor an ongoing
account maintenance fee. The fee is accrued daily and paid monthly at the annual
rate of .25% based upon the average daily net assets of Class D shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account maintenance
services to Class D shareholders.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investments in the Series for the year
ended December 31, 2002 were $385,243,844 and $235,696,691, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$177,607,344 and $403,132,668 for the years ended December 31, 2002 and December
31, 2001, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 41,888,936 $ 525,329,539
Shares issued to shareholders
in reinvestment of dividends ......... 1,168,621 12,824,616
---------- -------------
Total issued ......................... 43,057,557 538,154,155
Shares redeemed ...................... (35,244,780) (426,331,622)
---------- -------------
Net increase ......................... 7,812,777 $ 111,822,533
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 2001 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 47,072,962 $ 682,826,571
Shares issued to shareholders
in reinvestment of dividends ......... 690,457 9,673,307
---------- -------------
Total issued ......................... 47,763,419 692,499,878
Shares redeemed ...................... (24,375,581) (355,006,286)
---------- -------------
Net increase ......................... 23,387,838 $ 337,493,592
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 2002 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 22,596,862 $ 272,284,151
Shares issued to shareholders
in reinvestment of dividends ......... 607,598 6,669,539
---------- -------------
Total issued ......................... 23,204,460 278,953,690
Shares redeemed ...................... (17,841,183) (213,168,879)
---------- -------------
Net increase ......................... 5,363,277 $ 65,784,811
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 2001 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 19,309,208 $ 281,881,579
Shares issued to shareholders
in reinvestment of dividends ......... 316,365 4,422,789
---------- -------------
Total issued ......................... 19,625,573 286,304,368
Shares redeemed ...................... (15,225,662) (220,665,292)
---------- -------------
Net increase ......................... 4,399,911 $ 65,639,076
========== =============
- --------------------------------------------------------------------------------
5. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended December
31, 2002 and December 31, 2001 was as follows:
- --------------------------------------------------------------------------------
12/31/2002 12/31/2001
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $20,622,074 $15,000,003
----------- -----------
Total taxable distributions .............. $20,622,074 $15,000,003
=========== ===========
- --------------------------------------------------------------------------------
As of December 31, 2002, the components of accumulated losses on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ..................... $ 674,286
Undistributed long-term capital gains--net ............. --
-------------
Total undistributed earnings--net ...................... 674,286
Capital loss carryforward .............................. (92,600,903)*
Unrealized losses--net ................................. (370,403,166)**
Total accumulated losses--net .......................... $(462,329,783)
=============
- --------------------------------------------------------------------------------
* On December 31, 2002, the Fund had a net capital loss carryforward of
$92,600,903, of which $4,944,930 expires in 2008, $14,600,496 expires in
2009 and $73,055,477 expires in 2010. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains (losses) on certain
futures contracts and the deferral of post-October capital losses for tax
purposes.
10 & 11
Merrill Lynch S&P 500 Index Fund, December 31, 2002
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch S&P 500 Index Fund
(One of the series constituting
Merrill Lynch Index Funds, Inc.):
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch S&P 500 Index Fund (one of the series constituting Merrill Lynch Index
Funds, Inc.) as of December 31, 2002, the related statements of operations for
the year then ended and changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
presented. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide 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 Fund of the Merrill Lynch Index Funds, Inc. as of December 31, 2002,
the results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 2003
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Master S&P 500 Index Series
------------------------------------------------------------------------------
Shares
Issue Held Value
================================================================================================
Common 3M Co. ..................................... 82,794 $10,208,500
Stocks ACE Limited ................................ 57,710 1,693,211
+ ADC Telecommunications, Inc. ............... 152,555 318,840
+ The AES Corporation ........................ 109,860 331,777
AFLAC Incorporated ......................... 102,599 3,090,282
ALLTEL Corporation ......................... 60,037 3,061,887
+ AMR Corporation ............................ 31,905 210,573
+ AOL Time Warner Inc. ....................... 929,484 12,176,240
AT&T Corp. ................................. 154,092 4,023,342
+ AT&T Wireless Services Inc. ................ 543,247 3,069,346
Abbott Laboratories ........................ 325,517 13,020,680
Adobe Systems Incorporated ................. 52,225 1,300,925
Adolph Coors Company (Class B) ............. 10,483 642,084
+ Advanced Micro Devices, Inc. ............... 70,047 452,504
Aetna Inc. (New Shares) .................... 30,092 1,237,383
+ Agilent Technologies, Inc. ................. 95,610 1,717,156
Air Products and Chemicals, Inc. ........... 46,947 2,006,984
Alberto-Culver Company (Class B) ........... 10,028 505,411
Albertson's, Inc. .......................... 84,366 1,877,987
Alcoa Inc. ................................. 172,145 3,921,463
Allegheny Energy, Inc. ..................... 31,520 238,291
Allegheny Technologies Incorporated ........ 14,228 88,640
Allergan Inc. .............................. 29,364 1,691,954
+ Allied Waste Industries, Inc. .............. 40,578 405,780
The Allstate Corporation ................... 146,944 5,435,459
+ Altera Corporation ......................... 85,790 1,058,649
Ambac Financial Group, Inc. ................ 21,766 1,224,120
Amerada Hess Corporation ................... 20,467 1,126,708
Ameren Corporation ......................... 28,381 1,179,798
American Electric Power Company, Inc. ...... 76,920 2,102,224
American Express Company ................... 276,884 9,787,849
+ American Greetings Corporation
(Class A) ................................ 13,116 207,233
American International Group, Inc. ......... 543,907 31,465,020
+ American Power Conversion
Corporation .............................. 36,644 555,157
+ American Standard Companies, Inc. .......... 13,900 988,846
AmerisourceBergen Corporation .............. 24,943 1,354,654
+ Amgen Inc. ................................. 266,247 12,870,380
AmSouth Bancorporation ..................... 75,103 1,441,978
Anadarko Petroleum Corporation ............. 49,061 2,350,022
+ Analog Devices, Inc. ....................... 73,016 1,742,892
+ Andrew Corporation ......................... 20,239 208,057
Anheuser-Busch Companies, Inc. ............. 180,885 8,754,834
+ Anthem, Inc. ............................... 26,980 1,697,042
Aon Corporation ............................ 57,385 1,084,003
Apache Corporation ......................... 33,492 1,908,709
+ Apollo Group, Inc. (Class A) ............... 37,800 1,663,200
+ Apple Computer, Inc. ....................... 78,617 1,126,582
Applera Corporation--Applied
Biosystems Group ......................... 40,455 709,581
+ Applied Materials, Inc. .................... 335,476 4,371,252
+ Applied Micro Circuits Corporation ......... 61,667 227,551
Archer-Daniels-Midland Company ............. 134,934 1,673,182
Ashland Inc. ............................... 13,158 375,398
Autodesk, Inc. ............................. 30,564 437,065
Automatic Data Processing, Inc. ............ 120,680 4,736,690
+ AutoZone, Inc. ............................. 22,777 1,609,195
+ Avaya Inc. ................................. 55,782 136,666
Avery Dennison Corporation ................. 22,658 1,383,951
Avon Products, Inc. ........................ 48,680 2,622,392
The B.F. Goodrich Company .................. 20,987 384,482
BB&T Corporation ........................... 95,900 3,547,341
+ BJ Services Company ........................ 34,600 1,117,926
+ BMC Software, Inc. ......................... 46,520 795,957
Baker Hughes Incorporated .................. 64,944 2,090,547
Ball Corporation ........................... 11,280 577,423
Bank of America Corporation ................ 315,813 21,971,110
The Bank of New York Company, Inc. ......... 154,195 3,694,512
Bank One Corporation ....................... 244,489 8,936,073
Bausch & Lomb Incorporated ................. 14,987 539,532
Baxter International Inc. .................. 130,127 3,643,556
The Bear Stearns Companies Inc. ............ 22,611 1,343,093
Becton, Dickinson and Company .............. 51,895 1,592,658
+ Bed Bath & Beyond Inc. ..................... 64,824 2,238,373
BellSouth Corporation ...................... 387,134 10,015,157
Bemis Company, Inc. ........................ 9,868 489,749
+ Best Buy Co., Inc. ......................... 71,046 1,715,761
+ Big Lots, Inc. ............................. 23,595 312,162
+ Biogen, Inc. ............................... 33,666 1,348,660
Biomet, Inc. ............................... 58,235 1,669,015
The Black & Decker Corporation ............. 19,642 842,445
The Boeing Company ......................... 180,120 5,942,159
Boise Cascade Corporation .................. 11,024 278,025
+ Boston Scientific Corporation .............. 83,082 3,532,647
Bristol-Myers Squibb Company ............... 403,561 9,342,437
+ Broadcom Corporation (Class A) ............. 60,881 916,868
Brown-Forman Corporation (Class B) ......... 14,044 917,916
Brunswick Corporation ...................... 17,764 352,793
Burlington Northern Santa Fe Corp. ......... 79,194 2,059,836
Burlington Resources Inc. .................. 41,418 1,766,478
C.R. Bard, Inc. ............................ 10,509 609,522
+ CIENA Corporation .......................... 92,895 477,480
CIGNA Corporation .......................... 30,796 1,266,332
CMS Energy Corporation ..................... 41,914 395,668
CSX Corporation ............................ 42,578 1,205,383
CVS Corporation ............................ 80,218 2,003,043
+ Calpine Corporation ........................ 76,560 249,586
Campbell Soup Company ...................... 77,035 1,808,011
Capital One Financial Corporation .......... 43,867 1,303,727
Cardinal Health, Inc. ...................... 93,791 5,551,489
Carnival Corporation ....................... 118,180 2,948,591
Caterpillar Inc. ........................... 75,944 3,472,160
+ Cendant Corporation ........................ 209,125 2,191,630
CenterPoint Energy, Inc. ................... 68,070 578,595
Centex Corporation ......................... 15,234 764,747
CenturyTel, Inc. ........................... 25,977 763,204
The Charles Schwab Corporation ............. 268,868 2,917,218
Charter One Financial, Inc. ................ 45,995 1,321,436
ChevronTexaco Corporation .................. 225,450 14,987,916
+ Chiron Corporation ......................... 42,334 1,591,758
The Chubb Corporation ...................... 37,753 1,970,707
Cincinnati Financial Corporation ........... 29,511 1,108,138
Cinergy Corp. .............................. 31,828 1,073,240
Cintas Corporation ......................... 35,002 1,601,342
Circuit City Stores--Circuit City Group .... 43,023 319,231
+ Cisco Systems, Inc. ........................ 1,504,671 19,711,190
Citigroup Inc. ............................. 1,070,236 37,661,605
+ Citizens Communications Company ............ 50,618 534,020
+ Citrix Systems, Inc. ....................... 38,705 476,846
+ Clear Channel Communications, Inc. ......... 125,004 4,661,399
The Clorox Company ......................... 52,298 2,157,292
The Coca-Cola Company ...................... 517,128 22,660,549
Coca-Cola Enterprises Inc. ................. 91,687 1,991,442
12 & 13
Merrill Lynch S&P 500 Index Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares
Issue Held Value
================================================================================================
Common Colgate-Palmolive Company .................. 109,281 $ 5,729,603
Stocks + Comcast Corporation (Class A) .............. 326,544 7,696,642
(continued) + Comcast Corporation (Special Class A) ...... 151,805 3,429,275
Comerica Incorporated ...................... 36,691 1,586,519
Computer Associates International, Inc. .... 119,012 1,606,662
+ Computer Sciences Corporation .............. 35,250 1,214,362
+ Compuware Corporation ...................... 67,949 326,155
+ Comverse Technology, Inc. .................. 48,843 489,407
ConAgra, Inc. .............................. 102,478 2,562,975
+ Concord EFS, Inc. .......................... 104,939 1,651,740
ConocoPhillips ............................. 138,889 6,720,839
Consolidated Edison, Inc. .................. 42,425 1,816,638
Constellation Energy Group ................. 29,049 808,143
+ Convergys Corporation ...................... 32,314 489,557
Cooper Industries, Ltd. (Class A) .......... 23,152 843,890
Cooper Tire & Rubber Company ............... 14,930 229,026
+ Corning Incorporated ....................... 192,875 638,416
+ Costco Wholesale Corporation ............... 100,424 2,817,897
Countrywide Credit Industries, Inc. ........ 28,478 1,470,889
Crane Co. .................................. 11,288 224,970
Cummins Engine Company, Inc. ............... 12,609 354,691
DTE Energy Company ......................... 33,538 1,556,163
Dana Corporation ........................... 26,845 315,697
Danaher Corporation ........................ 30,725 2,018,632
Darden Restaurants, Inc. ................... 41,707 852,908
Deere & Company ............................ 53,298 2,443,713
+ Del Monte Foods Company .................... 11,316 87,133
+ Dell Computer Corporation .................. 540,516 14,453,398
Delphi Automotive Systems Corporation ...... 110,625 890,531
Delta Air Lines, Inc. ...................... 25,376 307,050
Deluxe Corporation ......................... 13,636 574,076
Devon Energy Corporation ................... 28,758 1,319,992
Dillard's, Inc. (Class A) .................. 20,764 329,317
Dollar General Corporation ................. 61,150 730,742
Dominion Resources, Inc. ................... 67,257 3,692,409
Dover Corporation .......................... 37,659 1,098,136
The Dow Chemical Company ................... 185,076 5,496,757
Dow Jones & Company, Inc. .................. 17,419 753,023
Duke Energy Corporation .................... 183,719 3,589,869
Dynegy Inc. (Class A) ...................... 85,471 100,856
E.I. du Pont de Nemours and Company ........ 206,973 8,775,655
+ EMC Corporation ............................ 441,154 2,708,686
EOG Resources, Inc. ........................ 22,670 904,986
Eastman Chemical Company ................... 15,750 579,127
Eastman Kodak Company ...................... 66,153 2,318,001
Eaton Corporation .......................... 14,275 1,115,020
+ eBay Inc. .................................. 63,200 4,286,224
Ecolab Inc. ................................ 25,507 1,262,596
+ Edison International ....................... 57,899 686,103
El Paso Corporation ........................ 131,915 918,128
+ Electronic Arts Inc. ....................... 30,900 1,537,893
Electronic Data Systems Corporation ........ 106,487 1,962,555
Eli Lilly and Company ...................... 236,977 15,048,040
Emerson Electric Co. ....................... 87,248 4,436,561
Engelhard Corporation ...................... 23,197 518,453
Entergy Corporation ........................ 42,355 1,930,964
Equifax Inc. ............................... 25,402 587,802
Equity Office Properties Trust ............. 80,064 1,999,999
Equity Residential Properties Trust ........ 55,840 1,372,547
Exelon Corporation ......................... 68,764 3,628,676
Exxon Mobil Corporation++ .................. 1,401,612 48,972,323
FPL Group, Inc. ............................ 39,507 2,375,556
Family Dollar Stores, Inc. ................. 30,664 957,023
Fannie Mae ................................. 207,273 13,333,872
+ Federated Department Stores, Inc. .......... 38,267 1,100,559
FedEx Corp. ................................ 58,608 3,177,726
Fifth Third Bancorp ........................ 124,244 7,274,486
First Data Corporation ..................... 157,240 5,567,868
First Tennessee National Corporation ....... 31,400 1,128,516
FirstEnergy Corp. .......................... 61,316 2,021,588
+ Fiserv, Inc. ............................... 39,792 1,350,938
FleetBoston Financial Corporation .......... 211,047 5,128,442
Fluor Corporation .......................... 15,261 427,308
Ford Motor Company ......................... 392,599 3,651,171
+ Forest Laboratories, Inc. .................. 38,882 3,818,990
Fortune Brands, Inc. ....................... 29,415 1,368,092
Franklin Resources, Inc. ................... 49,786 1,696,707
Freddie Mac ................................ 144,903 8,556,522
+ Freeport-McMoRan Copper & Gold,
Inc. (Class B) ........................... 36,034 604,650
Gannett Co., Inc. .......................... 56,779 4,076,732
The Gap, Inc. .............................. 179,293 2,782,627
+ Gateway Inc. ............................... 57,298 179,916
General Dynamics Corporation ............... 44,348 3,519,901
General Electric Company ................... 2,072,681 50,469,782
General Mills, Inc. ........................ 80,860 3,796,377
General Motors Corporation ................. 121,139 4,465,183
Genuine Parts Company ...................... 33,914 1,044,551
+ Genzyme Corporation ........................ 38,580 1,140,811
Georgia-Pacific Group ...................... 47,367 765,451
The Gillette Company ....................... 217,501 6,603,330
Golden West Financial Corporation .......... 32,948 2,365,996
The Goldman Sachs Group, Inc. .............. 100,500 6,844,050
The Goodyear Tire & Rubber Company ......... 33,593 228,768
Great Lakes Chemical Corporation ........... 10,035 239,636
+ Guidant Corporation ........................ 64,721 1,996,643
H & R Block, Inc. .......................... 41,985 1,687,797
H.J. Heinz Company ......................... 72,136 2,371,110
HCA Inc. ................................... 112,706 4,677,299
+ HEALTHSOUTH Corporation .................... 73,725 309,645
Halliburton Company ........................ 95,404 1,785,009
Harley-Davidson, Inc. ...................... 66,759 3,084,266
+ Harrah's Entertainment, Inc. ............... 23,130 915,948
The Hartford Financial Services
Group, Inc. .............................. 55,325 2,513,415
Hasbro, Inc. ............................... 35,094 405,336
Health Management Associates, Inc. .........
(Class A) ................................ 49,800 891,420
+ Hercules Incorporated ...................... 22,359 196,759
Hershey Foods Corporation .................. 29,228 1,971,136
Hewlett-Packard Company .................... 639,417 11,100,279
Hilton Hotels Corporation .................. 74,931 952,373
The Home Depot, Inc. ....................... 490,886 11,761,628
Honeywell International Inc. ............... 167,577 4,021,848
Household International, Inc. .............. 98,994 2,753,023
+ Humana Inc. ................................ 30,104 301,040
Huntington Bancshares Incorporated ......... 47,929 896,751
IMS Health Incorporated .................... 60,265 964,240
ITT Industries, Inc. ....................... 15,596 946,521
Illinois Tool Works Inc. ................... 62,821 4,074,570
Ingersoll-Rand Company (Class A) ........... 35,798 1,541,462
Intel Corporation .......................... 1,388,131 21,613,200
International Business Machines
Corporation .............................. 352,967 27,354,942
International Flavors & Fragrances Inc. .... 19,496 684,310
+ International Game Technology .............. 19,530 1,482,718
International Paper Company ................ 99,762 3,488,677
The Interpublic Group of
Companies, Inc. .......................... 77,786 1,095,227
+ Intuit Inc. ................................ 46,352 2,174,836
J.C. Penney Company, Inc. .................. 60,698 1,396,661
J.P. Morgan Chase & Co. .................... 423,255 10,158,120
+ JDS Uniphase Corporation ................... 315,687 779,747
+ Jabil Circuit, Inc. ........................ 37,464 671,355
Jefferson--Pilot Corporation ............... 29,736 1,133,239
John Hancock Financial Services, Inc. ...... 61,242 1,708,652
Johnson & Johnson .......................... 619,777 33,288,223
Johnson Controls, Inc. ..................... 16,110 1,291,539
+ Jones Apparel Group, Inc. .................. 25,860 916,478
KB HOME .................................... 13,611 583,231
+ KLA-Tencor Corporation ..................... 42,337 1,497,460
Kellogg Company ............................ 83,765 2,870,626
Kerr-McGee Corporation ..................... 24,265 1,074,939
KeyCorp .................................... 79,810 2,006,423
KeySpan Corporation ........................ 26,261 925,438
Kimberly-Clark Corporation ................. 106,723 5,066,141
Kinder Morgan, Inc. ........................ 26,934 1,138,500
+ King Pharmaceuticals, Inc. ................. 46,355 796,842
Knight Ridder, Inc. ........................ 14,151 895,051
+ Kohl's Corporation ......................... 72,709 4,068,068
+ The Kroger Co. ............................. 164,624 2,543,441
+ LSI Logic Corporation ...................... 68,566 395,626
Leggett & Platt, Incorporated .............. 40,516 909,179
Lehman Brothers Holdings, Inc. ............. 49,078 2,615,367
+ Lexmark International Group, Inc. ..........
(Class A) ................................ 26,839 1,623,759
The Limited, Inc. .......................... 99,944 1,392,220
Lincoln National Corporation ............... 39,019 1,232,220
Linear Technology Corporation .............. 70,199 1,805,518
Liz Claiborne, Inc. ........................ 19,838 588,197
Lockheed Martin Corporation ................ 98,570 5,692,418
Loews Corporation .......................... 38,690 1,720,157
+ Louisiana-Pacific Corporation .............. 18,528 149,336
Lowe's Companies, Inc. ..................... 158,740 5,952,750
+ Lucent Technologies Inc. ................... 666,158 839,359
MBIA, Inc. ................................. 27,745 1,216,896
MBNA Corporation ........................... 263,272 5,007,433
MGIC Investment Corporation ................ 22,080 911,904
+ Manor Care, Inc. ........................... 19,704 366,691
Marathon Oil Corporation ................... 58,447 1,244,337
Marriott International, Inc. (Class A) ..... 53,927 1,772,580
Marsh & McLennan Companies, Inc. ........... 115,598 5,341,784
Marshall & Ilsley Corporation .............. 38,600 1,056,868
Masco Corporation .......................... 94,579 1,990,888
Mattel, Inc. ............................... 88,934 1,703,086
Maxim Integrated Products, Inc. ............ 62,360 2,060,374
The May Department Stores Company .......... 60,428 1,388,635
Maytag Corporation ......................... 15,803 450,386
+ McDermott International, Inc. .............. 11,755 51,487
McDonald's Corporation ..................... 249,918 4,018,681
The McGraw-Hill Companies, Inc. ............ 39,908 2,412,040
McKesson HBOC, Inc. ........................ 59,284 1,602,447
MeadWestvaco Corporation ................... 35,372 874,042
+ MedImmune, Inc. ............................ 51,052 1,387,083
Medtronic, Inc. ............................ 252,740 11,524,944
14 & 15
Merrill Lynch S&P 500 Index Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares
Issue Held Value
================================================================================================
Common Mellon Financial Corporation ............... 91,016 $ 2,376,428
Stocks Merck & Co., Inc. .......................... 468,557 26,525,012
(continued) + Mercury Interactive Corp. .................. 20,627 611,591
Meredith Corporation ....................... 8,821 362,631
Merrill Lynch & Co., Inc.** ................ 176,467 6,696,923
MetLife, Inc. .............................. 147,642 3,992,240
+ Micron Technology, Inc. .................... 121,768 1,186,020
+ Microsoft Corporation++ .................... 1,113,512 57,568,570
+ Millipore Corporation ...................... 8,655 294,270
+ Mirant Corporation ......................... 82,630 156,171
Molex Incorporated ......................... 40,062 923,028
Monsanto Company ........................... 54,177 1,042,907
Moody's Corporation ........................ 32,140 1,327,061
Morgan Stanley ............................. 228,198 9,109,664
Motorola, Inc. ............................. 463,069 4,005,547
+ NCR Corporation ............................ 20,018 475,227
NICOR, Inc. ................................ 8,054 274,078
+ NVIDIA Corporation ......................... 33,520 385,815
+ Nabors Industries, Ltd. .................... 31,215 1,100,953
National City Corporation .................. 118,902 3,248,403
National Grid Group PLC (ADR) .............. 1 37
+ National Semiconductor Corporation ......... 40,386 606,194
+ Navistar International Corporation ......... 12,358 300,423
+ Network Appliance, Inc. .................... 76,821 768,210
The New York Times Company (Class A) ....... 31,047 1,419,779
Newell Rubbermaid Inc. ..................... 55,054 1,669,788
Newmont Mining Corporation ................. 91,586 2,658,742
+ Nextel Communications, Inc. (Class A) ...... 198,177 2,288,944
Nike, Inc. (Class B) ....................... 55,210 2,455,189
NiSource Inc. .............................. 44,037 880,740
+ Noble Corporation .......................... 32,079 1,127,577
Nordstrom, Inc. ............................ 27,036 512,873
Norfolk Southern Corporation ............... 71,742 1,434,123
North Fork Bancorporation .................. 34,300 1,157,282
Northern Trust Corporation ................. 46,327 1,623,761
Northrop Grumman Corporation ............... 37,476 3,635,172
+ Novell, Inc. ............................... 63,824 213,172
+ Novellus Systems, Inc. ..................... 33,500 940,680
Nucor Corporation .......................... 18,516 764,711
Occidental Petroleum Corporation ........... 70,329 2,000,860
+ Office Depot, Inc. ......................... 63,258 933,688
Omnicom Group Inc. ......................... 41,097 2,654,866
+ Oracle Corporation ......................... 1,114,685 12,038,598
PACCAR Inc. ................................ 27,516 1,269,313
+ PG&E Corporation ........................... 73,377 1,019,940
+ PMC--Sierra, Inc. .......................... 43,454 241,604
PNC Bank Corp. ............................. 61,668 2,583,889
PPG Industries, Inc. ....................... 33,287 1,669,343
PPL Corporation ............................ 26,892 932,615
+ Pactiv Corporation ......................... 30,325 662,905
Pall Corporation ........................... 21,803 363,674
+ Parametric Technology Corporation .......... 46,865 118,100
Parker-Hannifin Corporation ................ 23,288 1,074,275
Paychex, Inc. .............................. 77,258 2,155,498
Peoples Energy Corporation ................. 7,304 282,300
+ PeopleSoft, Inc. ........................... 60,422 1,105,723
The Pepsi Bottling Group, Inc. ............. 58,822 1,511,725
PepsiCo, Inc. .............................. 359,788 15,190,249
PerkinElmer, Inc. .......................... 25,284 208,593
Pfizer Inc. ................................ 1,283,645 39,241,028
Pharmacia Corporation ...................... 268,812 11,236,342
+ Phelps Dodge Corporation ................... 21,688 686,425
Philip Morris Companies Inc. ............... 436,018 17,671,810
Pinnacle West Capital Corporation .......... 17,432 594,257
Pitney Bowes Inc. .......................... 50,282 1,642,210
Plum Creek Timber Company Inc. ............. 32,900 776,440
+ Power-One, Inc. ............................ 13,968 79,199
Praxair, Inc. .............................. 36,823 2,127,265
The Principal Financial Group, Inc. ........ 69,900 2,106,087
The Procter & Gamble Company ............... 270,798 23,272,380
Progress Energy, Inc. ...................... 45,126 1,956,212
+ Progress Energy, Inc. ...................... 900 117
The Progressive Corporation ................ 45,340 2,250,224
+ Providian Financial Corporation ............ 58,573 380,139
Prudential Financial, Inc. ................. 112,800 3,580,272
Public Service Enterprise Group
Incorporated ............................. 52,964 1,700,144
Pulte Corporation .......................... 12,393 593,253
+ QLogic Corporation ......................... 22,008 759,496
+ QUALCOMM Incorporated ...................... 164,680 5,992,705
+ Quest Diagnostics Incorporated ............. 20,700 1,177,830
+ Quintiles Transnational Corp. .............. 23,586 285,391
+ Qwest Communications
International Inc. ....................... 340,245 1,701,225
R.J. Reynolds Tobacco Holdings, Inc. ....... 18,700 787,457
R.R. Donnelley & Sons Company .............. 21,625 470,776
RadioShack Corporation ..................... 36,898 691,469
+ Rational Software Corporation .............. 40,430 420,068
Raytheon Company ........................... 78,474 2,413,076
+ Reebok International Ltd. .................. 12,187 358,298
Regions Financial Corporation .............. 41,158 1,373,031
+ Robert Half International Inc. ............. 31,311 504,420
Rockwell Collins ........................... 32,415 753,973
Rockwell International Corporation ......... 32,415 671,315
Rohm and Haas Company ...................... 40,403 1,312,289
Rowan Companies, Inc. ...................... 25,772 585,024
Ryder System, Inc. ......................... 12,474 279,917
SAFECO Corporation ......................... 34,122 1,183,010
SBC Communications Inc. .................... 692,605 18,776,522
SLM Corporation ............................ 32,310 3,355,717
SUPERVALU Inc. ............................. 24,142 398,584
SYSCO Corporation .......................... 141,900 4,227,201
+ Sabre Holdings Corporation ................. 26,373 477,615
+ Safeway Inc. ............................... 93,458 2,183,179
+ St. Jude Medical, Inc. ..................... 41,694 1,656,086
The St. Paul Companies, Inc. ............... 46,711 1,590,510
+ Sanmina Corporation ........................ 107,763 483,856
Sara Lee Corporation ....................... 161,841 3,643,041
Schering-Plough Corporation ................ 298,825 6,633,915
Schlumberger Limited ....................... 124,154 5,225,642
Scientific-Atlanta, Inc. ................... 38,194 452,981
+ Sealed Air Corporation ..................... 16,269 606,834
Sears, Roebuck & Co. ....................... 70,818 1,696,091
Sempra Energy .............................. 42,738 1,010,754
The Sherwin-Williams Company ............... 28,092 793,599
+ Siebel Systems, Inc. ....................... 92,237 689,933
Sigma-Aldrich Corporation .................. 19,123 931,290
Simon Property Group, Inc. ................. 37,100 1,263,997
Snap-On Incorporated ....................... 11,352 319,105
+ Solectron Corporation ...................... 156,912 557,038
The Southern Company ....................... 155,323 4,409,620
SouthTrust Corporation ..................... 63,644 1,581,553
Southwest Airlines Co. ..................... 157,995 2,196,131
+ Sprint Corp. (PCS Group) ................... 203,339 890,625
Sprint Corporation ......................... 182,881 2,648,117
The Stanley Works .......................... 17,543 606,637
+ Staples, Inc. .............................. 99,034 1,812,322
+ Starbucks Corporation ...................... 87,912 1,791,647
Starwood Hotels & Resorts
Worldwide, Inc. .......................... 44,468 1,055,670
State Street Corporation ................... 69,623 2,715,297
+ Stilwell Financial, Inc. ................... 41,305 539,856
Stryker Corporation ........................ 38,155 2,560,964
+ Sun Microsystems, Inc. ..................... 705,156 2,193,035
+ Sungard Data Systems Inc. .................. 60,700 1,430,092
Sunoco, Inc. ............................... 21,185 702,918
SunTrust Banks, Inc. ....................... 57,899 3,295,611
Symbol Technologies, Inc. .................. 47,111 387,252
Synovus Financial Corp. .................... 55,151 1,069,929
T. Rowe Price Group Inc. ................... 24,724 674,471
TECO Energy, Inc. .......................... 46,896 725,481
The TJX Companies, Inc. .................... 112,448 2,194,985
+ TMP Worldwide Inc. ......................... 27,239 308,073
TXU Corp. .................................. 65,722 1,227,687
Target Corporation ......................... 186,035 5,581,050
+ Tektronix, Inc. ............................ 18,936 344,446
+ Tellabs, Inc. .............................. 84,487 614,220
Temple-Inland, Inc. ........................ 12,553 562,500
+ Tenet Healthcare Corporation ............... 109,637 1,798,047
+ Teradyne, Inc. ............................. 41,332 537,729
Texas Instruments Incorporated ............. 352,972 5,298,110
Textron, Inc. .............................. 25,514 1,096,847
+ Thermo Electron Corporation ................ 36,657 737,539
+ Thomas & Betts Corporation ................. 11,967 202,242
Tiffany & Co. .............................. 29,901 714,933
Torchmark Corporation ...................... 24,456 893,378
+ Toys `R' Us, Inc. .......................... 49,997 499,970
Transocean Inc. ............................ 65,641 1,522,871
+ Travelers Property Casualty Corp. (Class B) 211,879 3,104,027
Tribune Company ............................ 57,942 2,634,043
Tupperware Corporation ..................... 11,933 179,950
Tyco International Ltd. .................... 409,525 6,994,687
U.S. Bancorp ............................... 398,565 8,457,549
UST Inc. ................................... 32,635 1,090,988
Union Pacific Corporation .................. 51,176 3,063,907
Union Planters Corporation ................. 40,881 1,150,391
+ Unisys Corporation ......................... 56,982 564,122
United Parcel Service, Inc. (Class B) ...... 235,700 14,867,956
United States Steel Corporation ............ 27,422 359,777
United Technologies Corporation ............ 100,248 6,209,361
UnitedHealth Group Incorporated ............ 64,809 5,411,552
+ Univision Communications Inc. (Class A) .... 47,171 1,155,690
Unocal Corporation ......................... 47,374 1,448,697
UnumProvident Corporation .................. 48,067 843,095
V. F. Corporation .......................... 22,167 799,120
+ VERITAS Software Corporation ............... 90,981 1,421,123
Verizon Communications ..................... 569,428 22,065,335
+ Viacom, Inc. (Class B) ..................... 367,563 14,981,868
Visteon Corporation ........................ 26,826 186,709
Vulcan Materials Company ................... 19,547 733,013
W. W. Grainger, Inc. ....................... 18,245 940,530
Wachovia Corporation ....................... 285,576 10,406,389
16 & 17
Merrill Lynch S&P 500 Index Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Master S&P 500 Index Series (concluded)
------------------------------------------------------------------------------
Shares
Issue Held Value
================================================================================================
Common Wal-Mart Stores, Inc. .................. 919,355 $ 46,436,621
Stocks Walgreen Co. ........................... 208,524 6,086,816
(concluded) The Walt Disney Company ................ 425,347 6,937,410
Washington Mutual, Inc. ................ 196,198 6,774,717
Waste Management, Inc. ................. 129,414 2,966,169
+ Waters Corporation ..................... 26,920 586,318
+ Watson Pharmaceuticals, Inc. ........... 20,381 576,171
+ WellPoint Health Networks Inc. ......... 33,406 2,377,171
Wells Fargo Company .................... 353,822 16,583,637
Wendy's International, Inc. ............ 22,572 611,024
Weyerhaeuser Company ................... 45,361 2,232,215
Whirlpool Corporation .................. 16,560 864,763
The Williams Companies, Inc. ........... 121,186 327,202
Winn-Dixie Stores, Inc. ................ 28,980 442,814
Wm. Wrigley Jr. Company ................ 46,470 2,550,274
Worthington Industries, Inc. ........... 17,567 267,721
Wyeth .................................. 276,099 10,326,103
XL Capital Ltd. (Class A) .............. 29,105 2,248,361
Xcel Energy, Inc. ...................... 90,402 994,422
+ Xerox Corporation ...................... 148,402 1,194,636
+ Xilinx, Inc. ........................... 74,993 1,544,856
+ YUM! Brands, Inc. ...................... 60,034 1,454,023
+ Yahoo! Inc. ............................ 119,699 1,957,079
+ Zimmer Holdings, Inc. .................. 39,977 1,659,845
Zions Bancorporation ................... 21,402 842,147
------------------------------------------------------------------------------
Total Common Stocks (Cost--$2,015,763,982)--97.8% 1,688,331,230
- ------------------------------------------------------------------------------------------------
Partnership
Interest Short-Term Investments
- ------------------------------------------------------------------------------------------------
$22,760,915 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I** 22,760,915
- ------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$22,760,915)--1.3% 22,760,915
- ------------------------------------------------------------------------------------------------
Total Investments (Cost--$2,038,524,897)--99.1% 1,711,092,145
Variation Margin on Financial Futures Contracts*--0.0% 44,666
Other Assets Less Liabilities--0.9% 15,567,844
--------------
Net Assets--100.0% $1,726,704,655
==============
- ------------------------------------------------------------------------------------------------
+ Non-income producing security.
++ All or a portion of security held as collateral in connection with open
financial futures contracts.
* Financial futures contracts purchased as of December 31, 2002 were as
follows:
--------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
--------------------------------------------------------------------------
164 S&P 500 Stock Index March 2003 $36,034,900
--------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$36,461,218) $36,034,900
===========
--------------------------------------------------------------------------
** Investments in companies considered to be an affiliate of the Series (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Net Dividend/Interest
Affiliate Activity Net Cost Income
--------------------------------------------------------------------------
Merrill Lynch & Co. 27,570 $ 1,282,303 $ 104,987
Merrill Lynch Liquidity $22,760,915 22,760,915 61,040
Series, LLC Cash Sweep
Series I
--------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
MASTER
S&P 500
INDEX SERIES As of December 31, 2002
- ----------------------------------------------------------------------------------------------------------------------
Assets: Investments, at value (including securities loaned of $535,314,383)
(identified cost--$2,038,524,897) ................................. $ 1,711,092,145
Investments held as collateral for loaned securities, at value .... 550,276,850
Cash .............................................................. 51,158
Receivables:
Contributions ................................................... $ 23,874,584
Dividends ....................................................... 2,699,271
Variation margin ................................................ 44,666
Interest ........................................................ 31,245
Loaned securities income ........................................ 16,676
Securities sold ................................................. 7,895 26,674,337
------------
Prepaid expenses .................................................. 20,048
---------------
Total assets ...................................................... 2,288,114,538
---------------
- ----------------------------------------------------------------------------------------------------------------------
Liabilities: Collateral on securities loaned, at value ......................... 550,276,850
Payables:
Withdrawals ..................................................... 10,981,579
Investment adviser .............................................. 7,708 10,989,287
------------
Accrued expenses .................................................. 143,746
---------------
Total liabilities ................................................. 561,409,883
---------------
- ----------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ........................................................ $ 1,726,704,655
===============
- ----------------------------------------------------------------------------------------------------------------------
Net Assets Investors' capital ................................................ $ 2,054,563,725
Consist of: Unrealized depreciation on investments--net ....................... (327,859,070)
---------------
Net assets ........................................................ $ 1,726,704,655
===============
- ----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
18 & 19
Merrill Lynch S&P 500 Index Fund, December 31, 2002
STATEMENT OF OPERATIONS
MASTER
S&P 500
INDEX SERIES For the Year Ended December 31, 2002
- -------------------------------------------------------------------------------------------------------------
Investment Dividends (net of $78,432 foreign withholding tax) . $ 29,349,446
Income: Interest ........................................... 834,621
Securities lending--net ............................ 267,064
-------------
Total income ....................................... 30,451,131
-------------
- -------------------------------------------------------------------------------------------------------------
Expenses: Accounting services ................................ $ 358,967
Professional fees .................................. 127,824
Investment advisory fees ........................... 93,240
Custodian fees ..................................... 57,655
Trustees' fees and expenses ........................ 27,273
Printing and shareholder reports ................... 4,998
Other .............................................. 71,002
-------------
Total expenses ..................................... 740,959
-------------
Investment income--net ............................. 29,710,172
-------------
- -------------------------------------------------------------------------------------------------------------
Realized & Realized loss from:
Unrealized Loss Investments--net ................................. (82,781,943)
On Investments & Foreign currency transactions--net ............... (177) (82,782,120)
Foreign Currency -------------
Transactions--Net: Change in unrealized appreciation/depreciation on
investments--net ................................... (435,785,828)
-------------
Total realized and unrealized loss on investments
and foreign currency transactions--net ............. (518,567,948)
-------------
Net Decrease in Net Assets Resulting from Operations $(488,857,776)
=============
- -------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
MASTER December 31,
S&P 500 -----------------------------------
INDEX SERIES Increase (Decrease) in Net Assets: 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Operations: Investment income--net ........................................... $ 29,710,172 $ 23,558,016
Realized loss on investments--net ................................ (82,782,120) (28,757,480)
Change in unrealized appreciation/depreciation on investments--net (435,785,828) (207,282,579)
--------------- ---------------
Net decrease in net assets resulting from operations ............. (488,857,776) (212,482,043)
--------------- ---------------
- -------------------------------------------------------------------------------------------------------------------------
Capital Proceeds from contributions ...................................... 589,333,536 976,860,074
Transactions: Fair value of withdrawals ........................................ (267,267,758) (585,512,826)
--------------- ---------------
Net increase in net assets derived from capital transactions ..... 322,065,778 391,347,248
--------------- ---------------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets .......................... (166,791,998) 178,865,205
Beginning of year ................................................ 1,893,496,653 1,714,631,448
--------------- ---------------
End of year ...................................................... $ 1,726,704,655 $ 1,893,496,653
=============== ===============
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
MASTER The following ratios have been derived For the Year Ended December 31,
S&P 500 from information provided in the ----------------------------------------------------------------------
INDEX SERIES financial statements. 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment (22.22%) (11.97%) -- -- --
Return:* ========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................. .04% .05% .07% .07% .10%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net ............... 1.59% 1.29% 1.16% 1.33% 1.56%
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $1,726,705 $1,893,497 $1,714,631 $1,690,336 $1,118,220
Data: ========== ========== ========== ========== ==========
Portfolio turnover ................... 4.59% 3.21% 9.71% 29.91% 25.97%
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
* Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See Notes to Financial Statements.
20 & 21
Merrill Lynch S&P 500 Index Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS
MASTER
S&P 500
INDEX SERIES
1. Significant Accounting Policies:
Master S&P 500 Index Series (the "Series") is part of Quantitative Master Series
Trust (the "Trust"). The Trust is registered under the Investment Company Act of
1940 and is organized as a Delaware business trust. The Declaration of Trust
permits the Trustees to issue nontransferable interests in the Series, subject
to certain limitations. The Series' financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. The
following is a summary of significant accounting policies followed by the
Series.
(a) Valuation of investments -- Portfolio securities that 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 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. Options written or purchased are valued
at the last sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). 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 strategies to provide liquidity or as a proxy for a direct
investment in securities underlying the Series' index. Losses may arise due to
changes in the value of the contract or if the counterparty does not perform
under the contract.
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) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(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. It is intended that the Series' assets will be
managed so an investor in the series can satisfy the requirements of subchapter
M of the Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(f) Securities lending -- The Series may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
Where the Series receives securities as collateral for the loaned securities, it
collects a fee from the borrower. The Series typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Series receives cash collateral, it may invest such collateral and retain
the amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Series
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Series could experience delays and costs in gaining access to the
collateral. The Series also could suffer a loss where the value of the
collateral falls below the market value of the borrowed securities, in the event
of borrower default or in the event of losses on investments made with cash
collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of .005% of the average daily value of the Series' net
assets.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Trust and the Series, invest cash
collateral received by the Series for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by FAM or its affiliates. As of December 31, 2002, cash collateral
of $291,646,731 was invested in the Money Market Series of the Merrill Lynch
Liquidity Series, LLC and $258,630,119 was invested in the Merrill Lynch Premier
Institutional Fund. As of December 31, 2002, the Series lent securities with a
value of $151,182,378 to MLPF&S. For the year ended December 31, 2002, MLIM, LLC
received $123,306 in securities lending agent fees from the Series.
Merrill Lynch Trust Company ("MLTC"), an indirect, wholly-owned subsidiary of ML
& Co., is the Series' custodian.
In addition, MLPF&S received $862 in commissions on the execution of portfolio
transactions for the Series for the year ended December 31, 2002.
For the year ended December 31, 2002, the Series reimbursed FAM $41,620 for
certain accounting services.
22 & 23
Merrill Lynch S&P 500 Index Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
MASTER
S&P 500
INDEX SERIES
Certain officers and/or trustees of the Series are officers and/or directors of
FAM, PSI, MLTC, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2002 were $422,056,297 and $83,133,099, respectively.
Net realized losses for the year ended December 31, 2002 and net unrealized
losses as of December 31, 2002 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term investments ................ $ (72,369,989) $(327,432,752)
Financial futures contracts .......... (10,411,954) (426,318)
Foreign currency transactions ........ (177) --
------------- -------------
Total ................................ $ (82,782,120) $(327,859,070)
============= =============
- --------------------------------------------------------------------------------
As of December 31, 2002, net unrealized depreciation for Federal income tax
purposes aggregated $402,863,518, of which $101,635,643 related to appreciated
securities and $504,499,161 related to depreciated securities. At December 31,
2002, the aggregate cost of investments for Federal income tax purposes was
$2,113,955,663.
4. Short-Term Borrowings:
The Series, along with certain other funds managed by FAM and its affiliates, is
a party to a credit agreement with Bank One, N.A. and certain other lenders.
Effective November 29, 2002, in conjunction with the renewal for one year at the
same terms, the total commitment was reduced from $1,000,000,000 to
$500,000,000. The Series may borrow under the credit agreement to fund partner
withdrawals and for other lawful purposes other than for leverage. The Series
may borrow up to the maximum amount allowable under the Series' current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The Series pays a commitment fee of
..09% per annum based on the Series pro rata share of the unused portion of the
credit agreement. Amounts borrowed under the credit agreement bear interest at a
rate equal to, at each fund's election, the Federal Funds rate plus .50% or a
base rate as determined by Bank One, N.A. The Series did not borrow under the
credit agreement during the year ended December 31, 2002.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
Master S&P 500 Index Series
(One of the series constituting
Quantitative Master Series Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Master S&P 500 Index Series (one of the series
constituting Quantitative Master Series Trust) as of December 31, 2002, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years presented. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2002 by correspondence with the custodian and
brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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 Master S&P 500 Index
Series of the Quantitative Master Series Trust as of December 31, 2002, the
results of its operations, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 2003
24 & 25
Merrill Lynch S&P 500 Index Fund, December 31, 2002
OFFICERS AND DIRECTORS/TRUSTEES
Number of Other
Portfolios in Directorships
Position(s) Length Fund Complex Held by
Held with of Time Overseen by Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Director/Trustee Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. Glenn* P.O. Box 9011 President 1999 to Chairman, Americas Region since 2001 and 117 Funds None
Princeton, NJ and present Executive Vice President since 1983 of Fund Asset 162 Portfolios
08543-9011 Director/ and Management ("FAM") and Merrill Lynch
Age: 62 Trustee 1997 to Investment Managers, L.P. ("MLIM"); President of
present Merrill Lynch Mutual Funds since 1999; President
of FAM Distributors, Inc. ("FAMD") since 1986 and
Director thereof since 1991; Executive Vice
President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President of
Princeton Administrators, L.P. since 1988; Director
of Financial Data Services, Inc. since 1985.
-------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM
or MLIM act as investment advisers. Mr. Glenn is an "interested person," as described in the Investment Company
Act, of each Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and
MLIM; President of FAMD; Executive Vice President of Princeton Services; and President of Princeton Administrators,
L.P. The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal, or
death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure
of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Other
Portfolios in Directorships
Position(s) Length Fund Complex Held by
Held with of Time Overseen by Director/
Name Address & Age Fund/Trust Served* Principal Occupation(s) During Past 5 Years Director/Trustee Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Directors/Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Director/ 2002 to General Partner of The Burton Partnership, 23 Funds ITC Delta-
Burton Princeton, NJ Trustee present Limited Partnership since 1979; Managing 34 Portfolios Com, Inc.;
08543-9095 General Partner of the South Atlantic Venture ITC Holding
Age: 58 Fund II and III, Limited Partnerships and Company,
Chairman of South Atlantic Private Equity Fund IV, Inc.;
Limited Partnership since 1983; Member of the Knology,
Investment Advisory Council of the Florida State Inc.; Main-
Board of Administration since 2001. Bancorp,
N.A.; Pri-
Care, Inc.;
Symbion,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer Crum P.O. Box 9095 Director/ 2000 to James R. Williston Professor of Investment 23 Funds Cambridge
Princeton, NJ Trustee present Management Emeritus, Harvard Business School 34 Portfolios Bancorp
08543-9095 since 1996.
Age: 70
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie Simon P.O. Box 9095 Director/ 2000 to Professor of Finance and Economics, Graduate 23 Funds None
Hodrick Princeton, NJ Trustee present School of Business, Columbia University since 34 Portfolios
08543-9095 1998; Associate Professor of Finance and
Age: 40 Economics, Graduate School of Business,
Columbia University from 1996 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas P.O. Box 9095 Director/ 2000 to Managing Partner of The Witt Touchton Company 23 Funds TECO
Touchton Princeton, NJ Trustee present and its predecessor, The Witt Co., since 1972; 34 Portfolios Energy,
08543-9095 Trustee Emeritus of Washington and Lee University. Inc.
Age: 64
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. Weiss P.O. Box 9095 Director/ 2000 to Managing Director of FGW Associates since 1997. 23 Funds Watson
Princeton, NJ Trustee present 34 Portfolios Pharma-
08543-9095 ceuticals,
Age: 61 Inc.
-------------------------------------------------------------------------------------------------------------------
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or
until December 31, of the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held with of Time
Name Address & Age Fund/Trust Served* Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Fund/Trust Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke P.O. Box 9011 Vice 1997 to First Vice President of FAM and MLIM since 1997 and Treasurer
Princeton, NJ 08543-9011 President present thereof since 1999; Senior Vice President and Treasurer of
Age: 42 and and 1999 Princeton Services since 1999; Vice President of FAMD since
Treasurer to present 1999; Director of MLIM Taxation since 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. Doll, Jr. P.O. Box 9011 Senior 1999 to President and Global Chief Investment Officer of MLIM and
Princeton, NJ 08543-9011 Vice present member of the Executive Management Committee of ML & Co., Inc.
Age: 49 President since 2001; Chief Investment Officer, Senior Vice President
and Co-Head of MLIM Americas from 1999 to 2001; Chief
Investment Officer of Oppenheimer Funds, Inc. from 1987 to
1999 and Executive Vice President from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Vella P.O. Box 9011 Senior 1999 to Senior Portfolio Manager and Head of Global Index and Enhanced
Princeton, NJ 08543-9011 Vice present Index products for Merrill Lynch Quantitative Advisors since
Age: 46 President 1999; Managing Director and Head of the Global Index and
Enhanced Index business at Bankers Trust from 1984 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen M. Benham P.O. Box 9011 Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2000; Associate
Princeton, NJ 08543-9011 present with Kirkpatrick & Lockhart LLP from 1997 to 2000.
Age: 43
---------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is
available in the Fund's Statement of Additional Information, which can be
obtained without charge by calling 1-800-MER-FUND.
Custodian
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, NJ 08536
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Effective January 1, 2003, J. Thomas Touchton, Director/Trustee of Merrill Lynch
S&P 500 Index Fund, retired. The Fund's Board of Directors/Trustees wishes Mr.
Touchton well in his retirement.
- --------------------------------------------------------------------------------
26 & 27
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #Index 4--12/02
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A.
Item 8 -- Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal executive
officer or officers and principal financial officer or officers, or
persons performing similar functions, about the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their
evaluation of these controls and procedures as of a date within 90
days of the filing date of the report that includes the disclosure
required by this paragraph. N/A.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon
request without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch S&P 500 Index Fund
By: /s/ Terry K. Glenn
--------------------------------
Terry K. Glenn,
President of
Merrill Lynch S&P 500 Index Fund
Date: February 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
--------------------------------
Terry K. Glenn,
President of
Merrill Lynch S&P 500 Index Fund
Date: February 24, 2003
By: /s/ Donald C. Burke
--------------------------------
Donald C. Burke
Chief Financial Officer of
Merrill Lynch S&P 500 Index Fund
Date: February 24, 2003