<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997
SECURITIES ACT FILE NO. 333-15265
INVESTMENT COMPANY ACT FILE NO. 811-7899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 2 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
----------------
MERRILL LYNCH INDEX FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
Copies to:
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MERRILL LYNCH ASSET MANAGEMENT, L.P.
SHEREFF, FRIEDMAN, HOFFMAN & P.O. BOX 9011
GOODMAN, LLP PRINCETON, NEW JERSEY 08543-9011
919 THIRD AVENUE, NEW YORK, NEW YORK
10022
----------------
It is proposed that this filing become effective:
[X] immediately upon filing pursuant to paragraph (b), or
[_] 60 days after filing pursuant to paragraph (a), or
[_] on (date) pursuant to paragraph (b), or
[_] on (date) pursuant to paragraph (a) of Rule 485
THE REGISTRANT HAS PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF
SHARES OF ITS COMMON STOCK, PAR VALUE $.0001 PER SHARE, PURSUANT TO RULE 24F-2
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. NO NOTICE WAS REQUIRED TO
BE FILED PURSUANT TO RULE 24F-2 FOR 1996.
MERRILL LYNCH INDEX TRUST HAS ALSO EXECUTED THIS REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH INDEX FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
<TABLE>
<CAPTION>
N-
1A ITEM NO. LOCATION IN PROSPECTUS
----------- ----------------------
<C> <S> <C>
PART A
Item 1. Cover Page................... Cover Page
Item 2. Synopsis..................... Fee Table
Item 3. Condensed Financial Not Applicable
Information.................
Item 4. General Description of Investment Objectives and Policies;
Registrant.................. Management of the Fund; Other
Investment Policies and Practices;
Additional Information
Item 5. Management of the Fund....... Fee Table; Management of the Fund
Item 5A. Management's Discussion of
Fund Performance............ Not Applicable
Item 6. Capital Stock and Other Additional Information
Securities..................
Item 7. Purchase of Securities Being Purchase of Shares; Additional
Offered..................... Information
Item 8. Redemption or Repurchase..... Fee Table; Redemption of Shares
Item 9. Pending Legal Proceedings.... Not Applicable
PART B
Item 10. Cover Page................... Cover Page
Item 11. Table of Contents............ Back Cover Page
Item 12. General Information and Not Applicable
History.....................
Item 13. Investment Objectives and Investment Objectives and Policies
Policies....................
Item 14. Management of the Fund....... Management of the Funds
Item 15. Control Persons and Principal
Holders of Securities....... Not Applicable
Item 16. Investment Advisory and Other Management of the Funds; Purchase of
Services.................... Shares; Additional Information
Item 17. Brokerage Allocation......... Brokerage
Item 18. Capital Stock and Other Additional Information
Securities..................
Item 19. Purchase, Redemption and
Pricing of Securities Being Purchase of Shares; Redemption of
Offered..................... Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status................... Dividends and Distributions; Taxes
Item 21. Underwriters................. Purchase of Shares
Item 22. Calculations of Performance Performance Data
Data........................
Item 23. Financial Statements......... Financial Statements
PART C
</TABLE>
Information required to be included is set forth under the appropriate Item,
so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
SEPTEMBER 3, 1997
MERRILL LYNCH INDEX FUNDS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Index Funds, Inc. (the "Corporation") currently consists of
four portfolios or series: Merrill Lynch S&P 500 Index Fund ("S&P 500 Index
Fund"), Merrill Lynch Small Cap Index Fund ("Small Cap Index Fund"), Merrill
Lynch Aggregate Bond Index Fund ("Aggregate Bond Index Fund") and Merrill
Lynch International Index Fund ("International Index Fund") (collectively, the
"Funds," and each, a "Fund"). Each Fund is a non-diversified mutual fund whose
investment objective is to provide investment results that, before expenses,
seek to replicate the total return (i.e., the combination of capital changes
and income) of a securities index that has been selected as a proxy for the
performance of a selected market segment. The index is subject to change if,
in the Directors' judgment, a different index would serve as a better proxy
for such market segment. Each Fund will seek to achieve its objective by
investing all of its assets in the series (collectively, the "Series," and
each, a "Series") of Merrill Lynch Index Trust (the "Trust") that has the same
investment objective as the Fund. Each Fund's investment experience will
correspond directly to the investment experience of the respective Series in
which it invests. There can be no assurance that the investment objectives of
the Funds will be achieved. For more information on the Funds' and the Series'
investment objectives and policies, see "Investment Objectives and Policies"
on page 6.
----------------
Each Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of each Fund are offered at a price equal to the next
determined net asset value per share without the imposition of any front-end
or deferred sales charge, and are not subject to any ongoing account
maintenance or distribution fee. Distribution of Class A shares of each Fund
is limited to certain eligible investors. Class D shares of each Fund are
offered at a price equal to the next determined net asset value per share
without the imposition of any front-end or deferred sales charge and are not
subject to any ongoing distribution fee, but are subject to an ongoing account
maintenance fee at an annual rate of 0.25% of average daily net assets.
----------------
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 (609)
282-2800, which has entered into a dealer agreement with Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Shareholders may redeem
their shares at any time at the next determined net asset value. The minimum
initial purchase is $1,000 and the minimum subsequent purchase is $50, except
that for retirement plans the minimum initial investment is $100 and the
minimum subsequent purchase is $1. Merrill Lynch may charge its customers a
processing fee (presently $5.35) for confirming purchases and repurchases.
Purchases and redemptions directly through the Funds' transfer agent are not
subject to processing fees. See "Purchase of Shares" and "Redemption of
Shares."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Funds that
is relevant to making an investment in the Funds. This Prospectus should be
retained for future reference. A statement containing additional information
about the Funds, dated September 3, 1997 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Funds at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT, L.P.--ADMINISTRATOR
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
The following table provides a general comparison of expenses, both recurring
and non-recurring, relating to shares of the Funds and the Series. For purposes
of this table, expenses allocated from the Series in which each Fund invests
are treated as if they were expenses of that Fund, since that is their
practical effect. It is expected that there will be little duplication of
expenses by the Funds and the Series, and that, accordingly, the combined per
share expenses of each Fund and corresponding Series should not be
significantly greater than the expenses of each Fund alone would be if, instead
of investing in shares of the Series, the Fund retained an investment adviser
and invested directly in the types of securities held by the Series.
CLASS A SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases...... None None None None
Sales Charge Imposed on
Dividend Reinvestment..... None None None None
Deferred Sales Charge...... None None None None
Redemption Fee............. None None None None
Exchange Fee............... None None None None
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE
NET ASSETS):
Investment Advisory
Fees(a)................... 0.05 % 0.08 % 0.06 % 0.11 %
Other Expenses:
Administrative Fees(b)..... 0.20 % 0.22 % 0.14 % 0.24 %
Custodian Fees............. 0.03 % 0.08 % 0.04 % 0.05 %
Other (expenses of the
Funds and the Series)(c).. 0.25 % 0.83 % 0.46 % 0.47 %
----- ----- ----- -----
Total Other Expenses...... 0.48 % 1.13 % 0.64 % 0.76 %
----- ----- ----- -----
Reimbursement of
Expenses(d)............... (0.13)% (0.71)% (0.35)% (0.22)%
----- ----- ----- -----
Total Operating Expenses of
the Funds and the
Series(e)................. 0.40 % 0.50 % 0.35 % 0.65 %
===== ===== ===== =====
CLASS D SHARES
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases...... None None None None
Sales Charge Imposed on
Dividend Reinvestment..... None None None None
Deferred Sales Charge...... None None None None
Redemption Fee............. None None None None
Exchange Fee............... None None None None
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE
NET ASSETS):
Investment Advisory
Fees(a)................... 0.05 % 0.08 % 0.06 % 0.11 %
Rule 12b-1 Account
Maintenance Fees.......... 0.25 % 0.25 % 0.25 % 0.25 %
Other Expenses.............
Administrative Fees(b)..... 0.20 % 0.22 % 0.14 % 0.24 %
Custodian Fees............. 0.03 % 0.08 % 0.04 % 0.05 %
Other (expenses of the
Funds and the Series)(c).. 0.25 % 0.83 % 0.46 % 0.47 %
----- ----- ----- -----
Total Other Expenses...... 0.48 % 1.13 % 0.64 % 0.76 %
----- ----- ----- -----
Reimbursement of
Expenses(d)............... (0.13)% (0.71)% (0.35)% (0.22)%
----- ----- ----- -----
Total Operating Expenses of
the Funds and the
Series(e)................. 0.65 % 0.75 % 0.60 % 0.90 %
===== ===== ===== =====
</TABLE>
- --------
(a) Paid by the Series of the Trust. See "Management of the Funds--Expenses"--
page 21.
(b) Paid by the Funds. See "Management of the Funds--Expenses"--page 21.
(c) Includes fees of the Transfer Agent. See "Management of the Funds--Transfer
Agency Services"--page 22.
(footnotes continued on following page)
2
<PAGE>
(d) Merrill Lynch Asset Management, L.P. (the "Administrator") anticipates
voluntarily reimbursing or waiving a portion of the management,
administrative and other expenses, if applicable. The Administrator may
discontinue or reduce such reimbursement or waiver at any time without
notice. Absent such reimbursement or waiver, the total operating expenses
of the Funds and the Series are shown below.
CLASS A SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C>
.53% 1.21% 0.70% 0.87%
</TABLE>
CLASS D SHARES
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C>
.78% 1.46% 0.95% 1.12%
</TABLE>
(e) Expenses have been restated to reflect current and anticipated fees
associated with each Fund.
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment assuming
(1) the Total Operating Expenses in respect of each class of shares of each
Fund as set forth on page 2, (2) a 5% annual return throughout the period and
(3) redemption at the end of:
Class A Shares
<TABLE>
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
One year................... $ 4 $ 5 $ 4 $ 7
Three years................ $13 $16 $11 $21
Class D Shares
<CAPTION>
S&P 500 SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
One year................... $ 7 $ 8 $ 6 $ 9
Three years................ $21 $24 $19 $29
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in each class of each Fund will bear
directly or indirectly. The expenses set forth under "Other Expenses" are based
on estimated amounts through the end of a Series' and a Fund's first full
fiscal year on an annualized basis.
The example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
PURPOSES OF THE EXAMPLE. Merrill Lynch may charge its customers a processing
fee (presently $5.35) for confirming purchases and repurchases. Purchases and
redemptions directly through the Funds' transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the tables below for the period April 3, 1997
(commencement of operations) to June 30, 1997 for the S&P 500 Index Fund and
the Aggregate Bond Index Fund, and for the period April 9, 1997 (commencement
of operations) to June 30, 1997 for the Small Cap Index Fund and the
International Index Fund is unaudited. Unaudited financial statements for the
period ended June 30, 1997, as well as the statement of assets and liabilities
as of January 17, 1997 which has been audited by Deloitte & Touche LLP and the
independent auditors' report thereon, are included in the Statement of
Additional Information.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
S&P 500 INDEX FUND SMALL CAP INDEX FUND
----------------------------------- -----------------------------------
CLASS A CLASS D CLASS A CLASS D
----------------- ----------------- ----------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
APRIL 3, 1997+ TO APRIL 3, 1997+ TO APRIL 9, 1997+ TO APRIL 9, 1997+ TO
JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSET
VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- ------- ------- -------
Investment income--net. .03 .04 .03 .03
Realized and unrealized
gain on investments
from the Series--net.. 1.81 1.80 1.48 1.48
-------- ------- ------- -------
Total from investment
operations............. 1.84 1.84 1.51 1.51
-------- ------- ------- -------
Net asset value, end of
period................. $ 11.84 $ 11.84 $ 11.51 $ 11.51
======== ======= ======= =======
TOTAL INVESTMENT RETURN:
Based on net asset
value per share....... 18.40%++ 18.40%++ 15.10%++ 15.10%++
======== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement++........ .41%* .62%* .50%* .75%*
======== ======= ======= =======
Expenses++.............. .54%* .84%* 1.20%* 1.46%*
======== ======= ======= =======
Investment income--net.. 1.96%* 1.80%* 1.61%* 1.36%*
======== ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands).. $236,616 $58,697 $18,031 $22,184
======== ======= ======= =======
</TABLE>
- --------
* Annualized.
+ Commencement of Operations.
++ Includes the Fund's share of the Series' allocated expenses.
++ Aggregate total investment return.
4
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
AGGREGATE BOND INDEX FUND INTERNATIONAL INDEX FUND
----------------------------------- -----------------------------------
CLASS A CLASS D CLASS A CLASS D
----------------- ----------------- ----------------- -----------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
APRIL 3, 1997+ TO APRIL 3, 1997+ TO APRIL 9, 1997+ TO APRIL 9, 1997+ TO
JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSET
VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- ------- -------- -------
Investment income--net. .15 .15 .07 .09
Realized and unrealized
gain on investments
from the Series--net.. .14 .15 -- --
Realized and unrealized
gain on investments
and foreign currency
transactions from the
Series--net........... -- -- 1.45 1.43
-------- ------- -------- -------
Total from investment
operations............. .29 .30 1.52 1.52
-------- ------- -------- -------
Less dividends from
investment
income--net............ (.15) (.15) -- --
-------- ------- -------- -------
Net asset value, end of
period................. $ 10.14 $ 10.15 $ 11.52 $ 11.52
======== ======= ======== =======
TOTAL INVESTMENT RETURN:
Based on net asset
value per share....... 2.95%++ 2.99%++ 15.20%++ 15.20%++
======== ======= ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement++........ .38%* .54%* .67%* .86%*
======== ======= ======== =======
Expenses++.............. .70%* 1.05%* .87%* 1.14%*
======== ======= ======== =======
Investment income--net.. 6.34%* 6.09%* 4.08%* 3.51%*
======== ======= ======== =======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands).. $150,048 $26,762 $101,726 $25,818
======== ======= ======== =======
</TABLE>
- --------
* Annualized.
+ Commencement of Operations.
++ Includes the Fund's share of the Series' allocated expenses.
++ Aggregate total investment return.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Corporation currently consists of four series: S&P 500 Index Fund, Small
Cap Index Fund, Aggregate Bond Index Fund and International Index Fund. Each
Fund is a non-diversified mutual fund whose investment objective is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of capital changes and income) of a specified securities
index. Each Fund will seek to achieve its objective by investing all of its
assets in the series of Merrill Lynch Index Trust that has the same investment
objective as the Fund. Each Fund's investment experience will correspond
directly to the investment experience of the respective Series in which it
invests. There can be no assurance that the investment objectives of the Funds
will be achieved.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors of the Corporation and the Trustees of the
Trust, respectively, without shareholder approval. THE TRUSTEES AND THE
DIRECTORS MAY ALSO CHANGE THE TARGET INDEX OF ANY RESPECTIVE SERIES AND FUND IF
THEY CONSIDER THAT A DIFFERENT INDEX WOULD FACILITATE THE MANAGEMENT OF THE
SERIES AND FUND IN A MANNER WHICH BETTER ENABLES THE FUND AND SERIES TO SEEK TO
REPLICATE THE TOTAL RETURN OF THE MARKET SEGMENT REPRESENTED BY THE CURRENT
INDEX.
STRUCTURE OF THE FUNDS AND THE SERIES
Unlike many other mutual funds, which directly acquire and manage their own
portfolio securities, each Fund seeks to achieve its investment objective by
investing all of its assets in the corresponding Series of the Trust. Each
Series is a separate series of a registered investment company with the same
investment objective as its corresponding investing Fund. Because the Funds
will not invest in any securities other than shares of the respective Series,
investors in the Funds will acquire an indirect interest in the Series.
In addition to selling their shares to the Funds, the Series may sell their
shares to other mutual funds and institutional investors. All investors in the
Series invest on the same terms and conditions and pay a proportionate share of
the Series' expenses. However, other investors in the Series may sell their
shares at prices different from those of the Funds as a result of the
imposition of sales charges or different operating expenses. Therefore,
investors in the Funds should be aware that these differences may result in
different returns experienced by the various entities investing in the Series.
Information concerning other holders of shares of the Series is available from
Merrill Lynch Financial Data Services, Inc. ("MLFDS" or the "Transfer Agent")
by calling 1-800-MER-FUND.
The Board of Directors of the Corporation believes that this structure may
enable the Funds to benefit from certain economies of scale. This view is based
on the premise that (i) certain of the expenses of managing an investment
portfolio that seeks to replicate the total return of a securities index are
relatively fixed so that a larger investment portfolio may achieve a lower
ratio of operating expenses to net assets and (ii) a larger investment
portfolio may be able to reduce certain securities transaction costs to the
extent that contributions to and redemptions from the investment portfolio from
different investing entities may offset each other and thus produce a lower net
cash flow.
A Fund's investment in a Series may be withdrawn by the Board of Directors at
any time if the Board determines that it is in the best interests of the Fund
to do so. If any such withdrawal were made, the Board would consider what
action might be taken, including the investment of all of the assets of the
Fund in
6
<PAGE>
another pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's assets
directly in accordance with the investment objective of the Fund. The inability
to find another such pooled entity or equivalent investment management could
have a significant impact on the investments of the Fund's shareholders.
Investors in the Funds should be aware that smaller entities investing in the
Series may be materially affected by the actions of larger entities investing
in the Series. For example, investors in the Series holding larger positions
than the Funds could have greater voting power and effective voting control
over the operations of the Series. Changes in the investment objective,
policies or restrictions of a Series might cause a Fund to have difficulty in
finding a substitute Series or equivalent investment management and might cause
it to redeem its shares of the Series, and such a redemption could result in a
distribution in kind of portfolio securities held by the Series, instead of
cash. If securities were distributed to a Fund, and the Fund desired to convert
the securities to cash, it would incur brokerage, tax or other charges in
converting securities to cash. In addition, such a distribution in kind might
result in a less diversified portfolio of investments of a Fund. These
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from the fund.
Whenever a Fund is requested to vote on matters pertaining to a Series, the
Fund will hold a meeting of shareholders, and the Fund's votes with respect to
the Series will all be cast in the same proportion as the shares of the Fund
for which voting instructions are received.
S&P 500 INDEX FUND
The investment objective of the S&P 500 Index Fund is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of the Standard & Poor's (R) 500
Composite Stock Price Index (the "S&P 500"). There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch S&P 500 Index Series of the Trust ("S&P 500 Index
Series"), which has the same investment objective as the Fund. The following is
a description of the investment policies of the S&P 500 Index Series.
In seeking to replicate the total return of the S&P 500, Merrill Lynch Asset
Management, L.P. ("MLAM" or the "Manager") generally will allocate the S&P 500
Index Series' investments among common stocks in approximately the same
weightings as the S&P 500. In addition, the Manager may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the S&P 500. The S&P 500 Index Series may also engage in securities lending
and index arbitrage. See "Other Types of Investments and Investment
Techniques."
The S&P 500 is composed of the common stocks of 500 large capitalization
companies from various industrial sectors, most of which are listed on the New
York Stock Exchange Inc. A company's stock market capitalization is the total
market value of its outstanding shares. The S&P 500 represents a significant
portion of the market value of all common stocks publicly traded in the United
States.
7
<PAGE>
SMALL CAP INDEX FUND
The investment objective of the Small Cap Index Fund is to provide investment
results that, before expenses, seek to replicate the total return (i.e., the
combination of capital changes and income) of the Russell 2000 (R) Index (the
"Russell 2000"). There can be no assurance that the investment objective of the
Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch Small Cap Index Series of the Trust ("Small Cap
Index Series"), which has the same investment objective as the Fund. The
following is a description of the investment policies of the Small Cap Index
Series.
In seeking to replicate the total return of the Russell 2000, the Manager may
not allocate the Small Cap Index Series' investments among all of the common
stocks in the Russell 2000, or in the same weightings as the Russell 2000.
Instead, the Small Cap Index Series may invest in a statistically selected
sample of the stocks included in the Russell 2000 and other types of financial
instruments. The Manager may use options and futures contracts and other types
of financial instruments relating to all or a portion of the Russell 2000. The
investments to be included in the Small Cap Index Series will be selected so
that the market capitalizations, industry weightings and other fundamental
characteristics of the stocks, and of the stocks underlying or otherwise
related to the foregoing financial instruments, closely approximate those same
factors in the Russell 2000, with the objective of reducing the selected
investment portfolio's deviation from the performance of the Russell 2000 (this
deviation is referred to as "tracking error"). The Small Cap Index Series may
also engage in securities lending and index arbitrage. See "Other Types of
Investments and Investment Techniques."
The Russell 2000 is composed of approximately 2,000 smaller-capitalization
common stocks from various industrial sectors. A company's stock market
capitalization is the total market value of its outstanding shares.
AGGREGATE BOND INDEX FUND
The investment objective of the Aggregate Bond Index Fund is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of capital changes and income) of the Lehman Brothers
Aggregate Bond Index (the "Aggregate Bond Index"). There can be no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch Aggregate Bond Index Series of the Trust
("Aggregate Bond Index Series"), which has the same investment objective as the
Fund. The following is a description of the investment policies of the
Aggregate Bond Index Series.
In seeking to replicate the total return of the Aggregate Bond Index, the
Manager may not allocate the Aggregate Bond Index Series' investments among all
of the fixed-income securities in the Aggregate Bond Index, or in the same
weightings as the Aggregate Bond Index. Instead, the Aggregate Bond Index
Series may invest in a statistically selected sample of fixed-income securities
and other types of financial instruments. The Manager may use options and
futures contracts and other types of financial instruments relating to all or a
portion of the Aggregate Bond Index. The investments to be included in the
Aggregate Bond Index Series will be selected with the objective of reducing the
selected investment portfolio's deviation from the performance of the Aggregate
Bond Index (tracking error). The Aggregate Bond Index Series may, from time to
time, substitute a different type of bond for one included in the Aggregate
Bond Index. Substitution may result in levels of interest rate, credit or
prepayment risks that differ from the levels of risks on the securities
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composing the Aggregate Bond Index. See "Risk Factors--Investments in Fixed-
Income Securities." The Aggregate Bond Index Series may also engage in
securities lending and index arbitrage. See "Other Types of Investments and
Investment Techniques."
The Aggregate Bond Index is composed primarily of dollar-denominated
investment grade fixed-income securities in the following classes: U.S.
Treasury and agency securities, U.S. corporate bonds, foreign corporate bonds,
foreign sovereign debt (debt securities issued or guaranteed by foreign
governments and governmental agencies), supranational debt (debt securities
issued by entities, such as the World Bank, constituted by the governments of
several countries to promote economic development) and mortgage-backed
securities with maturities greater than one year. Corporate bonds contained in
the Aggregate Bond Index represent issuers from various industrial sectors.
The Aggregate Bond Index Series may invest in U.S. Treasury bills, notes and
bonds and other "full faith and credit" obligations of the U.S. Government. The
Aggregate Bond Index Series may also invest in U.S. Government agency
securities, which are debt obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government. "Agency" securities may not be backed
by the "full faith and credit" of the U.S. Government. U.S. Government agencies
may include the Federal Farm Credit Bank, the Resolution Trust Corporation and
the Government National Mortgage Association. "Agency" obligations are not
explicitly guaranteed by the U.S. Government and so are perceived as somewhat
riskier than comparable Treasury bonds.
The Aggregate Bond Index Series' corporate fixed-income securities will be
primarily of investment grade quality--i.e., those rated at least Baa3 by
Moody's Investors Service, Inc. ("Moody's") or BBB- by Standard & Poor's
Ratings Group ("S&P"), the equivalent by another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, of equal quality in
the opinion of the Manager. Corporate fixed-income securities ranked in the
fourth highest rating category, while considered "investment grade", have more
speculative characteristics and are more likely to be downgraded than
securities rated in the three highest ratings categories. In the event that the
rating of a security in the Aggregate Bond Index Series is lowered below Baa or
BBB, the Aggregate Bond Index Series may continue to hold the security. Such
securities rated below investment grade are considered to be speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Descriptions of the ratings of
fixed-income securities are contained in Appendix B to this Prospectus.
The Aggregate Bond Index Series may also invest in other instruments that
"pass through" payments on such obligations, such as collateralized mortgage
obligations ("CMOs").
INTERNATIONAL INDEX FUND
The investment objective of the International Index Fund is to provide
investment results that, before expenses, seek to replicate the total return
(i.e., the combination of capital changes and income) of the Morgan Stanley
Capital International EAFE (R) GDP Weighted Index (the "EAFE Index"). There can
be no assurance that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Merrill Lynch International Index Series of the Trust
("International Index Series"), which has the same investment objective as the
Fund. The following is a description of the investment policies of the
International Index Series.
In seeking to replicate the total return of the EAFE Index, the Manager may
not allocate the International Index Series' investments among all of the
countries, or all of the companies within a country,
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represented in the EAFE Index, or in the same weightings as the EAFE Index.
Instead, the International Index Series may invest in a statistically selected
sample of the equity securities included in the EAFE Index and other types of
financial instruments. In addition, the Manager may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the EAFE Index. The investments to be included in the International Index
Series will be selected so that the market capitalizations, industry weightings
and other fundamental characteristics of the stocks, and of the stocks
underlying or otherwise related to the foregoing financial instruments, closely
approximate those same factors in the EAFE Index, with the objective of
reducing the selected investment portfolio's deviation from the performance of
the EAFE Index (tracking error). The International Index Series may also engage
in securities lending and index arbitrage. See "Other Types of Investments and
Investment Techniques."
The EAFE Index is composed of equity securities of companies from various
industrial sectors whose primary trading markets are located outside the United
States and which are selected from among the larger capitalization companies in
such markets. A company's stock market capitalization is the total market value
of its outstanding shares. The countries currently included in the EAFE Index
are Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. The weighting of the
EAFE Index among these countries is based upon gross domestic product (GDP).
(Market capitalization is the basis for country weightings in another version
of the EAFE Index. Using the GDP weighting tends to decrease the relative
weighting of Japan and the United Kingdom while increasing the weighting of
certain European countries, generally resulting in a more diversified EAFE
Index).
ABOUT INDEXING AND MANAGEMENT OF THE SERIES
About Indexing. The Series are not managed according to traditional methods
of "active" investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and investment
judgment. Instead, each Series, utilizing essentially a "passive" or "indexing"
investment approach, seeks to replicate, before each Series' expenses (which
can be expected to reduce the total return of the Series), the total return of
its respective index.
Indexing and Managing the Series. Under normal conditions each Series will
invest at least 80% of its assets (exclusive of assets held as collateral for
securities loans or as margin for futures transactions) in securities or other
financial instruments which are contained in, or related to the securities
contained in, the applicable index (equity securities, in the case of the S&P
500 Index Series, Small Cap Index Series and International Index Series (the
"Equity Series"), and fixed-income securities in the case of the Aggregate Bond
Index Series (the "Fixed-Income Series")).
Because each Series seeks to replicate the total return of its respective
index, generally the Manager will not attempt to judge the merits of any
particular security as an investment but will seek only to replicate the total
return of the securities in the relevant index. However, the Manager may omit
or remove a security which is included in an index from the portfolio of a
Series if, following objective criteria, the Manager judges the security to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions.
In managing the Equity Series, the Manager may employ index arbitrage. Index
arbitrage involves the sale of a replicating selection, or "basket," of stocks
with the simultaneous purchase of an equivalent dollar
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value of related futures contracts, or alternatively the purchase of such an
equity basket with a simultaneous sale of related futures contracts. This
technique is designed to take advantage of a possible mispricing which could
arise between the securities market and the futures market. Extensive use of
this technique could, however, be limited by applicable tax laws.
In addition, the Manager may acquire certain financial instruments based upon
individual securities or based upon or consisting of one or more baskets of
securities (which basket may be based upon a target index). Certain of these
instruments may represent an indirect ownership interest in such securities or
baskets. Others may provide for the payment to a Series or by a Series of
amounts based upon the performance (positive, negative or both) of a particular
security or basket. The Manager will select such instruments when it believes
that the use of the instrument will correlate substantially with the expected
total return of a target security or index. In connection with the use of such
instruments, the Manager may enter into short sales in an effort to adjust the
weightings of particular securities represented in the basket to more
accurately reflect such securities' weightings in the target index.
Each Series' ability to replicate the total return of its respective index
may be affected by, among other things, transaction costs, administration and
other expenses incurred by the Series, taxes (including foreign withholding
taxes, which will affect the International Index Series and the Aggregate Bond
Index Series due to foreign tax withholding practices), changes in either the
composition of the index or the assets of a Series, and the timing and amount
of Series investor contributions and withdrawals, if any. In addition, each
Fund's total return will be affected by incremental operating costs (e.g.,
transfer agency, accounting) that will be borne by the Fund. Under normal
circumstances, it is anticipated that each Series' total return over periods of
one year and longer will, on a gross basis and before taking into account
expenses, be within 5 basis points (a basis point is one one-hundredth of one
percent (0.01%)) for the S&P 500 Index Fund, 100 basis points for the Small Cap
Index Fund, 150 basis points for the International Index Fund, and 25 basis
points for the Aggregate Bond Index Fund, of the total return of the applicable
indices. There can be no assurance, however, that these levels of correlation
will be achieved. In the event that this correlation is not achieved over time,
the Trustees of the Trust and the Directors of the Corporation will consider
alternative strategies for the Series and the Funds.
OTHER TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES OF THE SERIES
Cash Management. Generally, the Manager will employ futures and options on
futures to provide liquidity necessary to meet anticipated redemptions or for
day-to-day operating purposes. However, if considered appropriate in the
opinion of the Manager, a portion of a Series' assets may be invested in
certain types of instruments with remaining maturities of 397 days or less for
liquidity purposes. Such instruments would consist of: (i) obligations of the
U.S. Government, its agencies, instrumentalities, authorities or political
subdivisions ("U.S. Government Securities"); (ii) other fixed-income securities
rated Aa or higher by Moody's or AA or higher by S&P or, if unrated, of
comparable quality in the opinion of the Manager; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Series
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper, bank
obligations or other short-term obligations rated Prime-1 by Moody's or A-1 by
S&P; or, if no such ratings are available, the instrument must be of comparable
quality in the opinion of the Manager.
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Portfolio Strategies Involving Futures, Options, Swaps and Indexed
Instruments. Each Series will also utilize options, futures, options on
futures, swaps and other indexed instruments. Futures and options on futures
may be employed to provide liquidity as described in the preceding paragraph,
and may also be employed in connection with a Series' index arbitrage
strategies. Futures, options on futures, swaps and other indexed instruments
may be employed as a proxy for a direct investment in securities underlying the
Series' index. In addition, the International Index Series may engage in
futures contracts on foreign currencies in connection with certain foreign
securities transactions.
The Manager will choose among the foregoing instruments based on its judgment
of how best to meet each Series' goals. In connection therewith, the Manager
will assess such factors as current and anticipated securities prices, relative
liquidity and price levels in the options, futures and swap markets compared to
the securities markets, and the Series' cash flow and cash management needs.
The Series' use of the foregoing instruments and the associated risks are
described in detail in Appendix A to this Prospectus.
Foreign Exchange Transactions. The International Index Series may engage in
futures contracts on foreign currencies and foreign currency forward and spot
transactions in connection with transactions or anticipated transactions in
securities denominated in foreign currencies. Specifically, the Series may
purchase or sell a currency to settle a security transaction or sell a currency
in which the Series has received or anticipates receiving a dividend or
distribution.
OTHER INVESTMENT POLICIES AND PRACTICES OF THE SERIES
Illiquid Investments. Each of the Series may invest up to 15% of its net
assets in illiquid investments. Pursuant to that restriction each Series may
not invest in instruments which cannot be readily resold because of legal or
contractual restrictions, which cannot otherwise be marketed, redeemed, put to
the issuer or a third party, which do not mature within seven days, or which
the Trustees have not determined to be liquid, if, regarding all such
instruments, more than 15% of its net assets, taken at market value, would be
invested in such instruments.
Each Series may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933 (the "Securities Act")
but that can be offered and sold to "qualified institutional buyers" under Rule
144A under the Securities Act, provided that the Trustees, or the Manager
pursuant to guidelines adopted by the Trustees, continuously determines, based
on the trading markets for the specific Rule 144A security, that it is liquid.
The Trustees, however, will retain oversight and are ultimately responsible for
these determinations. The Trustees monitor each Series' investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in each Series to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
Repurchase Agreements. Each Series may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System, primary dealers in U.S. Government
securities, or an affiliate thereof, or with other entities which the Manager
otherwise deems to be creditworthy. Under repurchase agreements, the
counterparty agrees, upon
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entering into the contract, to repurchase the security from the Series at a
mutually agreed upon time and price in a specified currency, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period although
it may be affected by currency fluctuations. In the event of default by the
seller under a repurchase agreement the Series may suffer time delays and incur
costs or possible losses in connection with disposition of the collateral.
Repurchase agreements maturing in more than seven days are deemed illiquid by
the Securities and Exchange Commission and are therefore subject to the Series'
investment restrictions limiting investments in securities that are not readily
marketable to 15% of the Series' net assets.
Lending of Portfolio Securities. To the extent permitted by law, each Series
may from time to time lend securities from its portfolio to banks, brokers and
other financial institutions and receive collateral in cash or securities
issued or guaranteed by the United States government. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Each Series' policy concerning lending
is fundamental and it may not be changed without the approval of the holders of
a majority of the Series' outstanding voting securities, as defined in the
Investment Company Act. During the period of such a loan, the Series receives
the income on the loaned securities and either receives the income on the
collateral or other compensation, i.e., negotiated loan premium or fee, for
entering into the loan and thereby increases its yield. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Series could experience delays and costs in
gaining access to the collateral and could suffer a loss to the extent that the
value of the collateral falls below the market value of the borrowed
securities. Presently, no Series intends to lend portfolio securities
representing in excess of 33 1/3% of its total assets.
When-Issued Securities and Delayed Delivery Transactions. The Aggregate Bond
Index Series may purchase securities on a when-issued basis, and it may
purchase or sell securities for delayed delivery. These transactions occur when
securities are purchased or sold by the Series with payment and delivery taking
place in the future to secure what is considered an advantageous yield and
price to the Series at the time of entering into the transaction. Although the
Aggregate Bond Index Series has not established any limit on the percentage of
its assets that may be committed in connection with such transactions, the
Aggregate Bond Index Series will maintain a segregated account with its
custodian of liquid securities in an aggregate amount equal to the amount of
its commitment in connection with such purchase transactions.
Dollar Rolls. The Aggregate Bond Index Series may enter into dollar rolls, in
which the Aggregate Bond Index Series will sell securities for delivery in the
current month and simultaneously contract to repurchase substantially similar
(the same type and coupon) securities on a specified future date from the same
party. During the roll period, the Series forgoes principal and interest paid
on the securities sold. The Aggregate Bond Index Series is compensated by the
difference between the current sales price and the forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale.
Dollar rolls involve the risk that the market value of the securities subject
to the Aggregate Bond Index Series' forward purchase commitment may decline
below the price of the securities the Aggregate Bond Index Series has sold. In
the event the buyer of the securities files for bankruptcy or becomes
insolvent, the Aggregate Bond Index Series' use of the proceeds of the current
sale portion of the transaction may be
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restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Aggregate Bond Index Series' obligation to
purchase the similar securities in the forward transaction. Dollar rolls are
speculative techniques which can be deemed to involve leverage. The Aggregate
Bond Index Series will establish a segregated account with its custodian in
which it will maintain liquid securities in an aggregate amount equal to the
amount of the forward commitment. The Aggregate Bond Index Series will engage
in dollar roll transactions to enhance return and not for the purpose of
borrowing. Each dollar roll transaction is accounted for as a sale of a
portfolio security and a subsequent purchase of a substantially similar
security in the forward market.
Standby Commitment Agreements. The Aggregate Bond Index Series may from time
to time enter into standby commitment agreements. Such agreements commit the
Aggregate Bond Index Series, for a stated period of time, to purchase a stated
amount of a fixed income security which may be issued and sold to the Series at
the option of the issuer. The price and coupon of the security is fixed at the
time of the commitment. At the time of entering into the agreement, the
Aggregate Bond Index Series is paid a commitment fee, regardless of whether or
not the security is ultimately issued. The Aggregate Bond Index Series will
enter into such agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which is considered advantageous
to the Series. The Aggregate Bond Index Series will not enter into a standby
commitment with a remaining term in excess of 90 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of all other
illiquid securities, will not exceed 15% of its total assets taken at the time
of acquisition of such commitment or security. The Aggregate Bond Index Series
will at all times maintain a segregated account with its custodian of liquid
securities in an aggregate amount equal to the purchase price of the securities
underlying the commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Because the issuance of the
security underlying the commitment is at the option of the issuer, the
Aggregate Bond Index Series may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the security
during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Aggregate Bond Index Series'
net asset value. The cost basis of the security will be adjusted by the amount
of the commitment fee. In the event the security is not issued, the commitment
fee will be recorded as income on the expiration date of the standby
commitment.
Short Sales. In connection with the use of certain instruments based upon or
consisting of one or more baskets of securities, the Manager may sell a
security a Series does not own, or in an amount greater than the Series owns
(i.e., make short sales). Such transactions will be used only in an effort to
adjust the weightings of particular securities represented in the basket to
reflect such securities' weightings in the target index. The Manager will not
employ short sales in reflection of the Manager's outlook for the securities
markets or for the performance of the securities sold short. Generally, to
complete a short sale transaction, the Series will borrow the security to make
delivery to the buyer. The Series is then obligated to replace the security
borrowed. The price at the time of replacement may be more or less than the
price at which the security was
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sold by the Series. Until the security is replaced, the Series is required to
pay to the lender any interest which accrues during the period of the loan. To
borrow the security, the Series may be required to pay a premium which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker to the extent necessary to meet margin requirements
until the short position is closed out. Until the Series replaces the borrowed
security, it will (a) maintain in a segregated account with its custodian cash
or liquid securities at such a level that the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
market value of the security sold short or (b) otherwise cover its short
position.
INVESTMENT RESTRICTIONS
The Funds' and the Series' investment activities are subject to further
restrictions that are described in the Statement of Additional Information.
Investment restrictions and policies which are fundamental policies may not be
changed without the approval of the holders of a majority of the Funds' or
Series' outstanding voting securities as defined in the Investment Company Act.
Among the more significant fundamental restrictions, a Series or Fund may not
invest more than 25% of its total assets (taken at market value at the time of
each investment) in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities);
provided, that in replicating the weighting of a particular industry in its
target index, a Series or Fund may invest more than 25% of its total assets in
securities of issuers in that industry. In addition, although each Fund is
classified as a non-diversified fund under the Investment Company Act and is
not subject to the diversification requirements of the Investment Company Act,
each Fund is required to comply with certain requirements under the Internal
Revenue Code of 1986, as amended (the "Code"). To ensure that the Funds satisfy
these requirements, the Declaration of Trust requires that each Series be
managed in compliance with the Code requirements as though such requirements
were applicable to the Series. These requirements include limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of a Fund's total assets are invested in the
securities of a single issuer, or any two or more issuers which are controlled
by the Fund and engaged in the same, similar or related businesses, and (ii)
with respect to 50% of the market value of its total assets, not more than 5%
of the market value of its total assets are invested in the securities of a
single issuer, and the Fund does not own more than 10% of the outstanding
voting securities of a single issuer. The U.S. Government, its agencies and
instrumentalities are not included within the definition of "issuer" for
purposes of the diversification requirements of the Code. These requirements
will be satisfied at the Series level and not at the level of the Funds based
upon a ruling received from the Internal Revenue Service ("IRS") which entitles
the Funds to "look through" the shares of the Series to the underlying
investments of the Series for purposes of these diversification requirements.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors and the Trustees, respectively, without
shareholder approval. THE TRUSTEES AND THE DIRECTORS MAY ALSO CHANGE THE TARGET
INDEX OF ANY RESPECTIVE SERIES AND FUND IF THEY CONSIDER THAT A DIFFERENT INDEX
WOULD FACILITATE THE MANAGEMENT OF THE SERIES AND FUND IN A MANNER WHICH BETTER
ENABLES THE FUND AND SERIES TO SEEK TO REPLICATE THE TOTAL RETURN OF THE MARKET
SEGMENT REPRESENTED BY THE CURRENT INDEX.
RISK FACTORS
Each Fund will be subject to the risks associated with an investment in its
corresponding Series. These risks are set forth below.
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Cash Flows; Expenses. The ability of each Series to satisfy its investment
objective depends to some extent on the Manager's ability to manage cash flow
(primarily from purchases and redemptions and distributions from the Series'
investments). The Manager will make investment changes to a Series' portfolio
to accommodate cash flow while continuing to seek to replicate the total return
of the Series' target index. Investors should also be aware that the investment
performance of each index is a hypothetical number which does not take into
account brokerage commissions and other transaction costs, custody and other
costs of investing, which will be borne by the Series, and any incremental
operating costs (e.g., transfer agency, accounting) that will be borne by the
Funds. Finally, since each Series seeks to replicate the total return of its
target index, the Manager generally will not attempt to judge the merits of any
particular security as an investment.
Options, Futures, Swaps and Indexed Instruments. The Manager expects to use
options, futures, options on futures, swaps and indexed instruments as
described above under "About Indexing and Management of the Series--Other Types
of Investments and Techniques--Portfolio Strategies Involving Futures, Options,
Swaps and Indexed Instruments." Use of such instruments may involve investment
risks and transaction costs to which the Series would not be subject absent the
use of these instruments. A discussion of these instruments is contained in
Appendix A to this Prospectus.
Investment in Foreign Securities. Investments on an international basis
involve certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
or U.S. governmental laws or restrictions applicable to such investments.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Also, it is anticipated that most of the foreign securities held by a Series
will not be registered with the Securities and Exchange Commission nor will the
issuers thereof be subject to the reporting requirements of such agency. In
addition, foreign investors such as the Series may be subject to withholding
taxes in certain countries, which may reduce the returns of the Series.
Since the International Index Series will invest heavily in securities
denominated or quoted in currencies other than the United States dollar,
changes in foreign currency exchange rates will affect the value of securities
in the Series' portfolio and the unrealized appreciation or depreciation of
investments so far as United States investors are concerned. Currencies of
certain foreign countries may be volatile and therefore may affect the value of
securities denominated in such currencies. Changes in foreign currency exchange
rates relative to the United States dollar will affect the United States dollar
value of the Series' assets denominated in that currency and the return on such
assets. The rate of exchange between the dollar and other currencies is
determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by the international balance of payments,
the level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors.
Investment in Fixed-Income Securities. Because the Aggregate Bond Index
Series will invest in fixed-income securities, it will be subject to the
general risks inherent is such securities, primarily interest rate risk, credit
risk and prepayment risk.
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Interest rate risk is the potential for fluctuations in bond prices due to
changing interest rates. As a rule bond prices vary inversely with interest
rates. If interest rates rise, bond prices generally decline; if interest rates
fall, bond prices generally rise. In addition, for a given change in interest
rates, longer-maturity bonds generally fluctuate more in price than shorter-
maturity bonds. To compensate investors for these larger fluctuations, longer-
maturity bonds usually offer higher yields than shorter-maturity bonds, other
factors, including credit quality, being equal. These basic principles of bond
prices also apply to U.S. Government Securities. A security backed by the "full
faith and credit" of the U.S. Government is guaranteed only as to its stated
interest rate and face value at maturity, not its current market price. Just
like other fixed-income securities, government-guaranteed securities will
fluctuate in value when interest rates change.
Credit risk is the possibility that an issuer of securities held by the
Aggregate Bond Index Series will be unable to make payments of either interest
or principal or will be perceived to have a diminished capacity to make such
payments in the future. The credit risk of the Aggregate Bond Index Series is a
function of the diversification and credit quality of its underlying
securities.
The Aggregate Bond Index Series may also be exposed to event risk, which
includes the possibility that fixed-income securities held by the Aggregate
Bond Index Series may suffer a substantial decline in credit quality and market
value due to issuer restructurings. Certain restructurings such as mergers,
leveraged buyouts, takeovers or similar events, are often financed by a
significant expansion of corporate debt. As a result of the added debt burden,
the credit quality and market value of a firm's existing debt securities may
decline significantly. Other types of restructurings (such as corporate
spinoffs or privatizations of governmental or agency borrowers or the
termination of express or implied governmental credit support) may also result
in decreased credit quality of a particular issuer.
Prepayment risk is the possibility that the principal of the mortgage loans
underlying mortgage-backed securities may be prepaid at any time. As a general
rule, prepayments increase during a period of falling interest rates and
decrease during a period of rising interest rates. As a result of prepayments,
in periods of declining interest rates the Aggregate Bond Index Series may be
required to reinvest its assets in securities with lower interest rates. In
periods of increasing interest rates, prepayments generally may decline, with
the effect that the mortgage-backed securities held by the Aggregate Bond Index
Series may exhibit price characteristics of longer-term debt securities.
The corporate substitution strategy used by the Aggregate Bond Index Series
(discussed above) may increase or decrease the Aggregate Bond Index Series'
exposure to the foregoing risks relative to those of the Aggregate Bond Index.
Investments in Small Companies. The Small Cap Index Series will invest
primarily in securities of smaller capitalization issuers. Investments in
securities of smaller capitalization issuers involve special considerations and
risks not typically associated with investments in securities of larger
capitalization issuers, including an issuer's limited product lines, markets or
financial resources, or dependence on a limited management group. In addition,
many smaller capitalization stocks trade less frequently and in smaller volume,
and may be subject to more abrupt or erratic price movements, than stocks of
larger companies. The securities of smaller companies may also be more
sensitive to market changes than the securities of larger companies.
Portfolio Turnover. Although each Series will use a passive, indexing
approach to investing, each Series may engage in a substantial number of
portfolio transactions. The rate of portfolio turnover will be a limiting
17
<PAGE>
factor when the Manager considers whether to purchase or sell securities for a
Series only to the extent that the Manager will consider the impact of
transaction costs on a Series' tracking error. Changes in the securities
comprising a Series' index will tend to increase that Series' portfolio
turnover rate, as the Manager restructures the Series' holdings to reflect the
changes in the index. The portfolio turnover rate is, in summary, the
percentage computed by dividing the lesser of a Series' purchases or sales of
securities by the average net asset value of the Series. High portfolio
turnover involves correspondingly greater brokerage commissions for a Series
investing in equity securities and other transaction costs which are borne
directly by a Series. A high portfolio turnover rate may also result in the
realization of taxable capital gains, including short-term capital gains
taxable at ordinary income rates.
While it is impossible to predict the portfolio turnover rates for each of
the Series, it is anticipated that the portfolio turnover rates for each of the
Series will not exceed 100%. For the period April 3, 1997 (commencement of
operations) to June 30, 1997, the portfolio turnover of the S&P 500 Index
Series and the Aggregate Bond Index Series was 1.39% and 62.75%, respectively.
For the period April 9, 1997 (commencement of operations) to June 30, 1997, the
portfolio turnover of the Small Cap Index Series and the International Index
Series was 26.02% and 5.45%, respectively.
ADDITIONAL INFORMATION CONCERNING THE INDICES
S&P 500. "Standard & Poor's (R)", "S&P (R)", "S&P 500 (R)", "Standard &
Poor's 500", and "500" are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by the Corporation and the Trust. The S&P 500 Index
Fund and the S&P 500 Index Series are not sponsored, endorsed, sold or promoted
by Standard & Poor's, a division of the McGraw Hill Companies, Inc. ("Standard
& Poor's") and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund or the Series.
The Fund and the Series are not sponsored, endorsed, sold or promoted by
Standard & Poor's. Standard & Poor's makes no representation or warranty,
express or implied, to the owners of shares of the Fund or the Series or any
member of the public regarding the advisability of investing in securities
generally or in the Fund or the Series particularly or the ability of the S&P
500 to track general stock market performance. Standard & Poor's only
relationship to the Fund and the Series is the licensing of certain trademarks
and trade names of Standard & Poor's and of the S&P 500 which is determined,
composed and calculated by Standard & Poor's without regard to the Fund and the
Series. Standard & Poor's has no obligation to take the needs of the Fund and
the Series or the owners of shares of the Fund and the Series into
consideration in determining, composing or calculating the S&P 500. Standard &
Poor's is not responsible for and has not participated in the determination of
the prices and amount of the Fund and the Series or the timing of the issuance
of sale of shares of the Fund and the Series or in the determination or
calculation of the equation by which the Fund and the Series is to be converted
into cash. Standard & Poor's has no obligation or liability in connection with
the administration, marketing or trading of the Fund and the Series.
Standard & Poor's does not guarantee the accuracy and/or the completeness of
the S&P 500 Index or any data included therein, and Standard & Poor's shall
have no liability for any errors, omissions, or interruptions therein. Standard
& Poor's makes no warranty, express or implied, as to results to be obtained by
the Fund, the Series, owners of shares of the Fund and the Series, or any other
person or entity from the use of the S&P 500 Index or any data included
therein. Standard & Poor's makes no express or implied warranties and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use
18
<PAGE>
with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event shall Standard & Poor's have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
Russell 2000. The Small Cap Index Fund and the Small Cap Index Series are not
promoted, sponsored or endorsed by, nor in any way affiliated with Frank
Russell Company. Frank Russell Company is not responsible for and has not
reviewed the Small Cap Index Fund or the Small Cap Index Series nor any
associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change the Russell 2000 (R) Index. Frank
Russell Company has no obligation to take the needs of any particular fund or
its participants or any other product or person into consideration in
determining, composing or calculating the Index.
Frank Russell Company's publication of the Russell 2000 (R) Index in no way
suggests or implies an opinion by Frank Russell Company as to the
attractiveness or appropriateness of investment in any or all securities upon
which the Russell 2000 is based. Frank Russell company makes no representation,
warranty, or guarantee as to the accuracy, completeness, reliability, or
otherwise of the Russell 2000 or any data included in the Russell 2000. Frank
Russell company makes no representation or warranty regarding the use, or the
results of use, of the Russell 2000 or any data included therein, or any
security (or combination thereof) comprising the Russell 2000. Frank Russell
company makes no other express or implied warranty, and expressly disclaims any
warranty, of any kind, including, without means of limitation, any warranty of
merchantability or fitness for a particular purpose with respect to the Russell
2000 or any data or any security (or combination thereof) included therein.
EAFE Index. The Morgan Stanley Capital International ("MSCI") EAFE (R) Index
is the exclusive property of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). The MSCI EAFE (R) Index is a service mark of Morgan Stanley Group
Inc. and has been licensed for use by MLAM and its affiliates.
The International Index Fund and the International Index Series are not
sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan Stanley makes
no representation or warranty, express or implied, to the owners of shares of
the International Index Fund and the International Index Series or any member
of the public regarding the advisability of investing in securities generally
or in the International Index Fund and the International Index Series
particularly or the ability of the EAFE Index to track general stock market
performance. Morgan Stanley is the licensor of certain trademarks, service
marks and trade names of Morgan Stanley and of the EAFE Index. Morgan Stanley
has no obligation to take the needs of the International Index Fund and the
International Index Series or the owners of shares of the International Index
Fund and the International Index Series into consideration in determining,
composing or calculating the EAFE Index. Morgan Stanley is not responsible for
and has not participated in the determination of the timing of, prices at, or
quantities of shares of the International Index Fund and the International
Index Series to be issued or in the determination or calculation of the
equation by which the shares of the International Index Fund and the
International Index Series is redeemable for cash. Morgan Stanley has no
obligation or liability to owners of shares of the International Index Fund and
the International Index Series in connection with the administration, marketing
or trading of the International Index Fund and the International Index Series.
19
<PAGE>
Although Morgan Stanley shall obtain information for inclusion in or for use
in the calculation of the EAFE Index from sources which Morgan Stanley
considers reliable, Morgan Stanley does not guarantee the accuracy and/or the
completeness of the EAFE Index or any data included therein. Morgan Stanley
makes no warranty, express or implied, as to results to be obtained by
licensee, licensee's customers and counterparties, owners of shares of the
International Index Fund and the International Index Series, or any other
person or entity from the use of the EAFE Index or any data included therein in
connection with the rights licensed hereunder or for any other use. Morgan
Stanley makes no express or implied warranties, and hereby expressly disclaims
all warranties of merchantability or fitness for a particular purpose with
respect to the EAFE Index or any data included therein. Without limiting any of
the foregoing, in no event shall Morgan Stanley have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such damages.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The Board of Directors of the Corporation consists of four individuals, three
of whom are not "interested persons" of the Corporation as defined in the
Investment Company Act. The Board of Directors is responsible for the overall
supervision of the operations of the Funds and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Corporation are:
Terry K. Glenn*--Executive Vice President of MLAM and Fund Asset Management,
L.P. ("FAM") since 1983; Executive Vice President and Director of Princeton
Services, Inc. since 1993; President of Merrill Lynch Funds Distributor, Inc.
(the "Distributor") since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
Jack B. Sunderland--President and Director of American Independent Oil
Company, Inc. (energy company) since 1987; Member of Council on Foreign
Relations since 1971.
Stephen B. Swensrud--Chairman of Fernwood Associates (financial consultants)
since 1975.
J. Thomas Touchton--Managing Partner of The Witt-Touchton Company and its
predecessor The Witt Co. (private investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc.
(electric utility holding company).
- --------
*Interested person, as defined by the Investment Company Act, of the
Corporation.
The Directors of the Corporation are also Trustees of the Trust. The
Directors have adopted procedures that they believe are reasonably designed to
resolve any conflicts that arise in connection with this overlap.
ADMINISTRATION OF THE CORPORATION AND THE FUNDS
The Corporation does not have an investment adviser, since all of each Fund's
assets will be invested in its corresponding Series. The Corporation has
retained the services of MLAM as administrator of the Funds (the
"Administrator"). Under the Administration Agreement, the Administrator
provides the Funds with administrative services.
20
<PAGE>
ADVISORY ARRANGEMENTS OF THE TRUST AND THE SERIES
MLAM, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey (mailing
address: Box 9011, Princeton, New Jersey 08543-9011) also acts as manager for
the Trust and each Series and provides them with management and investment
advisory services.
MLAM is owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."), a
financial services holding company and the parent of Merrill Lynch. MLAM or its
affiliate, FAM, acts as the manager and investment adviser for more than 140
other registered investment companies. MLAM also offers portfolio management
and portfolio analysis services to individuals and institutions. As of July 31,
1997, MLAM and FAM had a total of approximately $267.2 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of MLAM.
Eric Mitofsky is primarily responsible for the day-to-day management of the
investments of the S&P 500 Index Series, Small Cap Index Series and
International Index Series. Mr. Mitofsky has been associated with MLAM since
1992, and has been a Vice President of MLAM since 1992. Jay C. Harbeck and
Gregory M. Maunz are primarily responsible for the day-to-day management of the
investments of the Aggregate Bond Index Series. Mr. Harbeck has been a Vice
President of MLAM since 1986, and Mr. Maunz has been a Vice President of MLAM
since 1985.
EXPENSES
The Funds pay the Administrator monthly compensation at the annual rates of
the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
NAME OF FUND ADMINISTRATION FEE
------------ ------------------
<S> <C>
S&P 500 Index Fund....................................... 0.20%
Small Cap Index Fund..................................... 0.22%
Aggregate Bond Index Fund................................ 0.14%
International Index Fund................................. 0.24%
</TABLE>
In addition, the administration agreement with the Administrator (the
"Administration Agreement") obligates the Corporation to pay certain expenses
incurred in its operations including, among other things, legal and audit fees,
registration fees, unaffiliated Directors' fees and expenses, custodian and
transfer agency fees, accounting costs, the costs of issuing and redeeming
shares and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. For the period April 3,
1997 (commencement of operations) to June 30, 1997, the total fee paid by the
S&P 500 Index Fund and the Aggregate Bond Index Fund to the Administrator was
$94,046 and $28,078, respectively. For the period April 9, 1997 (commencement
of operations) to June 30, 1997, the total fee paid by the Small Cap Index Fund
and the International Index Fund to the Administrator was $16,520, and $50,554,
respectively. Accounting services are provided to each Fund by the
Administrator, and each Fund reimburses the Administrator for its costs in
connection with such services on a semi-annual basis. For the period April 3,
1997 (commencement of operations) to June 30, 1997, the amount of such
reimbursement for the S&P 500 Index Fund and the Aggregate Bond Index Fund was
$47,980 and $58,786, respectively. For the period April 9, 1997 (commencement
of operations) to June 30, 1997, the amount of such reimbursement for the Small
Cap Index Fund and the International Index Fund was $41,132 and $23,561,
respectively.
21
<PAGE>
The Series of the Trust pay the Manager monthly compensation at the annual
rates of the average daily net assets of each Series as follows:
<TABLE>
<CAPTION>
NAME OF SERIES MANAGEMENT FEE
-------------- --------------
<S> <C>
S&P 500 Index Series....................................... 0.05%
Small Cap Index Series..................................... 0.08%
Aggregate Bond Index Series................................ 0.06%
International Index Series................................. 0.11%
</TABLE>
In addition, the management agreement with the Manager (the "Management
Agreement") obligates the Trust to pay certain expenses incurred in its
operations including, among other things, legal and audit fees, registration
fees, unaffiliated trustees' fees and expenses, custodian and transfer agency
fees, accounting costs, the costs of issuing and redeeming shares and certain
of the costs of printing proxies, shareholder reports, prospectuses and
statements of additional information. For the period April 3, 1997
(commencement of operations) to June 30, 1997, the fee earned by the Manager,
from the S&P 500 Index Series and the Aggregate Bond Index Series was $23,504
and $12,712, respectively (based on average daily net assets of approximately
$195.0 million and $83.2 million, respectively), all of which was voluntarily
waived. For the period April 9, 1997 (commencement of operations) to June 30,
1997, the fee earned by the Manager, from the Small Cap Index Series, and the
International Index Series was $6,005, and $23,163, respectively (based on
average daily net assets of approximately $33.4 million, and $93.8 million,
respectively), all of which was voluntarily waived. Shareholders bear the
expenses of a Fund directly and the expenses of the Series in which the Fund
has invested, indirectly. For the period April 3, 1997 (commencement of
operations) to June 30, 1997, the ratio of total expenses to average net assets
was .54% and .84% for Class A shares and Class D shares of S&P 500 Index Fund,
.70% and 1.05% for Class A shares and Class D shares of Aggregate Bond Index
Fund, .14% for the S&P 500 Index Series and .27% for the Aggregate Bond Index
Series. For the period April 9, 1997 (commencement of operations) to June 30,
1997, the ratio of total expenses to average net assets was 1.20% and 1.46% for
Class A shares and Class D shares of Small Cap Index Fund, .87% and 1.14% for
Class A shares and Class D shares of International Index Fund, .37% for the
Small Cap Index Series and .32% for the International Index Series. Accounting
services are provided to the Trust by the Manager, and each Fund and Series
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. For the period April 3, 1997 (commencement of operations) to
June 30, 1997, the amount of such reimbursement for the S&P 500 Index Fund,
Aggregate Bond Index Fund, S&P 500 Index Series and Aggregate Bond Index Series
was $1,302, $1,591, $10,574 and $8,519, respectively. For the period April 9,
1997 (commencement of operations) to June 30, 1997, the amount of such
reimbursement for the Small Cap Index Fund, the International Index Fund, Small
Cap Index Series and the International Index Series was $1,496, $1,597, $3,259
and $10,781, respectively.
The Directors of the Corporation believe that the aggregate per share
expenses of each Fund and corresponding Series should not be significantly
greater than the expenses which each Fund would incur if it retained the
services of an investment adviser and the assets of each Fund were invested
directly in the type of securities held by the corresponding Series.
TRANSFER AGENCY SERVICES
MLFDS, which is a subsidiary of ML & Co., acts as the Corporation's Transfer
Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of
shareholder accounts.
22
<PAGE>
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives an
annual fee at the annual rate of .05% of the average daily value of the net
assets of a Fund for its services and is entitled to reimbursement for certain
transaction charges and out-of-pocket expenses incurred by the Transfer Agent
under the Transfer Agency Agreement. For purposes of the Transfer Agency
Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the
beneficial interest of a person in the relevant share class on a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary of ML &
Co. For the period April 3, 1997 (commencement of operations) to June 30, 1997,
the total fee paid by the S&P 500 Index Fund and the Aggregate Bond Index Fund
was $24,456 and $8,469, respectively. For the period April 9, 1997
(commencement of operations) to June 30, 1997, the total fee paid by the Small
Cap Index Fund, and the International Index Fund to the Transfer Agent was
$3,750, and $10,532, respectively. MLFDS also acts as the transfer agent to the
Trust.
CODES OF ETHICS
The Board of Directors of the Corporation has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act which incorporates the
Codes of Ethics of the Trust and of MLAM (together, the "Ethics Codes"). The
Ethics Codes significantly restrict the personal investing activities of all
employees of the Manager and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The Ethics Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term trading
in securities. In addition, no employee may purchase or sell any security which
at the time is being purchased or sold (as the case may be), or to the
knowledge of the employee is being considered for purchase or sale, by any fund
advised by the Manager. Furthermore, the Ethics Codes provide for trading
"blackout periods" which prohibit trading by investment personnel of the Trust
within periods of trading by the Series in the same (or equivalent) security
(15 or 30 days depending upon the transaction).
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both MLAM and Merrill Lynch, acts as the distributor of the shares of the Fund.
The Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of the Fund are offered at a price equal to the next determined
net asset value per share without the imposition of any front-end or deferred
sales charge, and are not subject to any ongoing account maintenance or
distribution fee. Distribution of Class A shares of the Fund is limited to
certain eligible investors. Class D shares of each Fund are offered at a price
equal to the next determined net asset value per share without the imposition
of any front-end or deferred sales charge and are not subject to any ongoing
distribution fee, but are subject to an ongoing account maintenance fee at an
annual rate of 0.25% of average daily net assets.
Class A shares are offered to a limited group of investors who participate in
certain investment programs which charge a fee for participation, including the
Merrill Lynch Mutual Fund Adviser program. In addition,
23
<PAGE>
Class A shares are offered to ML & Co. and its subsidiaries and their directors
and employees and to members of the Boards of MLAM-advised investment
companies, including the Corporation. For more information about these
programs, contact the Transfer Agent at 1-800-MER-FUND.
Shares of the Corporation may be purchased from securities dealers or by
mailing a purchase order directly to the Transfer Agent. Shareholders may
redeem their shares at any time at the next determined net asset value. The
minimum initial purchase is $1,000 and the minimum subsequent purchase is $50,
except that for retirement plans the minimum initial investment is $100 and the
minimum subsequent purchase is $1. Merrill Lynch may charge its customers a
processing fee (currently $5.35) for confirming purchases and repurchases.
Purchase and redemptions directly through the Corporation's transfer agent are
not subject to processing fees.
The Distributor also acts as the placement agent for the Trust.
ACCOUNT MAINTENANCE PLAN
Pursuant to a plan adopted by the Corporation with respect to the Class D
shares of each Fund pursuant to Rule 12b-1 under the Investment Company Act
(the "Plan"), the Class D shares of each Series pay the Distributor an ongoing
account maintenance fee, accrued daily and paid monthly, at the annual rate of
0.25% of the average daily net assets attributable to such shares. Pursuant to
a sub-agreement with the Distributor, Merrill Lynch also provides account
maintenance services in respect of the Class D shares of each Fund. The ongoing
account maintenance fee compensates the Distributor and Merrill Lynch for
providing account maintenance services to Class D shareholders. For the period
April 3, 1997 (commencement of operations) to June 30, 1997, the S&P 500 Index
Fund and the Aggregate Bond Index Fund paid the Distributor $30,273 and
$15,931, respectively, pursuant to the Plan (based on average daily net assets,
subject to such Class D Plan of approximately $50.2 million and $26.4 million,
respectively), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares. For the period April
9, 1997 (commencement of operations) to June 30, 1997, the Small Cap Index Fund
and the International Index Fund paid the Distributor $10,709, and $14,371,
respectively, pursuant to the Plan (based on average daily net assets, subject
to such Class D Plan of approximately $19.1 million, and $25.6 million,
respectively), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D Shares.
REDEMPTION OF SHARES
Each Fund is required to redeem all full and fractional shares of the Fund
upon receipt of a written request in proper form. The redemption price is the
net asset value per share next determined after the initial receipt of proper
notice of redemption. There will be no additional charge for redemption if the
redemption request is sent directly to the Transfer Agent. Shareholders
liquidating their holdings will receive upon redemption all dividends
reinvested through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time. The Corporation
will generally pay redemptions in cash; however, if requested by a shareholder,
at the discretion of the Administrator the Corporation may pay a redemption or
repurchase of shares in an amount of $10,000,000 or more (which amount may be
decreased or increased by the Administrator from time to time) with portfolio
securities.
24
<PAGE>
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Transfer Agent, Merrill Lynch Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption
requests delivered other than by mail should be delivered to Merrill Lynch
Financial Data Services, Inc., Transfer Agency Operations Department, 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484. Redemption requests should
not be sent to the Corporation. Proper notice of redemption in the case of
shares deposited with the Transfer Agent may be accomplished by a written
letter requesting redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a written letter
as noted above accompanied by certificates for the shares to be redeemed. The
notice in either event requires the signatures of all persons in whose names
the shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the notice must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. "Eligible guarantor institution(s)" include
certain banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings association. Notarized signatures
are not sufficient. In certain instances, the Transfer Agent may require
additional documents, such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice
of redemption.
At various times a Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that
good payment (e.g., cash or certified check drawn on a United States bank) has
been collected for the purchase of such shares. Normally, this delay will not
exceed 10 days.
REPURCHASE
Each Fund also will repurchase shares through a shareholder's listed
securities dealer. The Funds normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the order by the dealer, provided that the
request for repurchase is received by the dealer prior to the close of business
on the New York Stock Exchange ("NYSE") on the day received, and such request
is received by a Fund from such dealer not later than 30 minutes after the
close of business on the NYSE (generally 4:00 P.M., New York time), on the same
day. Dealers have the responsibility to submit such repurchase requests to the
Fund not later than 30 minutes after the close of business on the NYSE in order
to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by a Fund. Securities firms which do not have
selected dealer agreements with the Distributor, however, may impose a
transaction charge on the shareholder for transmitting the notice of repurchase
to the Fund. Merrill Lynch may charge its customers a processing fee (presently
$5.35) to confirm a repurchase of shares to such customers. Repurchases
directly through the Fund's Transfer Agent are not subject to the processing
fee. The Corporation reserves the right to reject any order for repurchase,
which right of rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. A shareholder whose order for repurchase is
rejected by a Fund, however, may redeem shares as set forth above.
25
<PAGE>
SHAREHOLDER SERVICES
The Corporation offers a number of shareholder services and investment plans
designed to facilitate investment in its shares. Full details as to each of
such services, copies of the various plans described below and instructions as
to how to participate in the various plans and services, or to change options
with respect thereto, can be obtained from the Corporation, the Distributor or
Merrill Lynch. Included in such services are the following:
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gains distributions. The statement will also
show any other activity in the account since the preceding statements.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchase and the
reinvestment of ordinary income dividends and long-term capital gains
distribution. Shareholders may make additions to their Investment Account at
any time by mailing a check directly to the Transfer Agent. Shareholders may
also maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without charge,
at the Transfer Agent. Shareholders interested in transferring their shares
from Merrill Lynch and who do not wish to have an Investment Account maintained
for such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he be issued certificates for his shares, and then must turn the certificates
over to the new firm for re-registration as described in the preceding
sentence. Shareholders considering transferring from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the account is to be transferred will not take delivery of shares of a
Fund, a shareholder must either redeem the shares so that the cash proceeds can
be transferred to the account at the new firm, or such shareholder must
continue to maintain an account at Merrill Lynch for those shares.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder. Issuance of certificates representing all or only
part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically in
full and fractional shares of the Funds at the net asset value per share next
determined on the ex-dividend date of such dividends and distributions. A
shareholder may at any time, by written notification or by telephone (1-800-
MER-FUND) or by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch, or the Transfer Agent, if the
shareholder's account is maintained with the Transfer Agent, elect to have
subsequent dividends, or both dividends and capital gains distributions, paid
in cash rather than reinvested, in which event payment will be mailed on or
about the payment date.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from such
shareholder's Investment Account in the form of payments by check or through
automatic payment by direct deposit to such
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shareholder's bank account on either a monthly or quarterly basis. Shareholders
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect
to have shares redeemed on a monthly, bi-monthly, quarterly, semiannual or
annual basis through the Systematic Redemption Program, subject to certain
conditions.
EXCHANGE PRIVILEGE
Shareholders of certain fee based programs and/or employer-sponsored
retirement plans are allowed to exchange the various share classes for other
classes of a second MLAM-advised mutual fund.
AUTOMATIC INVESTMENT PLANS
Regular additions of shares may be made in an investor's Investment Account
by prearranged charges of $50 or more to such investor's regular bank account.
Investors who maintain CMA(R) or CBA(R) accounts may arrange to have periodic
investments made in the Funds in their CMA(R) or CBA(R) account or in certain
related accounts in amounts of $100 or more through the CMA(R) or CBA(R)
Automated Investment Program.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Funds and in certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment fee
and an annual custodial fee for each account. In addition, eligible
shareholders of a Fund may participate in a variety of qualified employee
benefit plans which are available from the Distributor. The minimum initial
purchase to establish any such plan is $100 and the minimum subsequent purchase
is $1.
PERFORMANCE DATA
From time to time a Fund may include its average annual total return and/or
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return
and yield are computed in accordance with formulas specified by the Securities
and Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses.
Each Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return. Aside from the impact on the performance data
calculations of including or excluding the maximum applicable sales charges,
actual annual or annualized total return generally will be lower than average
annual total return data since the average annual rates of return reflect
compounding; aggregate total return data
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generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time. A
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
Total return figures are based on a Fund's historical performance and are not
intended to indicate future performance. A Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in a Fund
will fluctuate and an investor's shares, when redeemed, may be worth more or
less than their original cost.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per
share on the last day of the period.
Each Fund will generally compare its performance to the index it attempts to
replicate. A Fund may also compare its performance to data contained in
publications such as Lipper Analytical Services, Inc., or performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News and
World Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine
and Fortune Magazine. From time to time, a Fund may include the Fund's
Morningstar risk-adjusted performance ratings in advertisements or supplemental
sales literature. As with other performance data, performance comparisons
should not be considered representative of a Fund's relative performance for
any future period.
The Funds' annual report will contain additional performance information and
will be available upon request and without charge.
TAXES
The Funds and Their Shareholders. Each Fund intends to continue to qualify
for the special tax treatment afforded regulated investment companies ("RICs")
under the Code. If it so qualifies, in any taxable year in which it distributes
(in cash or additional shares of the Fund) at least 90% of its taxable net
income, the Fund will not be subject to Federal income tax to the extent that
it distributes its net investment income and realized capital gains to its
shareholders. Each Fund intends to distribute substantially all of such income.
Dividends paid by a Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from a Fund's net realized mid- or long-term capital gains
(including long-term gains from certain transactions in futures and options)
("capital gains dividends") are taxable to shareholders as mid- or long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Any loss upon the sale or exchange of Fund shares held for six months
or less, however, will be treated as long-term capital loss to the extent of
any capital gains distributions received by the shareholder with respect to
such shares. Distributions in excess of a Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. Not later than 60 days after the close of its
taxable year, the Funds will provide shareholders with a written
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notice designating the amounts of any ordinary income dividends or capital
gains dividends. A portion of the ordinary income dividends paid by the S&P 500
Index Fund and the Small Cap Index Fund may be eligible for the 70% dividends
received deduction allowed to corporations under the Code, if certain
requirements are met. Distributions paid by the Aggregate Bond Index Fund and
the International Index Fund will not be eligible for the dividends received
deduction. If a Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of
the year in which such dividend was declared.
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities generally will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under the applicable treaty law. Nonresident shareholders
are urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Foreign source income received by the International Index Fund and the
Aggregate Bond Index Fund may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the International
Index Fund may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held by the Fund. The International Index
Fund expects to be eligible, and intends, to file an election with the IRS
pursuant to which shareholders of the Fund will be required to include their
proportionate share of such withholding taxes in their U.S. income tax returns
as gross income, treat such proportionate shares as taxes paid by them, and
deduct such proportionate shares in computing their taxable incomes or,
alternatively, subject to certain restrictions, use them as foreign tax credits
against their U.S. income taxes. No deductions for foreign taxes, however, may
be claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the Fund's
election described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The International Index Fund will report annually to
its shareholders the amount per share of such withholding taxes.
Redemptions and exchanges of a Fund's shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such events. A loss
realized on a sale or exchange of shares of a Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Funds or who, to the Funds' knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
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The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and these
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
Ordinary income and capital gains dividends, as well as gains on the sale or
exchange of shares, may also be subject to state and local taxes.
This summary does not discuss the state or local income tax, or the estate or
inheritance tax, consequences of an investment in a Fund.
Shareholders are urged to consult their advisers as to specific questions
regarding Federal, foreign, state or local taxes.
The Series. The Trust and each Fund have received a private letter ruling
from the IRS, in which the IRS has ruled that each Series is classified as a
partnership for tax purposes and, based upon that ruling, that each Fund will
be entitled to look to the underlying assets of the Series in which it has
invested for purposes of satisfying the diversification and other requirements
of the Code applicable to RICs. If any of the facts upon which such ruling is
premised change in any material respect (e.g., if the Trust were required to
register its interests under the Securities Act) and the Trust is unable to
obtain a revised private letter ruling from the IRS indicating that each Series
will continue to be classified as a partnership, then the Board of Directors of
the Corporation will determine, in its discretion, the appropriate course of
action for the Funds. One possible course of action would be to withdraw the
Funds' investments from the Series and to retain an investment adviser to
manage the Funds' assets in accordance with the investment policies applicable
to the respective Fund. See "Investment Objectives and Policies."
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is each Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid at least annually
with respect to each of the S&P 500 Index Fund, Small Cap Index Fund and
International Index Fund. Dividends with respect to the Aggregate Bond Fund are
declared daily and paid monthly. All net realized long- or short-term capital
gains, if any, are distributed to Fund shareholders at least annually.
Dividends will be reduced by account maintenance and transfer agency fees
payable by the shareholders of a Fund. Dividends and distributions will be
reinvested automatically in shares of the Funds, at net asset value.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholder whether they are reinvested in shares of a Fund or received in
cash. From time to time, a Fund may declare a special distribution at or about
the end of the calendar year in order to comply with a Federal income tax
requirement that certain percentages of its ordinary income and capital gains
be distributed during the calendar year.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments.
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DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 15 minutes after the
close of business on the NYSE (generally 4:00 p.m., New York time) on days
during which the NYSE is open for trading (a "Pricing Day"). The net asset
value is computed by dividing the market value of the securities held by a Fund
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time. Expenses, including the fees payable
to the Administrator and the Distributor, and the advisory fees payable
indirectly by the Series of the Trust to the Manager, are accrued daily.
The principal assets of each Fund will normally be its interest of the
underlying Series, which will be valued at its net asset value. A Series'
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. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under authority of the Board of Directors as the primary
market. Securities traded in the OTC market are valued at the last quoted bid
prices as at the close of trading on the NYSE on each day by brokers that make
markets in the securities. Securities traded on the NASDAQ national market
system are valued at the last sale price prior to the time of valuation.
Portfolio securities which are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Other investments, including futures contracts and related options, are stated
at market value. Securities and assets for which market quotations are not
readily available are valued at fair market value, as determined in good faith
by or under the direction of the Trustees of the Trust.
Each investor in the Trust may add to or reduce its investment in any Series
on each Pricing Day. The value of each investor's (including the respective
Funds') interest in a Series will be determined as of 15 minutes after the
close of business on the NYSE (generally 4:00 P.M., New York Time) by
multiplying the net asset value of the Series by the percentage, effective for
that day, that represents that investor's share of the aggregate interests in
such Series. Any additions or withdrawals, which are to be effected on that
day, will then be effected. The investor's percentage of a Series will then be
re-computed as the percentage equal to the fraction (i) the numerator of which
is the value of such investor's investment in the Series as of the time or
determination on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the aggregate investments in the Series by all
investors in the Series effected on such day, and (ii) the denominator of which
is the aggregate net asset value of the Series as of such time on such day plus
or minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investments in the Series by all investors in the Series.
The percentage so determined will then be applied to determine the value of the
investor's interest in such Series as of 15 minutes after the close of business
of the NYSE on the next Pricing Day of the Series.
ORGANIZATION OF THE CORPORATION
The Corporation is a Maryland corporation incorporated on October 25, 1996.
It has an authorized capital of 1,000,000,000 shares of Common Stock, par value
$0.0001 per share, divided into 125,000,000 shares each of Class A and Class D
shares for each of the four Funds: Merrill Lynch S&P 500 Index Fund, Merrill
Lynch Small Cap Index Fund, Merrill Lynch Aggregate Bond Index Fund and Merrill
Lynch International Index Fund. Class A and Class D shares of a Fund represent
interests in the same assets of the
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Series and are identical in all respects except that the Class D shares bear
certain expenses related to the account maintenance associated with such
shares. Class D shares have exclusive voting rights with respect to matters
relating to the class' account maintenance expenditures.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Directors (to
the extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of each Fund have equal voting rights, except that
each Fund has exclusive voting rights to matters affecting only such Fund, and
except that as noted above, Class D shares have exclusive voting rights with
respect to matters relating to the class' account maintenance expenditures.
There normally will be no meeting of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors
holding office have been elected by the shareholders, at which time the
Directors then in office will call a shareholders' meeting for the election of
Directors. Shareholders may, in accordance with the terms of the Articles of
Incorporation, cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors. Also, the Corporation will be required to
call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in account maintenance fees or of a change
in fundamental policies, objectives or restrictions. Except as set forth above,
the Directors shall continue to hold office and appoint successor Directors.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities, except
that, as noted above, Class D shares bear certain additional expenses. Shares
issued are fully-paid and non-assessable by the Fund. Voting rights for
Directors are not cumulative.
The Trust consists of four Series, and is organized as a Delaware business
trust. Whenever investors in a Series are requested to vote on a fundamental
policy of a Series, the Corporation will hold a meeting of its shareholders and
will cast its vote as instructed by such shareholders.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Funds at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch financial
consultant or Merrill Lynch Financial Data Services, Inc. at 800-637-3863.
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APPENDIX A
The Series are authorized to use certain instruments, including indexed
securities, options, futures and swaps, as described below. Such instruments,
which may be regarded as derivatives, are referred to collectively herein as
"Strategic Instruments."
INDEXED SECURITIES
The Series may invest in securities the potential return of which is based on
the change in particular measurements of value or rate (an "index"). As an
illustration, a Series may invest in a debt security that pays interest and
returns principal based on the change in the value of a securities index or a
basket of securities, or based on the relative changes of two indices. If a
Series invests in such securities, it may be subject to reduced or eliminated
interest payments or loss of principal in the event of an adverse movement in
the relevant index or indices.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. Each Series is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially replicated by securities held in its portfolio. When a Series
purchases a put option, in consideration for an upfront payment (the "option
premium") the Series acquires a right to sell to another party specified
securities owned by the Series at a specified price (the "exercise price") on
or before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase
of a put option limits the Series' risk of loss in the event of a decline in
the market value of the portfolio holdings underlying the put option prior to
the option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Series will lose the option premium and will consequently realize a lower
return on the portfolio holdings than would have been realized without the
purchase of the put.
Each Series is also authorized to purchase call options on securities it
intends to purchase or securities indices. When a Series purchases a call
option, in consideration for the option premium the Series acquires the right
to purchase from another party specified securities at the exercise price on or
before the expiration date, in the case of an option on securities, or to
receive from another party a payment based on the amount a specified securities
index increases beyond a specified level on or before the expiration date, in
the case of an option on a securities index. The purchase of a call option may
protect the Series from having to pay more for a security as a consequence of
increases in the market value for the security during a period when the Series
is contemplating its purchase, in the case of an option on a security, or
attempting to identify specific securities in which to invest in a market the
Series believes to be attractive, in the case of an option on an index (an
"anticipatory hedge"). In the event the Series determines not to purchase a
security underlying a call option, however, the Series may lose the entire
option premium.
Each Series is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
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Writing Options. Each Series is authorized to write (i.e., sell) call options
on securities held in its portfolio or securities indices, the performance of
which is substantially correlated to securities held in its portfolio. When a
Series writes a call option, in return for an option premium the Series gives
another party the right to buy specified securities owned by the Series at the
exercise price on or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. In the event the party to
which a Series has written an option fails to exercise its rights under the
option because the value of the underlying securities is less than the exercise
price, the Series will partially offset any decline in the value of the
underlying securities through the receipt of the option premium. By writing a
call option, however, a Series limits its ability to sell the underlying
securities, and gives up the opportunity to profit from any increase in the
value of the underlying securities beyond the exercise price, while the option
remains outstanding.
Each Series may also write put options on securities or securities indices.
When a Series writes a put option, in return for an option premium the Series
gives another party the right to sell to the Series a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. In the event the party to
which the Series has written an option fails to exercise its rights under the
option because the value of the underlying securities is greater than the
exercise price, the Series will profit by the amount of the option premium. By
writing a put option, however, a Series will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Series writes a put option it is exposed to a risk of loss in the event the
value of the underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received by
the Series for writing the put option. A Series will write a put option on a
security or a securities index only if the Series would be willing to purchase
the security at the exercise price for investment purposes (in the case of an
option on a security) or is writing the put in connection with trading
strategies involving combinations of options--for example, the sale and
purchase of options with identical expiration dates on the same security or
index but different exercise prices (a technique called a "spread").
Each Series is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Series will only write
call or put options that are "covered." A put option will be considered covered
if a Series has segregated assets with respect to such option in the manner
described in "Risk Factors in Strategic Instruments" below. A call option will
be considered covered if a Series owns the securities it would be required to
deliver upon exercise of the option (or, in the case of option on a securities
index, securities which substantially replicate the performance of such index)
or owns a call option, warrant or convertible instrument which is immediately
exercisable for, or convertible into, such security.
Types of Options. Each Series may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have
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standardized exercise prices and expiration dates and require the parties to
post margin against their obligations, and the performance of the parties'
obligations in connection with such options is guaranteed by the exchange or a
related clearing corporation. OTC options have more flexible terms negotiated
between the buyer and seller, but generally do not require the parties to post
margin and are subject to greater risk of counterparty default. See "Additional
Risk Factors of OTC Transactions" below.
FUTURES
Each Series may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts which obligate a purchaser
to take delivery, and a seller to make delivery, of a specific amount of a
commodity at a specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing or selling a
futures contract the Series is required to deposit collateral ("margin") equal
to a percentage (generally less than 10%) of the contract value. Each day
thereafter until the futures position is closed, the Series will pay additional
margin representing any loss experienced as a result of the futures position
the prior day or be entitled to a payment representing any profit experienced
as a result of the futures position the prior day. The Series will further
limit transactions in futures and options on futures to the extent necessary to
prevent the Series from being deemed a "commodity pool" under regulations of
the Commodity Futures Trading Commission.
SWAPS
The Series are authorized to enter into equity swap agreements, which are OTC
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of securities or equity index. Swap agreements may also be
used to obtain exposure to an equity or market without owning or taking
physical custody of securities in circumstances in which direct investment is
restricted by local law or is otherwise impractical.
RISK FACTORS IN STRATEGIC INSTRUMENTS
The Series intend to enter into transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments or,
in the case of illiquid instruments traded in OTC transactions, such
instruments satisfy the criteria set forth below under "Additional Risk Factors
of OTC Transactions." However, there can be no assurance that, at any specific
time, either a liquid secondary market will exist for a Strategic Instrument or
a Series will otherwise be able to sell such instrument at an acceptable price.
It may therefore not be possible to close a position in a Strategic Instrument
without incurring substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., futures transactions,
sales of put options) may expose a Series to potential losses which exceed the
amount originally invested by the Series in such instruments. When a Series
engages in such a transaction, the Series will deposit in a segregated account
at its custodian liquid securities with a value at least equal to the Series'
exposure, on a marked-to-market basis, to the transaction (as calculated
pursuant to requirements of the Securities and Exchange Commission). Such
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segregation will ensure that the Series has assets available to satisfy its
obligations with respect to the transaction, but will not limit the Series'
exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which a Series may invest. The absence of liquidity may make it
difficult or impossible for a Series to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Series to ascertain a market value for such instruments. A Series will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Manager anticipates
the Series can receive on each business day at least two independent bids or
offers, unless a quotation from only one dealer is available, in which case
that dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets underlying written OTC options are
illiquid securities. The Series have therefore adopted an investment policy
pursuant to which they will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Series, the market value of the securities underlying OTC call options
currently outstanding which have been sold by the Series and margin deposits on
the Series' outstanding OTC options exceeds 15% of the total assets of the
Series, taken at market value, together with all other assets of the Series
which are deemed to be illiquid or are otherwise not readily marketable.
However, if an OTC option is sold by the Series to a dealer in U.S. government
securities recognized as a "primary dealer" by the Federal Reserve Bank of New
York and the Series has the unconditional contractual right to repurchase such
OTC option at a predetermined price, then the Series will treat as illiquid
such amount of the underlying securities as is equal to the repurchase price
less the amount by which the option is "in-the-money" (i.e., current market
value of the underlying security minus the option's exercise price).
Because Strategic Instruments traded in OTC markets are not guaranteed by an
exchange or clearing corporation and generally do not require payment of
margin, to the extent that a Series has unrealized gains in such instruments or
has deposited collateral with its counterparty the Series is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Series will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Series with a third-
party guaranty or other credit enhancement.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
The Series may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited by its investment restrictions
from purchasing directly.
A-4
<PAGE>
APPENDIX B--DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER
Description of relevant commercial paper ratings of Standard & Poor's Ratings
Group ("S&P") are as follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Description of the relevant commercial paper ratings of Moody's Investors
Service, Inc. ("Moody's") are as follows:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics:
--Leading market positions in well-established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurement and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
CORPORATE BONDS
Descriptions of the bond ratings of S&P are:
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
A-5
<PAGE>
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC or C--Debt rated BB, B, CCC, CC or C is regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
debt conditions.
C1--The rating C1 is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Descriptions of the bond ratings of Moody's are as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are more unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat greater than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length
A-6
<PAGE>
of time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
A-7
<PAGE>
[This page is intentionally left blank.]
A-8
<PAGE>
MERRILL LYNCH INDEX FUNDS, INC. -- AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class D shares
of the following Funds of Merrill Lynch Index Funds, Inc.
[_] Merrill Lynch S&P 500 Index Fund
[_] Merrill Lynch Aggregate Bond Index Fund
[_] Merrill Lynch Small Cap Index Fund
[_] Merrill Lynch International Index Fund
and establish an Investment Account as described in the Prospectus. In the
event that I am not eligible to purchase Class A shares, I understand that
Class D shares will be purchased.
I enclose a check for $............ payable to Merrill Lynch Financial Data
Services, Inc., as an initial investment (minimum $1,000 per Fund). I
understand that this purchase will be executed at the applicable offering
price next to be determined after this Application is received by you.
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address..............................
Name and Address of Employer ........
..................................... .....................................
(Zip Code) .....................................
Occupation........................... .....................................
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest
ONE: [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Index Funds, Inc. Authorization
Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): [_] checking [_] savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
A-9
<PAGE>
MERRILL LYNCH INDEX FUNDS -- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
[ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
- - - Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases or sales made under a
Letter of Intention, Automatic
Investment Plan or Systematic
Withdrawal Plan. We guarantee the
shareholder's signature.
- - -
This form, when completed, should .....................................
be mailed to: Dealer Name and Address
ML Index Funds By ..................................
c/o Merrill Lynch Financial Data Authorized Signature of Dealer
Services, Inc.
P.O. Box 45289 [_][_][_] [_][_][_][_]...............
Jacksonville, FL 32232-5289 Branch Code F/C No. F/C Last Name
[_][_][_] [_][_][_][_][_]
Dealer's Customer Account No.
A-10
<PAGE>
MERRILL LYNCH INDEX FUNDS -- AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner...................... [ ]
Social Security Number or
Name of Co-Owner (if any).......... Taxpayer Identification
Number
Address............................ Account Number ....................
(if existing account)
...................................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly,
of [_] Class A or [_] Class D shares of the following Funds of Merrill Lynch
Index Funds, Inc.
[_] Merrill Lynch S&P 500 Index Fund
[_] Merrill Lynch Aggregate Bond Index Fund
[_] Merrill Lynch Small Cap Index Fund
[_] Merrill Lynch International Index Fund
at cost or current offering price. Withdrawals to be made either (check one)
[_] Monthly on the 24th day of each month, or [_] Quarterly on the 24th day of
March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on __________ or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE):
[_] $ ________ or [_] _____ % of the current value of [_] Class A or
[_] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (Please Print)......................................................
Address ...................................................................
......................................................................
Signature of Owner............................ Date..................
Signature of Co-Owner (if any)........................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
A-11
<PAGE>
MERRILL LYNCH INDEX FUNDS, INC. -- AUTHORIZATION FORM (PART 2)--(CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one):
[_] Class A shares [_] Class D shares
of the following Funds of Merrill Lynch Index Funds, Inc.
[_] Merrill Lynch S&P 500 Index Fund
[_] Merrill Lynch Aggregate Bond Index Fund
[_] Merrill Lynch Small Cap Index Fund
[_] Merrill Lynch International Index Fund
subject to the terms set forth below. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA AUTHORIZATION TO HONOR ACH DEBITS
SERVICES, INC. DRAWN BY MERRILL LYNCH FINANCIAL
DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank To...............................Bank
account for investment in Merrill (Investor's Bank)
Lynch Index Funds, Inc. as indicated
below: Bank Address.........................
Amount of each ACH debit $........
City....... State........ Zip.......
Account Number....................
As a convenience to me, I hereby
Please date and invest ACH debits on request and authorize you to pay and
the 20th of each month beginning charge to my account ACH debits
_______ or as soon thereafter as drawn on my account by and payable
(month) to Merrill Lynch Financial Data
possible. Services, Inc. I agree that your
rights in respect to each such debit
I agree that you are drawing these shall be the same as if it were a
ACH debits voluntarily at my request check drawn on you and signed
and that you shall not be liable for personally by me. This authority is
any loss arising from any delay in to remain in effect until revoked by
preparing or failure to prepare any me in writing. Until you receive
such debit. If I change banks or such notice, you shall be fully
desire to terminate or suspend this protected in honoring any such
program, I agree to notify you debit. I further agree that if any
promptly in writing. I hereby such debit be dishonored, whether
authorize you to take any action to with or without cause and whether
correct erroneous ACH debits of my intentionally or inadvertently, you
bank account or purchases of fund shall be under no liability.
shares including liquidating shares
of the Fund and crediting my bank ............ .....................
account. I further agree that if a Date Signature of
check or debit is not honored upon Depositor
presentation, Merrill Lynch Financial
Data Services, Inc. is authorized to ............ .....................
discontinue immediately the Automatic Bank Signature of Depositor
Investment Plan and to liquidate Account (If joint account,
sufficient shares held in my account Number both must sign)
to offset the purchase made with the
dishonored debit.
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-12
<PAGE>
[This page is intentionally left blank.]
<PAGE>
[This page is intentionally left blank.]
<PAGE>
ADMINISTRATOR OF THE CORPORATION AND MANAGER OF THE TRUST
Merrill Lynch Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
Merrill Lynch S&P 500 Index Fund
Merrill Lynch Small Cap Index Fund
Merrill Lynch Aggregate Bond Index Fund
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Merrill Lynch International Index Fund
State Street Bank Trust Company
P.O. Box 351
Boston Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT OF AD-
DITIONAL INFORMATION, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPEC-
TUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OF-
FERING MAY NOT LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 4
Investment Objectives and Policies......................................... 6
Management of the Funds.................................................... 20
Purchase of Shares......................................................... 23
Redemption of Shares....................................................... 24
Shareholder Services....................................................... 26
Performance Data........................................................... 27
Taxes...................................................................... 28
Additional Information..................................................... 30
Appendix A................................................................. A-1
Appendix B................................................................. A-5
Authorization Form......................................................... A-9
</TABLE>
Code #19003-0997
[LOGO] MERRILL LYNCH
Merrill Lynch
Index Funds, Inc.
[ART]
PROSPECTUS
September 3, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH INDEX FUNDS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Index Funds, Inc. (the "Corporation") currently consists of
four portfolios or series: Merrill Lynch S&P 500 Index Fund ("S&P 500 Index
Fund"), Merrill Lynch Small Cap Index Fund ("Small Cap Index Fund"), Merrill
Lynch Aggregate Bond Index Fund ("Aggregate Bond Index Fund") and Merrill Lynch
International Index Fund ("International Index Fund") (collectively, the
"Funds," and each, a "Fund"). Each Fund is a non-diversified mutual fund whose
investment objective is to provide investment results that, before expenses,
seek to replicate the total return (i.e., the combination of capital changes
and income) of a specified securities index. Each Fund will seek to achieve its
objective by investing all of its assets in the series (collectively, the
"Series," and each, a "Series") of Merrill Lynch Index Trust (the "Trust") that
has the same investment objective as the Fund. Each Fund's investment
experience will correspond directly to the investment experience of the
respective Series in which it invests. There can be no assurance that the
investment objectives of the Funds will be achieved.
Each Fund offers two classes of shares, Class A shares and Class D shares.
Class A shares of each Fund are offered at a price equal to the next determined
net asset value per share without the imposition of any front-end or deferred
sales charge, and are not subject to any ongoing account maintenance or
distribution fee. Distribution of Class A shares of each Fund is limited to
certain eligible investors. Class D shares of each Fund are offered at a price
equal to the next determined net asset value per share without the imposition
of any front-end or deferred sales charge and are not subject to any ongoing
distribution fee, but are subject to an ongoing account maintenance fee at an
annual rate of 0.25% of average daily net assets.
This Statement of Additional Information for the Funds is not a prospectus
and should be read in conjunction with the prospectus of the Funds, dated
September 3, 1997 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Funds at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT, L.P.--ADMINISTRATOR
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
----------------
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS SEPTEMBER 3, 1997
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Merrill Lynch Index Funds, Inc. currently consists of four series: S&P 500
Index Fund, Small Cap Index Fund, Aggregate Bond Index Fund and International
Index Fund. Each Fund is a non-diversified mutual fund whose investment
objective is to provide investment results that, before expenses, seek to
replicate the total return (i.e., the combination of capital changes and
income) of a specified securities index. Each Fund will seek to achieve its
objective by investing all of its assets in the Series of Merrill Lynch Index
Trust that has the same investment objective as the Fund. Each Fund's
investment experience will correspond directly to the investment experience of
the respective Series in which it invests. Reference is made to the discussion
under "Investment Objectives and Policies" in the Prospectus for information
with respect to each Fund's and each Series' investment objective and policies.
There can be no assurance that the investment objectives of the Funds will be
achieved.
The Funds' and Series' investment objectives are not fundamental policies,
and may be changed by the Directors of the Corporation and the Trustees of the
Trust, respectively, without shareholder approval. THE TRUSTEES AND THE
DIRECTORS MAY ALSO CHANGE THE TARGET INDEX OF ANY RESPECTIVE SERIES AND FUND IF
THEY CONSIDER THAT A DIFFERENT INDEX WOULD FACILITATE THE MANAGEMENT OF THE
SERIES AND FUND IN A MANNER WHICH BETTER ENABLES THE FUND AND SERIES TO SEEK TO
REPLICATE THE TOTAL RETURN OF THE MARKET SEGMENT REPRESENTED BY THE CURRENT
INDEX.
INVESTMENT RESTRICTIONS
The Corporation has adopted the following restrictions and policies relating
to the investment of each Fund's assets and activities, which are fundamental
policies and may not be changed with respect to a Fund without the approval of
the holders of a majority of the Fund's outstanding voting securities (which
for this purpose and under the Investment Company Act of 1940, as amended (the
"Investment Company Act") means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). Provided that none of the
following restrictions shall prevent a Fund from investing all of its assets in
shares of another registered investment company with the same investment
objective (in a master/feeder structure), each Fund may not:
1. Make any investment inconsistent with the Fund's classification as a
non-diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities); provided, that in
replicating the weighting of a particular industry in its target index, a
Series or Fund may invest more that 25% of its total assets in securities
of issuers in that industry.
3. Make investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted by
applicable law, a Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments,
2
<PAGE>
certificates of deposit, bankers' acceptances, repurchase agreements or any
similar instruments shall not be deemed to be the making of a loan, and
except further that a Fund may lend its portfolio securities, provided that
the lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) a Fund may borrow from banks (as defined
in the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (ii) a Fund may borrow up to an additional
5% of its total assets for temporary purposes, (iii) a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the Fund may purchase securities on
margin to the extent permitted by applicable law. A Fund may not pledge its
assets other than to secure such borrowings or, to the extent permitted by
the Fund's investment policies as set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as a Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that a Fund may do so in accordance with applicable law and the
Fund's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
The Trust has adopted investment restrictions substantially identical to the
foregoing, which are fundamental policies of the Trust and may not be changed
with respect to any Series without the approval of the holders of a majority of
the interests of the Series.
In addition, the Trust and the Corporation have adopted as an operating
policy, which may be changed by the Trustees and the Directors without
shareholder approval, that no Series or Fund, respectively, will make any
additional investments if the amount of its borrowings exceeds 5% of its total
assets. Borrowings do not include the use of investment techniques that may be
deemed to create leverage, including, but not limited to, such techniques as
dollar rolls, when-issued securities, options and futures.
Portfolio securities of each Fund's underlying Series generally may not be
purchased from, sold or loaned to Merrill Lynch Asset Management, L.P. ("MLAM")
or its affiliates or any of their directors, officers or employees, acting as
principal, unless pursuant to a rule or exemptive order under the Investment
Company Act.
Because of the affiliation of MLAM with the Corporation, the Series are
prohibited from engaging in certain transactions involving MLAM's affiliate,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), or its
affiliates except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or transactions
pursuant to an exemptive order under the Investment Company Act. See "Portfolio
Transactions and Brokerage." Without such an exemptive order, the Series are
prohibited from engaging in portfolio transactions with Merrill Lynch or its
affiliates acting as principal and from purchasing securities in public
offerings which are not registered under the Securities Act in which such firms
or any of their affiliates participate as an underwriter or dealer.
3
<PAGE>
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
Information about the Directors and executive officers of the Corporation and
their principal occupations for at least the last five years are set forth
below. Unless otherwise noted, the address of each executive officer and
Director is P.O. Box 9011, Princeton, New Jersey 08543-9011.
Terry K. Glenn (56)--President and Director(1)(2)--Executive Vice President
of MLAM and Fund Asset Management, L.P. ("FAM") since 1983; Executive Vice
President and Director of Princeton Services, Inc. since 1993; President of
Merrill Lynch Funds Distributor, Inc. (the "Distributor") since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
Jack B. Sunderland (69)--Director(2)--P.O. Box 7, West Cornwall, Connecticut
06796. President and Director of American Independent Oil Company, Inc. (energy
company) since 1987; Member of Council on Foreign Relations since 1971.
Stephen B. Swensrud (64)--Director(2)--24 Federal Street, Suite 400, Boston,
Massachusetts 02110. Chairman of Fernwood Associates (financial consultants)
since 1975.
J. Thomas Touchton (58)--Director(2)--Suite 3405, One Tampa City Center,
Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its
predecessor The Witt Co. (private investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc.
(electric utility holding company).
Norman R. Harvey (64)--Senior Vice President(1)(2)--Senior Vice President of
MLAM and FAM since 1982.
Joseph T. Monagle, Jr. (49)--Senior Vice President(1)(2)--Senior Vice
President of MLAM and FAM since 1990 and Vice President of MLAM and FAM prior
thereto.
Gregory Maunz (44)--Vice President(1)(2)--Vice President of MLAM since 1985;
Portfolio Manager of MLAM since 1984.
Eric Mitofsky (43)--Vice President(1)(2)--Vice President of MLAM since 1992;
Senior Desk Analyst with Merrill Lynch Program Trading Desk from 1987 to 1992.
Jay C. Harbeck (62)--Vice President(1)(2)--Vice President of MLAM and FAM
since 1986.
Gerald M. Richard (48)--Treasurer(1)(2)--Senior Vice President and Treasurer
of MLAM since 1984; Senior Vice President and Treasurer of FAM since 1984;
Treasurer of the Distributor since 1984 and Vice President since 1981.
Ira P. Shapiro (34)--Secretary(1)(2)--Vice President of MLAM since 1997 and
attorney associated with MLAM and FAM since 1993. Prior to 1993, Mr. Shapiro
was an attorney in private practice.
- --------
(1) Interested person, as defined in the Investment Company Act, of the
Corporation.
(2) Such Director or officer is a director, trustee or officer of other
investment companies for which MLAM or FAM acts as investment adviser.
4
<PAGE>
As of the date of this Statement of Additional Information, the officers and
Directors of the Corporation as a group (eleven persons) owned an aggregate of
less than 1% of the outstanding shares of Common Stock of Merrill Lynch & Co.,
Inc. and owned an aggregate of less than 1% of the outstanding shares of any
of the Funds.
Pursuant to the terms of the Administration Agreement with the Corporation,
MLAM pays all compensation of officers of the Corporation as well as the fees
of all Directors who are affiliated persons of MLAM. The Corporation and the
Trust pay each individual who serves as a Director/Trustee not affiliated with
MLAM (each a "non-interested Director/Trustee") a fee of $2,500 per year plus
$250 per Board meeting attended, together with such individual's actual out-
of-pocket expenses relating to attendance at meetings. The Corporation and the
Trust also compensate members of the Audit and Nominating Committee (the
"Committee"), which consists of all of the non-interested Director/Trustee of
the Funds and the Series, with a fee of $1,000 per year. For the period April
3, 1997 to June 30, 1997, fees and expenses paid to non-interested
Directors/Trustees aggregated $1,679.
COMPENSATION OF DIRECTORS
The following table sets forth the aggregate compensation the Corporation
and the Trust expect to pay to the non-interested Directors/Trustees for the
current fiscal year and the total compensation paid by all investment
companies advised by MLAM and its affiliate, FAM ("MLAM/FAM-Advised Funds") to
the non-interested Directors/Trustees for the calendar year ended December 31,
1996.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUNDS/SERIES AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM
COMPENSATION FROM BENEFITS ACCRUED AS ADVISED FUNDS PAID
NAME OF DIRECTOR FUNDS/SERIES PART OF FUND/SERIES EXPENSES TO DIRECTORS(1)
---------------- ----------------- ---------------------------- ---------------------
<S> <C> <C> <C>
Jack B. Sunderland...... $4,500 None 128,100
Stephen B. Swensrud..... $4,500 None 154,250
J. Thomas Touchton...... $4,500 None 128,100
</TABLE>
- --------
(1) In addition to the Corporation, the Directors served on other MLAM/FAM
Advised Funds as follows: Mr. Sunderland (20 registered investment
companies consisting of 29 portfolios); Mr. Swensrud (20 registered
investment companies consisting of 49 portfolios); Mr. Touchton (20
registered investment companies consisting of 29 portfolios).
ADMINISTRATION ARRANGEMENTS
MLAM is owned and controlled by Merrill Lynch & Co., Inc., a financial
services holding company and the parent of Merrill Lynch. Reference is made to
"Management of the Funds" in the Prospectus for certain information concerning
the administration arrangements of the Corporation and the management and
advisory arrangements of the Trust.
The Corporation has entered into an administration agreement with MLAM as
Administrator (the "Administration Agreement"). As discussed in the
Prospectus, the Administrator receives for its services to the Funds monthly
compensation at the annual rates of the average daily net assets of each Fund
as follows:
<TABLE>
<CAPTION>
NAME OF FUND ADMINISTRATION FEE
------------ ------------------
<S> <C>
S&P 500 Index Fund........................................ 0.20%
Small Cap Index Fund...................................... 0.22%
Aggregate Bond Index Fund................................. 0.14%
International Index Fund.................................. 0.24%
</TABLE>
5
<PAGE>
For the period April 3, 1997 (commencement of operations) to June 30, 1997,
the total fee paid by the S&P 500 Index Fund and the Aggregate Bond Index Fund
to the Administrator was $94,046 and $28,078, respectively. For the period
April 9, 1997 (commencement of operations) to June 30, 1997, the total fee paid
by Small Cap Index Fund and the International Index Fund to the Administrator
was $16,520 and $50,554, respectively.
The Administration Agreement obligates the Administrator to provide certain
administrative services to the Corporation and the Funds and to pay all
compensation of and furnish office space for officers and employees of the
Corporation as well as the fees of all Directors who are affiliated persons of
the Administrator or any of their affiliates. Each Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, taxes,
expenses for legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports and prospectuses and statements of additional
information (except to the extent paid by the Distributor), charges of the
Custodian, any Sub-custodian and Transfer Agent, expenses of redemption of
shares, Securities and Exchange Commission fees, expenses of registering the
shares under federal, state or foreign laws, fees and expenses of unaffiliated
Directors, accounting and pricing costs (including the daily calculation of net
asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable by
the Corporation or the Fund. Merrill Lynch Funds Distributor, Inc. (the
"Distributor") will pay the promotional expenses of the Funds incurred in
connection with the offering of its shares.
Duration and Termination. Unless earlier terminated as described below, the
Administration Agreement will remain in effect for two years from the date of
its adoption. Thereafter, it will remain in effect from year to year with
respect to each Fund if approved annually (a) by the Board of Directors and (b)
by a majority of the Directors who are not parties to such contract or
interested persons (as defined in the Investment Company Act) of any such
party. Such contract is not assignable and may be terminated with respect to a
Fund without penalty on 60 days' written notice at the option of either party
thereto or by the vote of the shareholders of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Each Fund invests all of its assets in shares of the corresponding Series of
the Trust. Accordingly, the Funds do not invest directly in portfolio
securities and do not require investment advisory services. All portfolio
management occurs at the level of the Trust. The Trust has entered into a
management agreement with MLAM as Manager (the "Management Agreement"). As
discussed in the Prospectus, the Manager receives for its services to the
Series monthly compensation at the annual rates of the average daily net assets
of each Series as follows:
<TABLE>
<CAPTION>
NAME OF SERIES MANAGEMENT FEE
-------------- --------------
<S> <C>
Merrill Lynch S&P 500 Index Series............................ 0.05%
Merrill Lynch Small Cap Index Series.......................... 0.08%
Merrill Lynch Aggregate Bond Index Series..................... 0.06%
Merrill Lynch International Index Series...................... 0.11%
</TABLE>
For the period April 3, 1997 (commencement of operations) to June 30, 1997,
the fee earned by the Manager, from the S&P 500 Index Series, and the Aggregate
Bond Index Series was $23,504 and $12,712, respectively (based on average net
assets of approximately $195.0 million and $83.2 million, respectively), all of
which was voluntarily waived. For the period April 9, 1997 (commencement of
operations) to June 30,
6
<PAGE>
1997, the fee earned by the Manager, from the Small Cap Index Series and the
International Index Series was $6,005 and $23,163, respectively (based on
average net assets of approximately $33.4 million and $93.8 million,
respectively), all of which was voluntarily waived.
The Management Agreement obligates the Manager to provide investment advisory
services and to pay all compensation of and furnish office space for officers
and employees of the Trust connected with investment and economic research,
trading and investment management of the Trust, as well as the fees of all
Trustees who are affiliated persons of the Manager or any of their affiliates.
Each Series pays all other expenses incurred in the operation of the Series,
including, among other things, taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent
paid by the Distributor), charges of the Custodian, any Sub-custodian and
Transfer Agent, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under federal, state or
foreign laws, fees and expenses of unaffiliated Trustees, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Trust or the Series. The
Distributor will pay the promotional expenses of the Trust incurred in
connection with the offering of its shares.
Securities held by the Series of the Trust may also be held by, or be
appropriate investments for, other funds or investment advisory clients for
which the Manager or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities by the Manager for the Series or other funds
for which it acts as investment adviser or for its advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Manager or its affiliates during the same period may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
Duration and Termination. Unless earlier terminated as described below, the
Management Agreement will remain in effect for two years from the date of its
adoption. Thereafter, it will remain in effect from year to year with respect
to each Series if approved annually (a) by the Board of Trustees or by a
majority of the outstanding shares of the Series and (b) by a majority of the
Trustees who are not parties to such contract or interested persons (as defined
in the Investment Company Act) of any such party. Such contract is not
assignable and may be terminated with respect to a Series without penalty on 60
days' written notice at the option of either party thereto or by the vote of
the shareholders of the Series.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Corporation has entered into a distribution agreement with the
Distributor in connection with the offering of shares of the Funds (the
"Distribution Agreement"). The Distribution Agreement obligates the Distributor
to pay certain expenses in connection with the offering of the shares of the
Funds. After the
7
<PAGE>
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays for
the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreement is subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
The Corporation reserves the right to suspend the offering of its shares at
any time.
Account Maintenance Plan. Reference is made to "Purchase of Shares--Account
Maintenance Plan" in the Prospectus for certain information with respect to the
Account Maintenance Plan (the "Plan") of the Class D shares of the Funds.
The payment of the account maintenance fee is subject to the provisions of
Rule 12b-1 under the Investment Company Act. Among other things, the Plan
provides that the Distributor shall provide and the Directors shall review
quarterly reports of the disbursement of the account maintenance fees paid to
the Distributor. In their consideration of the Plan, the Directors must
consider all factors they deem relevant, including information as to the
benefits of the Plan to the Funds and their shareholders. The Plan further
provides that, so long as the Plan remains in effect, the selection and
nomination of Directors who are not "interested persons" of the Funds, as
defined in the Investment Company Act (the "Independent Directors"), shall be
committed to the discretion of the Independent Directors then in office. In
approving the Plan in accordance with Rule 12b-1, the Independent Directors
concluded that there is reasonable likelihood that the Plan will benefit the
Fund and its shareholders. The Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or with respect
to any Fund by the vote of the holders of a majority of the outstanding Class D
shares of the Fund. The Plan cannot be amended to increase materially the
amount to be spent by the Class D shares of a Fund without shareholder
approval, and all material amendments are required to be approved by the vote
of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in the Plan, cast in person at a meeting
called for that purpose. Rule 12b-1 further requires that the Fund preserve
copies of the Plan and any report made pursuant to such plan for a period of
not less than six years from the date of the Plan or such report, the first two
years in an easily accessible place. During the period April 3, 1997
(commencement of operations) to June 30, 1997, the S&P 500 Index Fund and the
Aggregate Bond Index Fund paid the Distributor $30,273 and $15,931,
respectively, pursuant to the Plan (based on average daily net assets subject
to such Class D Plan of approximately $50.2 million and $26.4 million,
respectively), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares. During the period
April 9, 1997 (commencement of operations) to June 30, 1997, the Small Cap
Index Fund and the International Index Fund paid the Distributor $10,709, and
$14,371, respectively, pursuant to the Plan (based on average daily net assets
subject to such Class D Plan of approximately $19.1 million, and $25.6 million,
respectively), all or which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares).
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange ("NYSE") is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed (other than customary
8
<PAGE>
weekend and holiday closings), for any period during which an emergency exists
as defined by the Securities and Exchange Commission as a result of which
disposal of portfolio securities or determination of the net asset value of a
Fund is not reasonably practicable, and for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Fund and the Series at that time.
Shares are redeemable at the option of the Corporation if, in the opinion of
the Corporation, ownership of the shares has or may become concentrated to the
extent which would cause the Corporation or a Fund to be deemed a personal
holding company within the meaning of the Code.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Because the Funds will invest exclusively in shares of their corresponding
Series it is expected that all transactions in portfolio securities will be
entered into by the Series. The Manager is responsible for making the Series'
portfolio decisions, placing the Series' brokerage business, evaluating the
reasonableness of brokerage commissions and negotiating the amount of any
commissions paid subject to a policy established by the Trust's Trustees and
officers. The Trust has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the Trust with a number of
brokers and dealers, including Merrill Lynch. In placing orders, it is the
policy of the Trust to obtain the most favorable net results, taking into
account various factors, including price, commissions, if any, size of the
transaction and difficulty of execution. Where practicable, the Manager surveys
a number of brokers and dealers in connection with proposed portfolio
transactions and selects the broker or dealer which offers the Trust the best
price and execution or other services which are of benefit to the Trust.
Securities firms also may receive brokerage commissions on transactions
including covered call options written by the Trust and the sale of underlying
securities upon the exercise of such options. In addition, consistent with the
Conduct Rules of the National Association of Securities Dealers, Inc. and
policies established by the Trustees, the Manager may consider sales of shares
of the Funds as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Trust.
The Trust does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Manager may receive orders for
transactions by the Trust. Such supplemental research services ordinarily
consist of: quantitative and modeling information, assessments and analyses of
the business or prospects of a company, industry or economic sector.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Manager under the Management Agreement. If in
the judgment of the Manager the Trust will be benefited by supplemental
research services, the Manager is authorized to pay brokerage commissions to a
broker furnishing such services which are in excess of commissions which
another broker may have charged for effecting the same transaction. The
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information, and the Manager may use such
information in servicing its other accounts. For the period April 3, 1997 to
June 30, 1997, the Series did not acquire any securities of brokers or dealers
which executed its portfolio transactions during that period.
The Trust anticipates that brokerage transactions involving securities of
companies domiciled in countries other than the United States will be conducted
primarily on the principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock exchange transactions
are
9
<PAGE>
generally higher than in the United States, although the Trust will endeavor to
achieve the best net results in effecting its portfolio transactions. There is
generally less government supervision and regulation of foreign stock exchanges
and brokers than in the United States.
The Trust invests in certain securities traded in the over-the-counter market
and, where possible, deals directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Trust are prohibited from dealing with the Trust as
principal in purchase and sale of securities. Since transactions in the over-
the-counter ("OTC") market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Trust, including
Merrill Lynch, will not serve as the Trust's dealer in such transactions.
However, affiliated persons of the Trust may serve as its broker in the OTC
transactions conducted on an agency basis.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as amended,
Merrill Lynch may execute transactions for the Trust on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Trust
at least annually setting forth the compensation it has received in connection
with such transactions.
For the period April 3, 1997 (commencement of operations) to June 30, 1997,
the Funds paid brokerage commissions of $61,753 and $0 for the S&P 500 Index
Fund and the Aggregate Bond Index Fund, respectively. For the period April 9,
1997 (commencement of operations) to June 30, 1997, the Funds paid brokerage
commissions of $12,260 and $113,185 for the Small Cap Index Fund and the
International Index Fund, respectively. The Funds paid no commissions to
Merrill Lynch. The Trustees have considered the possibility of seeking to
recapture for the benefit of the Trust brokerage commissions, dealer spreads
and other expenses of possible portfolio transactions, such as underwriting
commissions, by conducting such portfolio transactions through affiliated
entities, including Merrill Lynch. For example, brokerage commissions received
by Merrill Lynch could be offset against the management fee paid by the Trust
to the Manager. After considering all factors deemed relevant, the Trustees
made a determination not to seek such recapture. The Trustees will reconsider
this matter from time to time.
Portfolio Turnover. Although the Series will use a passive, indexing approach
to investing, each Series may engage in a substantial number of portfolio
transactions. The rate of portfolio turnover will be a limiting factor when the
Manager considers whether to purchase or sell securities for a Series only to
the extent that the Manager will consider the impact of transaction costs on a
Series' tracking error. Changes in the securities comprising a Series' index
will tend to increase that Series' portfolio turnover rate, as the Manager
restructures the Series' holdings to reflect the changes in the index. A high
rate of portfolio turnover would result in correspondingly greater brokerage
commission expenses. Portfolio turnover rate is calculated by dividing the
lesser of the Series' annual sales or purchases of portfolio securities
(exclusive of purchases and sales of Government securities and of all other
securities, including options, whose maturity or expiration dates at the time
of acquisition were one year or less) by the monthly average value of the
securities in the Series during the fiscal year. For the period April 3, 1997
(commencement of operations) to June 30, 1997, the portfolio turnover of the
S&P 500 Index Series and the Aggregate Bond Index Series was 1.39% and 62.75%,
respectively. For the period April 9, 1997 (commencement of operations) to June
30, 1997, the portfolio turnover of the Small Cap Index Series and the
International Index Series was 26.02% and 5.45%, respectively.
10
<PAGE>
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
The net asset value of the shares of the Funds is determined once daily
Monday through Friday as of 15 minutes after the close of business on the NYSE
(generally 4:00 p.m., New York time) on each day the NYSE is open for trading
(a "Pricing Day"). The NYSE is not open for trading on New Year's Day,
Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value is computed by dividing the value of the securities held by a Fund plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time. Expenses, including the fees payable
to the Administrator and the Distributor, and the advisory fees payable
indirectly by the Series of the Trust to the Manager, are accrued daily.
The principal assets of each Fund will normally be its interest of the
underlying Series, which will be valued at its net asset value. A Series'
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. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the primary
market. Securities traded in the OTC market are valued at the last quoted bid
prices as at the close of trading on the NYSE on each day by brokers that make
markets in the securities. Securities traded on the NASDAQ national market
system are valued at the last sale price prior to the time of valuation. Other
investments, including futures contracts and related options, are stated at
market value. Securities and assets for which market quotations are not readily
available are valued at fair market value, as determined in good faith by or
under the direction of the Trustees of the Trust.
Each investor in the Trust may add to or reduce its investment in any Series
on each Pricing Day. The value of each investor's (including the respective
Funds') interest in a Series will be determined as of 15 minutes after the
close of business on the NYSE (generally 4:00 p.m., New York Time) by
multiplying the net asset value of the Series by the percentage, effective for
that day, that represents that investor's share of the aggregate interests in
such Series. Any additions or withdrawals, which are to be effected on that
day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a Series will then be re-computed as the percentage
equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Series as of the time or determination on such day
plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Series effected on such day,
and (ii) the denominator of which is the aggregate net asset value of the
Series as of such time on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Series by all investors in the Series. The percentage so determined will
then be applied to determine the value of the investor's interest in such
Series as of 15 minutes after the close of business of the NYSE on the next
Pricing Day of the Series.
11
<PAGE>
SHAREHOLDER SERVICES
The Funds offer a number of shareholder services described below which are
designed to facilitate investment in their shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Funds, the Distributor or Merrill Lynch. Certain of these services are
available only to United States investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gains distributions. The statement will also
show any other activity in the account since the preceding statements.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchase and the
reinvestment of ordinary income dividends and long-term capital gains
distribution. Shareholders may make additions to their Investment Account at
any time by mailing a check directly to the Transfer Agents. Shareholders may
also maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without charge,
at the Transfer Agent. Shareholders interested in transferring their shares
from Merrill Lynch and who do not wish to have an Investment Account maintained
for such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he be issued certificates for his shares, and then must turn the certificates
over to the new firm for re-registration as described in the preceding
sentence. Shareholders considering transferring from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the account is to be transferred will not take delivery of shares of a
Fund, a shareholder must either redeem the shares so that the cash proceeds can
be transferred to the account at the new firm, or such shareholder must
continue to maintain an account at Merrill Lynch for those shares.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder. Issuance of certificates representing all or only
part of the full shares of an Investment Account may be requested by a
shareholder directly from Merrill Lynch Financial Data Services, Inc. (the
"Transfer Agent").
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Funds. Such reinvestment
will be at the net asset value of shares of a Fund, without sales charge, as of
the close of business on the ex-dividend date of the dividend or distribution.
Shareholders may elect in writing or by telephoning (1-800-MER-FUND) to receive
either their income dividends or capital gains distributions, or both, in cash,
in which event payment will be mailed on or about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing that they
no longer wish to have their dividends and/or distributions reinvested in
shares of the Fund or vice versa and, commencing ten days after the receipt by
the Transfer Agent of such notice, those instructions will be effected.
12
<PAGE>
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from such
shareholder's Investment Account in the form of payments by check or through
automatic payment by direct deposit to such shareholder's bank account on
either a monthly or quarterly basis. Shareholders whose shares are held within
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bi-monthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program, subject to certain conditions.
AUTOMATIC INVESTMENT PLANS
Regular additions of shares may be made in an investor's Investment Account
by prearranged charges of $50 or more to such investor's regular bank account.
Investors who maintain CMA(R) accounts may arrange to have periodic investments
made in the Funds in their CMA(R) account or in certain related accounts in
amounts of $100 or more through the CMA(R) Automated Investment Program.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in a
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available on request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100 and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Corporation's intention to distribute all of its net investment
income, if any. Dividends from such net investment income are paid at least
annually with respect to each of the S&P 500 Index Fund, Small Cap Index Fund
and International Index Fund. Dividends with respect to the Aggregate Bond
Index Fund are declared daily and paid monthly. All net realized long-, mid- or
short-term capital gains, if any, are distributed to Fund shareholders at least
annually. From time to time, a Fund may declare a special distribution at or
about the end of the calendar year in order to comply with a Federal income tax
requirement that certain percentages of its ordinary income and capital gains
be distributed during the taxable year. See "Shareholder Services--Reinvestment
of Dividends and Capital Gains Distributions" for information concerning the
manner in which dividends and distributions may be reinvested automatically in
shares of the Funds. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash.
TAXES
The Funds intend to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As a RIC, a Fund
13
<PAGE>
will not be subject to Federal income tax on the part of its net ordinary
income and net realized capital gains which it distributes to shareholders. In
order to qualify, the Fund generally must among other things, (i) derive at
least 90% of its gross income from dividends, interest, payments with respect
to certain securities loans, gains from the sale of securities, or other income
(including but not limited to gains from options or futures) derived with
respect to its business of investing in such stock or securities; (ii) with
respect to tax years beginning before August 5, 1997 derive less than 30% of
its gross income from gains from the sale or other disposition of stock,
securities, options or futures held for less than 3 months; (iii) distribute at
least 90% of its dividend, interest and certain other taxable income each year;
(iv) at the end of each fiscal quarter maintain at least 50% of the value of
its total assets in cash, government securities, securities of other RICs, and
other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer; and (v) at the end of each fiscal quarter
have no more than 25% of its assets invested in the securities (other than
those of the government or other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades and businesses.
Dividends paid by a Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from a Fund's net realized mid- or long-term capital gains
(including long-term gains from certain transactions in futures and options)
are taxable to shareholders as mid- or long-term capital gains, regardless of
the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gains
distributions received by the shareholder with respect to such shares.
Distributions in excess of a Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends and distributions are taxable to shareholders even though they are
reinvested in additional shares of a Fund. Not later than 60 days after the
close of its taxable year, the Funds will provide shareholders with a written
notice designating the amounts of any ordinary income dividends or capital
gains dividends. A portion of the ordinary income dividends paid by the S&P 500
Index Fund and Small Cap Index Fund may be eligible for the 70% dividends
received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Funds will allocate dividends
eligible for the dividends received deduction between the Class A and Class D
shareholders according to a method that is based upon the gross income that is
allocable to the Class A and Class D shareholders during the taxable year, or
such other method as the Internal Revenue Service may prescribe. Distributions
paid by the Aggregate Bond Index Fund and the International Index Fund will not
be eligible for the dividends received deduction. If a Fund pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Redemptions and exchanges of a Fund's shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such events. A loss
realized on a sale or exchange of shares of a Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
14
<PAGE>
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities generally will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under the applicable treaty law. Nonresident shareholders
are urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Dividends and interest received by the International Index Fund and the
Aggregate Bond Index Fund may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of the International
Index Fund may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held by the Fund. The International Index
Fund expects to be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate share of such withholding taxes in their U.S.
income tax returns as gross income, treat such proportionate share as taxes
paid by them, and deduct such proportionate share in computing their taxable
incomes or, alternatively, subject to certain restrictions, use them as foreign
tax credits against their U.S. income taxes. No deductions for foreign taxes,
however, may be claimed by noncorporation shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The International Equity Fund will report
annually to its shareholders the amount per share of such withholding taxes.
For this purpose, the Fund will allocate foreign taxes and foreign source
income among the Class A and Class D shareholders according to a method similar
to that described above for the allocation of dividends eligible for the
dividends received deduction.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. For purposes of determining its distribution
requirements, each Fund will account for its share of items of income, gain,
loss and deductions of the Series as they are taken into account by the Series.
While each Fund intends to distribute its income and capital gains in the
manner necessary to avoid imposition of the 4% excise tax, there can be no
assurance that sufficient amounts of the Fund's taxable income and capital
gains will be distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by which it does
not meet the foregoing distribution requirements.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Corporation or who, to the Corporation's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
Each Fund may purchase or sell options and futures. Options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year,
15
<PAGE>
i.e., each such option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year. In general, unless the
special election referred to in the previous sentence is made, gain or loss
from Section 1256 contracts will be 60% long-term and 40% short-term capital
gain or loss. The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by a Fund solely to reduce the risk of
changes in price or interest rates with respect to its investments.
Newly-enacted Code Section 1259 will require the recognition of gain (but not
loss) if a Fund makes a "constructive sale" of an appreciated financial
position (e.g. debt instruments and stocks). A Fund generally will be
considered to make a constructive sale of an appreciated financial position if
it sells the same or substantially identical property short, enters into a
futures or forward contract to deliver the same or substantially identical
property, or enters into certain other similar transactions.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of each Fund's transactions in options and futures contracts. Under
Section 1092, a Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures.
Similarly, Code Section 1091, which deals with "wash sales," may cause a Fund
to postpone recognition of certain losses for tax purposes; and Code Section
1258, which deals with "conversion transactions," may apply to recharacterize
certain capital gains as ordinary income for tax purposes.
One of the requirements for qualification as a RIC (which applies only to tax
years beginning before August 5, 1997) is that less than 30% of a Fund's gross
income may be derived from gains from the sale or other disposition of
securities held for less than three months. Accordingly, the Funds may be
restricted in effecting closing transactions within three months after entering
into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Series qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to a Series.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the United States
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts"
and from unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, a Series may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988 gains or
losses will increase or decrease the amount of a Fund's investment company
taxable income available to be distributed to shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital
gains. Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary dividend distributions, and any distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Fund shares.
16
<PAGE>
THE SERIES
The Trust and each Fund have received a private letter ruling from the
Internal Revenue Service ("IRS"), in which the IRS has ruled that each Series
is classified as a partnership for tax purposes and, based upon that ruling,
that each Fund will be entitled to look to the underlying assets of the Series
in which it has invested for purposes of satisfying the diversification
requirements and other requirements of the Code applicable to RICs. If any of
the facts upon which such ruling is premised change in any material respect
(e.g., if the Trust were required to register its interests under the
Securities Act) and the Trust is unable to obtain a revised private letter
ruling from the IRS indicating that each Series will continue to be classified
as a partnership, then the Board of Directors of the Corporation will
determine, in its discretion, the appropriate course of action for the Funds.
One possible course of action would be to withdraw the Funds' investments from
the Series and to retain an investment adviser to manage the Funds' assets in
accordance with the investment policies applicable to the respective Fund. See
"Investment Objectives and Policies."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax, or estate or inheritance tax, consequences
of an investment in a Fund. For the complete provisions, reference should be
made to the pertinent Code sections and the Treasury regulations promulgated
thereunder. The Code and the Treasury regulations are subject to change by
legislative or administrative action either prospectively or retroactively.
Dividends and capital gains distributions and gain on the sale or exchange of
shares in a Fund may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes or estate or inheritance
tax. Foreign investors should consider applicable foreign taxes in their
evaluation of an investment in a Fund.
PERFORMANCE DATA
From time to time a Fund may include its Fund's average annual total return,
other total return data and/or yield in advertisements or information furnished
to present or prospective shareholders. Total return figures are based on a
Fund's historical performance and are not intended to indicate future
performance. Average annual total return and yield are determined in accordance
with a formula specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses.
Each Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment. Such data will be
computed as described above, except that as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average
annual data, may be quoted. Actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
17
<PAGE>
Yield quotations will be computed based on a 30-day period by dividing (a),
the net income based on the yield of each security earned during the period by
(b), the average number of shares outstanding during the period that were
entitled to receive dividends, multiplied by the maximum offering price per
share on the last day of the period.
From time to time, a Fund may include its Fund's Morningstar risk-adjusted
performance ratings in advertisements or supplemental sales literature.
Set forth below is total return and yield information for the Class A and
Class D shares of the Funds for the periods indicated.
S&P 500 INDEX FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June
30, 1997.............. 101.49% $1,184.00 101.49% $1,184.00
<CAPTION>
ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June
30, 1997.............. 18.40% $1,184.00 18.40% $1,184.00
<CAPTION>
AGGREGATE TOTAL RETURN
<S> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June
30, 1997.............. 18.40% $1,184.00 18.40% $1,184.00
</TABLE>
SMALL CAP INDEX FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 87.01% $1,151.00 87.01% $1,151.00
<CAPTION>
ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 15.10% $1,151.00 15.10% $1,151.00
<CAPTION>
AGGREGATE TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 15.10% $1,151.00 15.10% $1,151.00
</TABLE>
18
<PAGE>
AGGREGATE BOND INDEX FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June 30,
1997................... 12.83% $1,029.50 13.01% $1,029.90
<CAPTION>
ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June 30,
1997................... 2.95% $1,029.50 2.99% $1,029.90
<CAPTION>
AGGREGATE TOTAL RETURN
<S> <C> <C> <C> <C> <C>
April 3, 1997
(commencement of
operations) to June 30,
1997................... 2.95% $1,029.50 2.99% $1,029.90
<CAPTION>
YIELD
<S> <C> <C> <C> <C> <C>
30 days ending June 30,
1997................... 6.25% 6.08%
</TABLE>
INTERNATIONAL INDEX FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 87.73% $1,152.00 87.73% $1,152.00
<CAPTION>
ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 15.20% $1,152.00 15.20% $1,152.00
<CAPTION>
AGGREGATE TOTAL RETURN
<S> <C> <C> <C> <C>
April 9, 1997
(commencement of
operations) to June
30, 1997.............. 15.20% $1,152.00 15.20% $1,152.00
</TABLE>
19
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Corporation is a Maryland corporation incorporated on October 25, 1996.
It has an authorized capital of 1,000,000,000 shares of Common Stock, par value
$0.0001 per share, divided into 125,000,000 shares each of Class A and Class D
shares for each of the four Funds: S&P 500 Index Fund, Small Cap Index Fund,
Aggregate Bond Index Fund and International Index Fund. Class A and Class D
shares of a Fund represent interests in the same assets of the Series and are
identical in all respects except that the Class D shares bear certain expenses
related to the account maintenance associated with such shares. Class D shares
have exclusive voting rights with respect to matters relating to the class'
account maintenance expenditures.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Directors (to
the extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of each Fund have equal voting rights, except that
each Fund has exclusive voting rights to matters affecting only such Fund, and
except that as noted above, Class D shares have exclusive voting rights with
respect to matters relating to the class' account maintenance expenditures.
There normally will be no meeting of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors
holding office have been elected by the shareholders, at which time the
Directors then in office will call a shareholders' meeting for the election of
Directors. Shareholders may, in accordance with the terms of the Articles of
Incorporation, cause a meeting of shareholders to be held for the purpose of
voting on the removal of Directors. Also, the Corporation will be required to
call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in account maintenance fees or of a change
in fundamental policies, objectives or restrictions. Except as set forth above,
the Directors shall continue to hold office and appoint successor Directors.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities, except
that, as noted above, Class D shares bear certain additional expenses. Shares
issued are fully-paid and non-assessable by the Fund. Voting rights for
Directors are not cumulative.
Stock certificates are issued by the Transfer Agent only on specific request.
Certificates for fractional shares are not issued in any case.
The Trust consists of four Series, and is organized as a Delaware business
trust. Whenever a Fund is requested to vote on a fundamental policy of a
Series, the Corporation will hold a meeting of the investing Fund's
shareholders and will cast its vote as instructed by such Fund's shareholders.
MLAM provided the initial capital for each Fund by purchasing 2,500 Class A
shares of each Fund (10,000 total) and 2,500 Class D shares of each Fund
(10,000 total), for an aggregate of $50,000 per Fund. Such shares were acquired
for investment and can only be disposed of by redemption. The organizational
expenses of the Corporation were paid by the Corporation and are amortized over
a period not exceeding five years. The proceeds realized by MLAM upon
redemption of any of such shares will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of shares redeemed
bears to the number of shares initially purchased.
20
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A and Class D shares of each of the Funds based
on the value of each Fund's net assets as of June 30, 1997, is calculated as
follows:
S&P 500 INDEX FUND
<TABLE>
<CAPTION>
CLASS A CLASS D
------------ -----------
<S> <C> <C>
Net Assets............................................ $236,616,323 $58,696,879
============ ===========
Number of Shares Outstanding.......................... 19,984,351 4,959,256
============ ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares
outstanding)......................................... $ 11.84 $ 11.84
------------ -----------
Offering Price........................................ $ 11.84 $ 11.84
============ ===========
</TABLE>
SMALL CAP INDEX FUND
<TABLE>
<CAPTION>
CLASS A CLASS D
------------ -----------
<S> <C> <C>
Net Assets............................................ $ 18,030,823 $22,184,578
============ ===========
Number of Shares Outstanding.......................... 1,566,190 1,928,059
============ ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares
outstanding)......................................... $ 11.51 $ 11.51
------------ -----------
Offering Price........................................ $ 11.51 $ 11.51
============ ===========
</TABLE>
AGGREGATE BOND INDEX FUND
<TABLE>
<CAPTION>
CLASS A CLASS D
------------ -----------
<S> <C> <C>
Net Assets............................................ $150,048,167 $26,762,072
============ ===========
Number of Shares Outstanding.......................... 14,794,047 2,637,505
============ ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares
outstanding)......................................... $ 10.14 $ 10.15
------------ -----------
Offering Price........................................ $ 10.14 $ 10.15
============ ===========
</TABLE>
INTERNATIONAL INDEX FUND
<TABLE>
<CAPTION>
CLASS A CLASS D
------------ -----------
<S> <C> <C>
Net Assets............................................ $101,725,573 $25,818,547
============ ===========
Number of Shares Outstanding.......................... 8,831,531 2,242,149
============ ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares
outstanding)......................................... $ 11.52 $ 11.52
------------ -----------
Offering Price........................................ $ 11.52 $ 11.52
============ ===========
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche, LLP, has been selected as the independent auditors of the
Corporation and the Trust. The selection of the Corporation's independent
auditors is subject to ratification by shareholders in years when an annual
meeting of shareholders is held. In addition, employment of such auditors may
be terminated without any penalty by vote of a majority of the outstanding
shares of the Corporation at a meeting called for the purpose of terminating
such employment. The independent auditors are responsible for auditing the
annual financial statements of the Funds.
CUSTODIAN
Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsboro, New Jersey
08536, acts as the custodian of the assets of S&P 500 Index Series, Small Cap
Index Series and Aggregate Bond Index Series. State Street Bank and Trust
Company ("State Street"), P.O. Box 351, Boston Massachusetts 02101, acts as the
custodian of the assets of International Index Series. Under its contract with
the Trust, State Street is authorized to establish separate accounts in foreign
currencies and to cause foreign securities owned by the International Index
Series to be held in its offices outside the United States and with certain
foreign banks and securities depositories. Each custodian is responsible for
safeguarding and controlling cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Transfer Agent of the Corporation
and the Trust. The Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening, maintenance and servicing of shareholder
accounts. See "Management of the Funds--Transfer Agency Services" in the
Prospectus.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Corporation and the Trust.
REPORTS TO SHAREHOLDERS
The Funds' fiscal year ends on December 31 of each year. The Corporation
sends to its shareholders at least quarterly reports showing the Funds'
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act and the
Investment Company Act, to which reference is hereby made.
22
<PAGE>
Under separate agreements Merrill Lynch has granted the Corporation and the
Trust the right to use the "Merrill Lynch" name and has reserved the right to
withdraw its consent to the use of such name by the Corporation and the Trust
at any time or to grant the use of such name to any other company, and the
Corporation and the Trust have granted Merrill Lynch, under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by Merrill Lynch.
To the knowledge of the Funds, no person or entity owned beneficially 5% or
more of any class of any of the Fund's shares on August 1, 1997.
23
<PAGE>
[This page is intentionally left blank.]
24
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR
S&P 500 INDEX FUND AND S&P 500 INDEX SERIES
FOR THE PERIOD APRIL 3, 1997 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1997
25
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX FUND As of June 30, 1997
<S> <S> <C> <C>
Assets: Investment in Merrill Lynch S&P 500 Index Series, at value
(identified cost--$269,750,796) (Note 1a) $295,268,960
Deferred organization expenses (Note 1d) 20,327
Prepaid expenses and other assets (Note 1d) 103,916
------------
Total assets 295,393,203
------------
Liabilities: Payables:
Administrative fees (Note 2) $ 43,760
Distributor (Note 2) 11,785 55,545
------------
Accrued expenses and other liabilities 24,456
------------
Total liabilities 80,001
------------
Net Assets: Net assets $295,313,202
============
Net Assets Class A Shares of Common Stock, $0.0001 par value,
Consist of: 125,000,000 shares authorized $ 1,998
Class D Shares of Common Stock, $0.0001 par value,
125,000,000 shares authorized 496
Paid-in capital in excess of par 266,526,186
Undistributed investment income--net 900,542
Undistributed realized capital gains on investments
from the Series--net 2,365,816
Unrealized appreciation on investments from the Series--net 25,518,164
------------
Net assets $295,313,202
============
Net Asset Class A--Based on net assets of $236,616,323 and 19,984,351
Value: shares outstanding $ 11.84
============
Class D--Based on net assets of $58,696,879 and 4,959,256
shares outstanding $ 11.84
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
MERRILL LYNCH
<CAPTION>
S&P 500
INDEX FUND For the Period April 3, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Investment income allocated from the Series $ 1,118,682
(Note 1b): Expenses allocated from the Series (43,205)
------------
Net investment income from the Series 1,075,477
------------
Expenses: Administration fee (Note 2) $ 94,046
Registration fees (Note 1d) 52,110
Account maintenance fee--Class D (Note 2) 30,273
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C>
Transfer agent fee--Class A (Note 2) 17,670
Printing and shareholder reports 16,917
Transfer agent fee--Class D (Note 2) 6,786
Professional fees 2,233
Accounting services (Note 2) 1,302
Amortization of organization expenses (Note 1d) 890
Trustees' fees and expenses 186
Other 502
------------
Total expenses before reimbursement 222,915
Reimbursement of expenses (Note 2) (47,980)
------------
Total expenses after reimbursement 174,935
------------
Investment income--net 900,542
------------
Realized & Realized gain on investments from the Series--net 2,365,816
Unrealized Unrealized appreciation on investments from the Series--net 25,518,164
Gain from the ------------
Series--Net: Net Increase in Net Assets Resulting from Operations $ 28,784,522
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
S&P 500 April 3, 1997++ to
INDEX FUND Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 900,542
Realized gain on investments from the Series--net 2,365,816
Unrealized appreciation on investments from the Series--net 25,518,164
------------
Net increase in net assets resulting from operations 28,784,522
------------
Capital Share Net increase in net assets derived from capital share transactions 266,503,680
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 295,288,202
Beginning of period 25,000
------------
End of period* $295,313,202
============
<FN>
*Undistributed investment income--net $ 900,542
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
27
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERRILL LYNCH The following per share data and ratios have been derived For the Period
S&P 500 from information provided in the financial statements. April 3, 1997++ to
INDEX FUND June 30, 1997
Increase in Net Asset Value: Class A Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net .03 .04
Realized and unrealized gain on investments from the Series--net 1.81 1.80
-------- --------
Total from investment operations 1.84 1.84
-------- --------
Net asset value, end of period $ 11.84 $ 11.84
======== ========
Total Investment Based on net asset value per share 18.40%+++ 18.40%+++
Return: ======== ========
Ratios to Average Expenses, net of reimbursement++++ .41%* .62%*
Net Assets: ======== ========
Expenses++++ .54%* .84%*
======== ========
Investment income--net 1.96%* 1.80%*
======== ========
Supplemental Data: Net assets, end of period (in thousands) $236,616 $ 58,697
======== ========
<FN>
*Annualized.
++Commencement of Operations.
++++Includes the Fund's share of the Series' allocated expenses.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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 Fund is registered under
the Investment Company Act of 1940 as a non-diversified mutual fund. The Fund
seeks to achieve its investment objective by investing all of its assets in the
Merrill Lynch S&P 500 Index Series (the "Series") of the Merrill Lynch Index
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
28
<PAGE>
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. These unaudited
financial statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature. The Fund
offers two classes of shares, Class A Shares and Class D 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. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Series' Notes to Financial Statements which is
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Series, less all
actual and accrued expenses of the Fund determined in accordance
with generally accepted accounting principles.
(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 all of its taxable income to
shareholders. Therefore, no Federal income tax provision is
required.
(d) Prepaid registration fees and deferred organization expenses--
Prepaid registration fees are charged to expense as the related
shares are issued. Deferred organization expenses are charged to
expense on a straight-line basis over a five-year period.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance fees. The fees are accrued daily and
paid monthly at the annual rate of 0.25% based upon the average
daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of Merrill
Lynch & Co., Inc. ("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.
The Fund has also entered into an Administrative Services Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund pays
a monthly fee at an annual rate of 0.20% 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. For the period April 3, 1997 to June
30, 1997, MLAM earned fees of $94,046, of which $47,980 was
voluntarily waived.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), an indirect
wholly-owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investments in the Series for
the period April 3, 1997 to June 30, 1997 were $269,837,220 and
$3,527,617, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $266,503,680 for the period April 3, 1997 to June 30, 1997.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
April 3, 1997++ to June 30, 1997 Shares Amount
Shares sold 21,109,885 $228,482,132
Shares redeemed (1,126,784) (12,412,085)
---------- ------------
Net increase 19,983,101 $216,070,047
========== ============
[FN]
++Prior to April 3, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
Class D Shares for the Period Dollar
April 3, 1997++ to June 30, 1997 Shares Amount
Shares sold 5,945,928 $ 61,314,139
Shares redeemed (987,922) (10,880,506)
---------- ------------
Net increase 4,958,006 $ 50,433,633
========== ============
[FN]
++Prior to April 3, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
29
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series
Shares Value
Issue Held (Note 1a)
Common
Stocks
<S> <C> <C>
ALLTEL Corporation 6,926 $ 231,588
AMP Inc. 8,124 339,177
++AMR Corp. 3,366 311,355
ASARCO, Inc. 1,584 48,510
AT&T Corp. 60,315 2,114,795
Abbott Laboratories 28,743 1,918,595
Adobe Systems, Inc. 2,617 91,759
++Advanced Micro Devices, Inc. 5,208 187,488
Aeroquip-Vickers Inc. 1,036 48,951
Aetna Inc. 5,584 571,662
Ahmanson (H.F) & Co. 3,734 160,562
Air Products & Chemicals Inc. 4,072 330,850
++Airtouch Communications, Inc. 18,676 511,256
Alberto-Culver Co. (Class B) 2,068 57,904
Albertsons, Inc. 9,287 338,976
Alcan Aluminium, Ltd. 8,427 292,312
Allegheny Teledyne, Inc. 6,530 176,310
Allergan, Inc. 2,422 77,050
AlliedSignal, Inc. 10,463 878,892
Allstate Corporation 16,368 1,194,864
Aluminum Co. of America 6,416 483,606
++Alza Corp. 3,129 90,741
++Amdahl Corp. 4,554 39,848
Amerada Hess Corp. 3,446 191,468
American Electric Power Co., Inc. 7,005 294,210
American Express Co. 17,532 1,306,134
American General Corp. 8,933 426,547
American Greetings Corp. (Class A) 2,770 102,836
American Home Products Corp. 23,897 1,828,121
American International Group, Inc. 17,431 2,603,756
American Stores Co. 5,394 266,329
Ameritech Corporation 20,383 1,384,770
Amgen, Inc. 9,785 568,753
Amoco Corp. 18,344 1,594,782
++Andrew Corp. 3,363 94,584
Anheuser-Busch Companies Inc. 18,418 772,405
Aon Corporation 6,178 319,712
++Apple Computer, Inc. 4,691 66,847
++Applied Materials, Inc. 6,694 474,019
Archer-Daniels-Midland Co. 19,802 465,347
++Armco, Inc. 3,945 15,287
Armstrong World Industries, Inc. 1,527 112,044
++CUC International, Inc. 15,163 $ 391,395
CVS Corporation 6,160 315,700
++Cabletron Systems, Inc. 5,764 163,193
Caliber System, Inc. 1,449 53,975
Campbell Soup Co. 17,290 864,500
Cardinal Health Inc. 4,027 230,546
Carolina Power & Light Co. 5,602 200,972
Case Corp. 2,715 186,996
Caterpillar Inc. 7,012 752,914
Centex Corporation 1,069 43,428
Central & Southwest Corp. 7,879 167,429
++Ceridian Corp. 2,972 125,567
Champion International Corp. 3,535 195,309
Charles Schwab Corporation 6,474 263,411
++Charming Shoppes, Inc. 3,899 20,348
Chase Manhattan Corp. 16,004 1,553,388
Chevron Corp. 24,258 1,793,576
Chrysler Corp. 25,537 837,933
Chubb Corp. 6,491 434,086
Cincinnati Milacron, Inc. 1,475 38,258
Circuit City Stores, Inc. 3,626 128,950
++Cisco Systems, Inc. 24,636 1,653,692
Citicorp 17,196 2,073,193
Clorox Co. 1,914 252,648
Coastal Corp. 3,893 207,059
Coca-Cola Co. 92,062 6,214,185
Cognizant Corporation 6,216 251,748
Colgate-Palmolive Co. 10,958 715,010
Columbia Gas System, Inc. 2,043 133,306
Columbia/HCA Healthcare Corp. 24,838 976,444
Comcast Corp. (Class A) 12,075 258,103
Comerica Inc. 3,921 266,628
++Compaq Computer Corp. 10,190 1,011,358
Computer Associates
International, Inc. 13,436 748,217
++Computer Sciences Corp. 2,830 204,114
ConAgra, Inc. 8,884 569,687
Conseco Inc. 6,800 251,600
Consolidated Edison Co. of
N.Y., Inc. 8,693 255,900
Consolidated Natural Gas Co. 3,509 188,828
Cooper Industries Inc. 4,373 217,557
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Ashland Oil, Inc. 2,748 127,439
Atlantic Richfield Co. 11,921 840,431
Autodesk, Inc. 1,766 67,660
Automatic Data Processing, Inc. 10,870 510,890
++AutoZone, Inc. 5,564 131,102
Avery Dennison Corp. 3,857 154,762
Avon Products, Inc. 4,915 346,815
Baker Hughes, Inc. 5,380 208,139
Ball Corp. 1,130 33,971
Baltimore Gas & Electric Co. 5,459 145,687
Banc One Corp. 21,572 1,044,894
Bank of New York Co. Inc. (The) 14,369 625,052
BankAmerica Corp. 26,326 1,699,672
BankBoston Corp. 5,452 392,885
Bankers Trust NY Corp. 2,881 250,647
Bard (C.R.), Inc. 2,109 76,583
Barnett Banks, Inc. 7,380 387,450
Barrick Gold Corporation 13,837 304,414
Battle Mountain Gold Co. 8,527 48,497
Bausch & Lomb, Inc. 2,053 96,748
Baxter International, Inc. 10,318 539,116
++Bay Networks, Inc. 7,382 196,084
Becton, Dickinson & Co. 4,549 230,293
Bell Atlantic Corp. 16,251 1,233,045
BellSouth Corp. 36,845 1,708,687
Bemis Co., Inc. 1,938 83,819
Beneficial Corp. 1,998 141,983
++Bethlehem Steel Corp. 4,131 43,117
++Beverly Enterprises, Inc. 3,674 59,703
Biomet, Inc. 4,130 76,921
Black & Decker Corporation 3,487 129,673
Block (H&R), Inc. 3,848 124,098
Boeing Co. 26,757 1,419,793
Boise Cascade Corp. 1,793 63,315
++Boston Scientific Corporation 7,187 441,551
Briggs & Stratton Corp. 937 46,850
Bristol-Myers Squibb Co. 37,117 3,006,477
Brown-Forman Corp. (Class B) 2,552 124,570
Browning Ferris Industries, Inc. 7,882 262,077
Brunswick Corp. 3,642 113,813
Burlington Northern Santa Fe Corp. 5,721 514,175
Burlington Resources, Inc. 4,621 203,902
CIGNA Corp. 2,780 493,450
CINergy Corporation 5,834 203,096
CPC International, Inc. 5,319 491,010
CSX Corp. 8,080 448,440
Cooper Tire & Rubber Co. 2,932 64,504
Coors (Adolph) Co. (Class B) 1,402 37,328
CoreState Financial Corp. 7,668 412,155
Corning, Inc. 8,517 473,758
++Costco Companies, Inc. 7,838 257,674
Countrywide Credit Industries, Inc. 3,860 120,384
Crane Co. 1,699 71,039
Crown Cork & Seal Co., Inc. 4,746 253,614
Cummins Engine Co., Inc. 1,461 103,092
Cyprus Amax Minerals Co. 3,451 84,550
++DSC Communications Corp. 4,338 96,521
DTE Energy Company 5,369 148,319
Dana Corp. 3,829 145,502
Darden Restaurants, Inc. 5,679 51,466
++Data General Corp. 1,478 38,428
Dayton Hudson Corp. 8,025 426,830
Deere & Co. 9,470 519,666
++Dell Computer Corp. 6,217 730,109
Delta Airlines, Inc. 2,705 221,810
Deluxe Corp. 3,048 104,013
++Digital Equipment Corporation 5,673 201,037
Dillard's, Inc. (Class A) 4,202 145,494
Dominion Resources, Inc. 6,847 250,771
Donnelley (R.R.) & Sons Co. 5,433 198,984
Dover Corp. 4,161 255,902
Dow Chemical Corp. 8,661 754,590
Dow Jones & Co., Inc. 3,574 143,630
Dresser Industries, Inc. 6,504 242,274
Duke Energy Corp. 13,341 639,525
Dun & Bradstreet Corp. 6,350 166,688
duPont (E.I.) de Nemours & Co. 41,909 2,635,028
EG&G, Inc. 1,752 39,420
++EMC Corp. 9,093 354,627
ENSEARCH Corp. 2,577 57,338
Eastern Enterprises 750 26,016
Eastman Chemical Company 2,873 182,436
Eastman Kodak Co. 12,214 937,425
Eaton Corp. 2,852 249,015
Echlin, Inc. 2,307 83,052
Echo Bay Mines, Inc. 5,157 29,653
Ecolab Inc. 2,387 113,979
Edison International 15,225 378,722
Emerson Electric Co. 16,538 910,624
Engelhard Corp. 5,323 111,450
Enron Corp. 9,471 386,535
Entergy Corp. 8,823 241,530
</TABLE>
31
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (continued)
Shares Value
Issue Held (Note 1a)
Common
Stocks
(continued)
<S> <C> <C>
Equifax, Inc. 5,590 $ 207,878
Exxon Corp.++++ 92,175 5,668,763
++FMC Corp. 1,375 109,227
FPL Group, Inc. 6,771 311,889
++Federal Express Corp. 4,221 243,763
Federal Home Loan Mortgage
Corporation 25,800 886,875
Federal National Mortgage Association 39,386 1,718,214
++Federated Department Stores, Inc. 7,694 267,367
Fifth Third Bancorp 3,917 321,439
First Bank System, Inc. 4,975 424,741
First Chicago NBD Corp. 11,596 701,558
First Data Corporation 16,656 731,823
First Union Corp. 10,624 982,720
Fleet Financial Group 9,705 613,841
Fleetwood Enterprises, Inc. 1,316 39,233
Fleming Companies, Inc. 1,398 25,164
Fluor Corp. 3,104 171,302
Ford Motor Co. 44,164 1,667,191
Fortune Brands, Inc. 6,382 238,128
Foster Wheeler Corp. 1,504 60,912
Freeport-McMoRan Copper (Class B) 7,443 231,663
Frontier Corp. 6,055 120,722
++Fruit of the Loom, Inc. 2,844 88,164
GPU Inc. 4,460 160,003
GTE Corp. 35,449 1,555,325
Gannett Co., Inc. 5,215 514,981
Gap, Inc. 10,160 394,970
General Dynamics Corp. 2,333 174,975
General Electric Co. 121,774 7,960,975
++General Instrument Corp. 5,066 126,650
General Mills, Inc. 5,974 389,057
General Motors Corp. 27,066 1,507,238
General Re Corp. 3,048 554,736
General Signal Corp. 1,845 80,488
Genuine Parts Co. 6,681 226,319
Georgia-Pacific Corp. 3,380 288,567
Giant Food Inc. (Class A) 2,214 72,232
Giddings & Lewis, Inc. 1,224 25,551
Gillette Co. 20,682 1,959,619
Golden West Financial Corp. 2,121 148,470
Goodrich (B.F.) Co. 1,987 86,062
Jefferson Pilot Corp. 2,617 $ 182,863
Johnson & Johnson 49,443 3,182,893
Johnson Controls, Inc. 3,079 126,431
Jostens, Inc. 1,431 38,279
Kaufman & Broad Home Corp. 1,438 25,255
Kellogg Co. 7,713 660,426
Kerr-McGee Corp. 1,794 113,695
KeyCorp. 8,339 465,942
Kimberly-Clark Corp. 20,775 1,033,556
King World Productions, Inc. 1,383 48,405
++Kmart Corp. 18,004 220,549
Knight-Ridder, Inc. 3,382 165,929
++Kroger Co. 9,429 273,441
++LSI Logic Corp. 5,254 168,128
Laidlaw, Inc. (Class B) 11,618 160,474
Lilly (Eli) & Co. 20,617 2,253,696
Limited, Inc. (The) 10,029 203,087
Lincoln National Corp. 3,859 248,423
Liz Claiborne, Inc. 2,643 123,230
Lockheed Martin Corp. 7,130 738,401
Loews Corporation 4,256 426,132
Longs Drug Stores Corp. 1,442 37,762
Louisiana Land & Exploration Co. 1,265 72,263
Louisiana-Pacific Corp. 4,023 84,986
Lowe's Companies, Inc. 6,402 237,674
Lucent Technologies, Inc. 23,755 1,711,845
MBIA Inc. 1,599 180,387
MBNA Corp. 12,363 452,795
MCI Communications Corp. 25,505 976,363
MGIC Investment Corp. 4,362 209,103
Mallinckrodt, Inc. 2,736 103,968
Manor Care, Inc. 2,323 75,788
Marriott International, Inc. 4,736 290,672
Marsh & McLennan Companies, Inc. 6,154 439,242
Masco Corp. 5,987 249,957
Mattel, Inc. 10,822 366,595
May Department Stores Co. 8,798 415,705
Maytag Corp. 3,624 94,677
McDermott International, Inc. 2,031 59,280
McDonald's Corp. 25,608 1,237,186
McDonnell Douglas Corp. 7,794 533,889
McGraw-Hill Companies, Inc. 3,680 216,430
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Goodyear Tire & Rubber Co. 5,749 363,984
Grace (W.R.) & Co. 2,685 148,011
Grainger (W.W.), Inc. 1,964 153,560
Great Atlantic & Pacific Tea Co., Inc. 1,413 38,416
Great Lakes Chemical Corp. 2,221 116,325
Great Western Financial Corp. 5,094 273,802
Green Tree Financial Corporation 5,084 181,117
Guidant Corp. 2,743 233,155
++HEALTHSOUTH Corporation 12,691 316,482
++HFS Inc. 5,826 337,908
Halliburton Co. 4,695 372,079
Harcourt General, Inc. 2,629 125,206
Harland (John H.) Co., Inc. 1,141 26,029
Harnischfeger Industries, Inc. 1,818 75,447
++Harrah's Entertainment, Inc. 3,807 69,478
Harris Corp. 1,442 121,128
Hartford Financial
Services Group Inc. 4,345 359,549
Hasbro, Inc. 4,785 135,774
Heinz (H.J.) Co. 13,624 628,407
Helmerich & Payne, Inc. 922 53,130
Hercules Inc. 3,728 178,478
Hershey Foods Corp. 5,682 314,286
Hewlett-Packard Co. 37,723 2,112,488
Hilton Hotels Corp. 9,260 245,969
Home Depot, Inc. 18,029 1,242,874
Homestake Mining Corp. 5,427 70,890
Honeywell, Inc. 4,690 355,854
Household International, Inc. 3,936 462,234
Houston Industries, Inc. 8,673 185,927
++Humana, Inc. 6,016 139,120
++ITT Corp. 4,305 262,874
ITT Industries, Inc. 4,372 112,579
Ikon Office Solutions Inc. 4,919 122,668
Illinois Tool Works, Inc. 9,251 461,972
Inco Ltd. 6,225 187,139
Ingersoll-Rand Co. 4,050 250,087
Inland Steel Industries, Inc. 1,811 47,312
Intel Corp. 30,362 4,305,711
++Intergraph Corp. 1,761 14,968
International Business
Machines Corp. 36,868 3,325,033
International Flavors &
Fragrances, Inc. 4,080 206,040
International Paper Co. 11,168 542,346
Interpublic Group of
Companies, Inc. 2,999 183,876
James River Corp. 3,184 117,808
Mead Corp. 1,933 120,329
Medtronic, Inc. 8,881 719,361
Mellon Bank Corp. 9,576 432,117
Mercantile Stores Co., Inc. 1,362 85,721
Merck & Co., Inc. 44,810 4,637,835
Meredith Corp. 1,979 57,391
Merrill Lynch & Co., Inc. 12,297 733,209
Micron Technology Inc. 7,753 309,635
++Microsoft Corporation++++ 44,516 5,625,709
Millipore Corp. 1,601 70,444
Minnesota Mining &
Manufacturing Co. 15,465 1,577,430
Mobil Corp. 29,152 2,036,996
Monsanto Co. 21,961 945,696
Moore Corp. Ltd. 3,252 64,024
Morgan (J.P.) & Co., Inc. 6,852 715,177
Morgan Stanley Group, Inc. 21,272 916,051
Morton International Inc. 5,198 156,915
Motorola, Inc. 22,060 1,676,560
NACCO Industries, Inc. (Class A) 303 17,101
NYNEX Corp. 16,344 941,823
Nalco Chemical Co. 2,492 96,253
National City Corporation 8,189 429,922
++National Semiconductor Corp. 5,247 160,689
National Service Industries, Inc. 1,678 81,698
NationsBank Corp. 27,099 1,747,885
++Navistar International Corp. 2,715 46,834
New York Times Co. (Class A) 3,579 177,160
Newell Co. 5,877 232,876
Newmont Mining Corp. 5,771 225,069
++Niagara Mohawk Power Corp. 5,341 45,732
Nicor, Inc. 1,842 66,082
Nike, Inc. (Class B) 10,669 622,803
NorAm Energy Corp. 5,132 78,263
Nordstrom, Inc. 2,968 145,617
Norfolk Southern Corp. 4,627 466,170
Northern States Power Co. 2,555 132,221
Northern Telecom, Ltd. 9,652 878,332
Northrop Grumman Corp. 2,134 187,392
Norwest Corp. 13,870 780,187
++Novell, Inc. 12,877 89,334
Nucor Corp. 3,244 183,286
ONEOK Inc. 1,009 32,477
Occidental Petroleum Corp. 12,243 306,840
Ohio Edison Co. 5,645 123,132
++Oracle Corp. 24,256 1,221,896
++Oryx Energy Co. 3,878 81,923
Owens-Corning Fiberglass Corp. 1,977 85,258
</TABLE>
33
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (continued)
Shares Value
Issue Held (Note 1a)
Common
Stocks
(concluded)
<S> <C> <C>
PACAAR, Inc. 2,876 $ 133,554
PECO Energy Company 8,234 172,914
PG&E Corporation 15,177 368,042
PNC Bank Corporation 11,943 497,127
PP&L Resources, Inc. 6,095 121,519
PPG Industries, Inc. 6,692 388,972
Pacific Enterprises, Inc. 3,093 104,002
PacifiCorp 10,975 241,450
Pall Corp. 4,654 108,205
++Parametric Technology Company 4,716 200,725
Parker-Hannifin Corp. 2,752 167,012
Penney (J.C.) Co., Inc. 9,138 476,889
Pennzoil Co. 1,722 132,163
Peoples Energy Corp. 1,294 48,444
Pep Boys-Manny, Moe & Jack 2,241 76,334
PepsiCo Inc. 56,884 2,136,705
Perkin-Elmer Corp. 1,614 128,414
Pfizer, Inc. 23,967 2,864,056
Pharmacia & Upjohn Inc. 18,799 653,265
Phelps Dodge Corp. 2,299 195,846
Philip Morris Companies, Inc. 90,162 4,000,939
Phillips Petroleum Co. 9,737 425,994
Pioneer Hi-Bred
International, Inc. 3,048 243,840
Pitney Bowes, Inc. 5,411 376,064
Placer Dome, Inc. 8,859 145,066
Polaroid Corp. 1,681 93,295
Potlatch Corp. 1,067 48,282
Praxair, Inc. 5,854 327,824
Procter & Gamble Co. 25,140 3,551,025
++Providian Financial Corporation 3,467 111,377
Public Service Enterprise
Group, Inc. 8,611 215,275
Pulte Corp. 797 27,546
Quaker Oats Co. 5,026 225,542
Ralston Purina Co. 3,934 323,326
Raychem Corp. 1,652 122,867
Raytheon Co. 8,733 445,383
Reebok International, Ltd. 2,058 96,211
Republic of New York Corp. 2,044 219,730
Reynolds Metals Co. 2,688 191,520
Rite Aid Corp. 4,534 226,133
Stride Rite Corp. 1,836 $ 23,638
Sun Co., Inc. 2,700 83,700
++Sun Microsystems, Inc. 13,693 509,636
Sun Trust Banks, Inc. 8,184 450,631
Sysco Corp. 6,474 236,301
++3Com Corp. 12,325 554,625
TJX Companies, Inc. 5,748 151,603
TRW Inc. 4,640 263,610
++Tandem Computers, Inc. 4,301 87,095
Tandy Corp. 2,015 112,840
Tektronix, Inc. 1,220 73,200
++Tele-Communications, Inc. (Class A) 24,651 366,684
++Tellabs, Inc. 6,706 374,698
Temple-Inland, Inc. 2,049 110,646
++Tenet Healthcare Corporation 11,147 329,533
Tenneco, Inc. 6,318 285,495
Texaco Inc. 9,785 1,064,119
Texas Instruments, Inc. 7,095 596,423
Texas Utilities Co. 8,310 286,176
Textron, Inc. 6,116 405,949
++Thermo Electron Corp. 5,574 189,516
Thomas & Betts Corp. 1,968 103,443
Time Warner, Inc. 20,751 1,001,236
The Times Mirror Co. (Class A) 3,550 196,137
Timken Co. 2,311 82,185
Torchmark Corp. 2,603 185,464
++Toys 'R' Us, Inc. 10,607 371,245
Transamerica Corp. 2,451 229,322
Travelers Group, Inc. 23,809 1,501,455
Tribune Co. 4,556 218,973
Tupperware Corp. 2,302 84,023
Tyco Laboratories, Inc. 6,250 434,766
UNUM Corporation 5,180 217,560
++US Airways Group Inc. 2,909 101,815
US Bancorp 5,477 351,213
US West Communications Group 17,793 670,574
++US West, Inc. 22,511 455,848
USF&G Corp. 4,098 98,352
UST, Inc. 6,817 189,172
USX Marathon Group, Inc. 10,637 307,143
USX-US Steel Group, Inc. 3,137 109,991
Unicom Corporation 8,029 178,645
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Rockwell International Corp. 7,910 466,690
Rohm and Haas Co. 2,305 207,594
++Rowan Companies, Inc. 3,165 89,213
Royal Dutch Petroleum Co. (NY
Registered Shares) 79,600 4,328,250
Rubbermaid, Inc. 5,540 164,815
Russell Corp. 1,354 40,112
Ryder System, Inc. 2,807 92,631
SBC Communications, Inc. 33,864 2,095,335
SUPERVALU, Inc. 2,477 85,456
Safeco Corp. 4,664 217,750
Safety-Kleen Corp. 2,155 36,366
++St. Jude Medical, Inc. 3,380 131,820
St. Paul Companies, Inc. 3,071 234,164
Salomon, Inc. 4,034 224,391
++Santa Fe Energy Resources, Inc. 3,693 54,241
Sara Lee Corp. 17,797 740,800
Schering-Plough Corp. 27,162 1,300,381
Schlumberger Ltd. 9,164 1,145,500
Scientific-Atlanta, Inc. 2,859 62,541
++Seagate Technology/AC 9,147 321,860
Seagram Co., Ltd. 13,718 552,149
Sears, Roebuck & Co. 14,551 782,116
Service Corp. International 8,886 292,127
Shared Medical Systems Corp. 875 47,250
Sherwin-Williams Co. 6,351 196,087
Sigma-Aldrich Corporation 3,700 129,731
++Silicon Graphics, Inc. 6,526 97,890
Snap-On Tools Corp. 2,252 88,672
Sonat, Inc. 3,190 163,487
Southern Co. 25,305 553,547
Southwest Airlines Company 5,365 138,819
Spring Industries, Inc. 745 39,299
Sprint Corp. 15,984 841,158
Stanley Works 3,290 131,600
Stone Container Corp. 3,670 52,527
Unilever N.V. (NY Registered
Shares) 5,920 1,290,560
Union Camp Corp. 2,576 128,800
Union Carbide Corp. 4,658 219,217
Union Electric Co. 3,778 142,383
Union Pacific Corp. 9,166 646,203
Union Pacific Resources, Inc. 9,421 234,347
++Unisys Corp. 6,469 49,326
United Healthcare Corporation 6,914 359,528
United States Surgical Corp. 2,715 101,134
United Technologies Corp. 8,781 728,823
Unocal Corp. 9,265 359,598
VF Corp. 2,357 200,640
++Viacom, Inc. (Class B) 13,090 392,700
Wachovia Corp. 5,997 349,700
Walgreen Co. 9,107 488,363
Wal-Mart Stores, Inc. 84,101 2,843,665
Walt Disney Co. 25,061 2,011,145
Warner-Lambert Co. 10,037 1,247,097
Waste Management Inc. 16,816 540,214
Wells Fargo & Co. 3,319 894,470
Wendy's International, Inc. 4,875 126,445
++Western Atlas, Inc. 1,983 145,255
Westinghouse Electric Corp. 23,594 545,611
Westvaco Corp. 3,770 118,519
Weyerhaeuser Co. 7,338 381,576
Whirlpool Corp. 2,751 150,101
Whitman Corp. 3,771 95,453
Willamette Industries, Inc. 2,046 143,220
Williams Companies, Inc. 5,885 257,469
Winn Dixie Stores, Inc. 5,555 206,924
++Woolworth Corp. 4,957 118,968
++WorldCom, Inc. 33,143 1,060,576
Worthington Industries, Inc. 3,571 65,394
Wrigley (Wm.) Jr. Co. (Class B) 4,297 287,899
Xerox Corp. 12,009 947,210
Total Common Stocks (Cost--$227,220,276)--85.3% 251,994,887
</TABLE>
35
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (concluded)
Face Value
Amount Short-Term Obligations (Note 1a)
<S> <C> <S> <C>
Commmercial $15,845,000 General Motors Acceptance Corp., 6.25% due 7/01/1997 $ 15,845,000
Paper*
US Government 24,000,000 Federal Home Loan Mortgage Corp., 6% due 7/01/1997 24,000,000
Agency Obligations*
Total Short-Term Obligations (Cost--$39,845,000)--13.5% 39,845,000
Total Investments (Cost--$267,065,276)--98.8% 291,839,887
Variation Margin on Stock Index Futures Contracts**--(0.1%) (321,470)
Other Assets Less Liabilities--1.3% 3,750,661
------------
Net Assets--100.0% $295,269,078
============
<FN>
++Non-income producing security.
++++Portion of holdings pledged as collateral for Stock Index
Futures Contracts.
*Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rate shown is the discount
rate paid at the time of purchase by the Fund.
**Stock index futures contracts purchased as of June 30, 1997 were
as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
<C> <S> <S> <C>
98 S&P 500 Stock Index September 1997 $43,622,250
Total Stock Index Futures Contracts Purchased
(Contract Price--$42,878,680) $43,622,250
===========
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$267,065,276) (Note 1a) $291,839,887
Cash 761
Receivables:
Contributions $ 4,345,076
Dividends 284,981 4,630,057
------------
Deferred organization expenses (Note 1e) 18,685
------------
Total assets 296,489,390
------------
Liabilities: Variation margin on stock index futures (Notes 1a & 1b) 321,470
Payables:
Withdrawals 584,572
Securities purchased 277,856 862,428
------------
Accrued expenses and other liabilities 36,414
------------
Total liabilities 1,220,312
------------
Net Assets: Net assets $295,269,078
============
Net Assets Partners capital $269,750,897
Consist of: Unrealized appreciation on investments--net 25,518,181
------------
Net assets $295,269,078
============
See Notes to Financial Statements.
</TABLE>
37
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES For the Period April 3, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Dividends (net of $12,085 foreign withholding tax) $ 797,155
(Note 1d): Interest and discount earned 321,528
------------
Total income 1,118,683
------------
Expenses: Investment advisory fees (Note 2) $ 23,504
Custodian fees 12,594
Accounting services (Note 2) 10,574
Amortization of organization expenses (Note 1e) 9,947
Professional fees 5,222
Pricing fees 2,467
Trustees' fees and expenses 1,490
Other 911
------------
Total expenses before reimbursement 66,709
Reimbursement of expenses (Note 2) (23,504)
------------
Total expenses after reimbursement 43,205
------------
Investment income--net 1,075,478
------------
Realized & Realized gain from investments--net 2,365,816
Unrealized Gain on Unrealized appreciation on investments--net 25,518,181
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 28,959,475
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH For the Period
S&P 500 April 3, 1997++ to
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 1,075,478
Realized gain on investments--net 2,365,816
Unrealized appreciation on investments--net 25,518,181
------------
Net increase in net assets resulting from operations 28,959,475
------------
Capital Contributions 269,837,220
Transactions: Withdrawals (3,527,617)
------------
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
Net increase in net assets derivied from capital transactions 266,309,603
------------
Net Assets: Total increase in net assets 295,269,078
Beginning of period --
------------
End of period $295,269,078
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERRILL LYNCH For the Period
S&P 500 The following ratios have been derived from April 3, 1997++ to
INDEX SERIES information provided in the financial statements. June 30, 1997
<S> <S> <C>
Ratios to Average Expenses, net of reimbursement .09%*
Net Assets: ============
Expenses .14%*
============
Investment income--net 2.29%*
============
Supplemental Data: Net assets, end of period (in thousands) $ 295,269
============
Portfolio turnover 1.39%
============
Average commission rate paid $ .0148
============
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
39
<PAGE>
Merrill Lynch S&P 500 Index Fund, June 30, 1997
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Series (the "Series") is part of Merrill
Lynch Index Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940 and is organized as a Delaware
business trust. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature. The following is
a summary of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking
any sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the last quoted bid price at the
close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Securities traded in
the NASDAQ National Market System are valued at the last sale price
prior to the time of valuation. Portfolio securities which are
traded both on the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are
valued at the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market,
the last bid price. Other investments, including futures contracts
and related options, are stated at market value. Short-term
securities are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not
readily available are valued at fair market value, as determined in
good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in
various portfolio investment techniques to provide liquidity, or in
connection with the Series' arbitrage strategies. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Series may purchase or sell stock
index futures contracts and options on such futures contracts as a
proxy for a direct investment in securities underlying the Series'
index. Upon entering into a contract, the Series deposits and
maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Series as unrealized gains or losses. When
the contract is closed, the Series records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* Options--The Series is authorized to purchase and write call and
put options. When the Series writes an option, an amount equal to
the premium received by the Series is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Series enters into a closing transaction), the
Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent that the
cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Series will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Series. Therefore, no
Federal income tax provision is required.
(d) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Dividend income is recorded on
the ex-dividend dates. Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are charged to expense on a straight-line basis over a five-year
period.
40
<PAGE>
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Series has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Series pays a monthly fee at an annual rate of 0.05%
of the average daily value of the Series' net assets. For the period
ended June 30, 1997, MLAM earned fees of $23,504, all of which was
voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or
directors of MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period April 3, 1997 to June 30, 1997 were $228,929,113 and
$1,847,984, respectively.
Net realized and unrealized gains as of June 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 139,146 $24,774,611
Stock index futures contracts 2,226,670 743,570
----------- -----------
Total $ 2,365,816 $25,518,181
=========== ===========
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $24,774,611, of which $25,929,392 related to
appreciated securities and $1,154,781 related to depreciated
securities. At June 30, 1997, the aggregate cost of investments for
Federal income tax purposes was $267,065,276.
41
<PAGE>
[This page is intentionally left blank.]
42
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR
SMALL CAP INDEX FUND AND SMALL CAP INDEX SERIES
FOR THE PERIOD APRIL 9, 1997 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1997
43
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND As of June 30, 1997
<S> <S> <C>
Assets: Investment in Merrill Lynch Small Cap Index Series, at value (Note 1a)
(identified cost $36,482,338) $ 40,159,028
Receivable from administrator (Note 2) 24,613
Deferred organization expenses (Note 1d) 13,814
Other assets 25,331
------------
Total assets 40,222,786
------------
Liabilities: Distributor payable (Note 2) 4,480
Accrued expenses and other liabilities 2,905
------------
Total liabilities 7,385
------------
Net Assets: Net assets $ 40,215,401
============
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000 shares
Consist of: authorized $ 157
Class D Shares of Common Stock, $0.0001 par value, 125,000,000 shares
authorized 193
Paid-in capital in excess of par 35,529,900
Undistributed investment income--net 109,999
Undistributed realized capital gains on investments from the Series--net 898,462
Unrealized appreciation on investments from the Series--net 3,676,690
------------
Net assets $ 40,215,401
============
Net Asset Class A--Based on net assets of $18,030,823 and 1,566,190 shares outstanding $ 11.51
Value: ============
Class D--Based on net assets of $22,184,578 and 1,928,059 shares outstanding $ 11.51
============
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND For the Period April 9, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Investment income allocated from the Series $ 158,207
(Note 1b): Expenses allocated from the Series (16,168)
------------
Net investment income from the Series 142,039
------------
Expenses: Registration fees (Note 1d) $ 30,985
Administration fee (Note 2) 16,520
Account maintenance fee--Class D (Note 2) 10,709
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Printing and shareholder reports 3,662
Professional fees 3,590
Transfer agent fee--Class D (Note 2) 2,149
Transfer agent fee--Class A (Note 2) 1,601
Accounting services (Note 2) 1,496
Amortization of organization expenses (Note 1d) 972
Directors' fees and expenses 299
Other 1,189
------------
Total expenses before reimbursement 73,172
Reimbursement of expenses (Note 2) (41,132)
------------
Total expenses after reimbursement 32,040
------------
Investment income--net 109,999
------------
Realized & Realized gain on investments from the Series--net 898,462
Unrealized Gain Unrealized appreciation on investments from the Series--net 3,676,690
From the ------------
Series--Net: Net Increase in Net Assets Resulting from Operations $ 4,685,151
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP April 9, 1997++ to
INDEX FUND Increase in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 109,999
Realized gain on investments from the Series--net 898,462
Unrealized appreciation on investments from the Series--net 3,676,690
------------
Net increase in net assets resulting from operations 4,685,151
------------
Capital Share Net increase in net assets derived from capital share transactions 35,505,250
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 40,190,401
Beginning of period 25,000
------------
End of period* $ 40,215,401
============
<FN>
*Undistributed investment income--net $ 109,999
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
45
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
MERRILL LYNCH from information provided in the financial statements. April 9, 1997++ to
SMALL CAP June 30, 1997
INDEX FUND Increase in Net Asset Value: Class A Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net .03 .03
Realized and unrealized gain on investments from the Series--net 1.48 1.48
-------- --------
Total from investment operations 1.51 1.51
-------- --------
Net asset value, end of period $ 11.51 $ 11.51
======== ========
Total Investment Based on net asset value per share 15.10%+++ 15.10%+++
Return: ======== ========
Ratios to Average Expenses, net of reimbursement++++ .50%* .75%*
Net Assets: ======== ========
Expenses++++ 1.20%* 1.46%*
======== ========
Investment income--net 1.61%* 1.36%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 18,031 $ 22,184
Data: ======== ========
<FN>
*Annualized.
++Commencement of Operations.
+++Aggregate total investment return.
++++Includes the Fund's share of the Series' allocated expenses.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
SMALL CAP
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch Small Cap Index Fund (the "Fund") is part of Merrill
Lynch Index Funds, Inc. The Fund is registered under the Investment
Company Act of 1940 as a non-diversified mutual fund. The Fund seeks
to achieve its investment objective by investing all of its assets
in the Merrill Lynch Small Cap Index Series (the "Series") of the
Merrill Lynch Index 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. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal recurring nature. The Fund
offers two classes of shares, Class A Shares and Class D 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.
46
<PAGE>
The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Series' Notes to Financial Statements which is
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Series, less all
actual and accrued expenses of the Fund determined in accordance
with generally accepted accounting principles.
(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 all of its taxable income to
shareholders. Therefore, no Federal income tax provision is
required.
(d) Prepaid registration fees and deferred organization expenses--
Prepaid registration fees are charged to expense as the related
shares are issued. Deferred organization expenses are charged to
expense on a straight-line basis over a five-year period.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance fees. The fees are accrued daily and
paid monthly at the annual rate of 0.25% based upon the average
daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of Merrill
Lynch & Co., Inc. ("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.
The Fund has also entered into an Administrative Services Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund pays
a monthly fee at an annual rate of 0.22% 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. For the period April 9, 1997 to June
30, 1997, MLAM earned fees of $16,520, all of which were voluntarily
waived. MLAM also reimbursed the Fund for additional expenses of
$24,612.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), an indirect
wholly-owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for
the period April 9, 1997 to June 30, 1997 were $37,247,334 and
$1,679,314, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $35,505,250 for the period April 9, 1997 to June 30, 1997.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
April 9, 1997++ to June 30, 1997 Shares Amount
Shares sold 1,982,992 $ 20,451,110
Shares redeemed (418,052) (4,421,811)
------------ ------------
Net increase 1,564,940 $ 16,029,299
============ ============
[FN]
++Prior to April 9, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
Class D Shares for the Period Dollar
April 9, 1997++ to June 30, 1997 Shares Amount
Shares sold 2,237,280 $ 22,751,077
Shares redeemed (310,471) (3,275,126)
------------ ------------
Net increase 1,926,809 $ 19,475,951
============ ============
[FN]
++Prior to April 9, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
47
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
AAR Corporation 1,400 $ 45,238
ABM Industries, Inc. 1,900 36,694
ABR Information Services, Inc. 1,400 40,600
++ABT Building Products Corporation 1,400 36,750
ACC Corp. 1,100 33,963
ACNielson Corporation 3,500 68,688
ADAC Laboratories 1,500 35,438
++ADVO, Inc. 2,500 40,625
AGL Resources, Inc. 2,900 59,813
ALBANK Financial Corporation 1,000 39,500
AMCOL International Corp. 2,100 38,063
AMCORE Financial Inc. 1,300 35,425
AMETEK, Inc. 2,600 61,100
++ANTEC Corporation 2,100 24,675
APL Ltd. 1,400 43,750
ASA Holdings, Inc. 1,400 40,075
Aames Financial Corporation 1,700 31,450
++Acceptance Insurance Holdings, Inc. 1,100 25,025
++Access Health, Inc. 1,100 26,950
Acordia, Inc. 1,400 56,000
++Actel Corp. 1,600 27,300
++Acuson Corporation 1,200 27,600
Acxiom Corp. 3,000 61,500
++Advanced Techology Laboratories, Inc. 1,000 43,000
++Advanced Tissue Sciences, Inc. 2,700 34,763
++Affiliated Computer Services, Inc. 2,300 64,400
++Affymetrix, Inc. 1,400 48,650
++Agouron Pharmaceuticals, Inc. 700 56,612
Air Express International Corporation 2,200 87,450
Airborne Freight Corporation 1,200 50,250
Albany International Corp. (Class A) 2,300 51,750
++Alexander's, Inc. 300 21,113
Aliant Communications, Inc. 3,200 62,400
++Alkermes, Inc. 1,300 18,850
++Allen Telecom Inc. 1,700 35,275
++Alliance Pharmaceutical Corporation 2,700 27,169
++Alliant Techsystems, Inc. 900 49,500
Allied Capital Commercial Corporation 1,200 28,800
Allied Group, Inc. 1,500 57,000
++Allied Waste Industries, Inc. 4,100 71,238
++Allwaste, Inc. 3,600 34,200
Alpharma, Inc. (Class A) 800 12,750
++Alternative Resources Corp. 1,500 30,563
++BBN Corp., Inc. 1,300 37,619
BDM International, Inc. 2,200 50,600
++BE Aerospace, Inc. 1,100 34,788
++BISYS Group, Inc. 1,900 79,325
BMC Industries, Inc. 1,900 65,075
++BT Office Products International, Inc. 1,900 14,250
BW/IP, Inc. 2,200 44,687
Ball Corp. 1,900 57,119
Ballard Medical Products 2,100 42,131
++BancTec, Inc. 1,300 33,719
Bank of Granite Corp. 1,200 36,300
Bank United Corp. (Class A) 1,500 57,000
Banknorth Group, Inc. 600 27,750
Banta Corporation 2,100 56,963
++Barnett Banks, Inc. 1,200 29,400
++Barrett Resources Corp. 2,200 65,863
Bassett Furniture Industries, Inc. 1,300 36,725
Bay Apartment Communities, Inc. 1,400 51,800
Bay State Gas Company 1,400 37,275
Belden, Inc. 1,700 57,906
++Bell & Howell Co. (Series B) 1,600 49,300
++Benton Oil & Gas Co. 2,000 30,000
Berkley (W.R.) Corporation 600 35,325
Berkshire Realty Company, Inc. 2,300 24,438
Berry Petroleum Co. (Class A) 2,600 49,400
++Best Buy Co., Inc. 2,300 34,213
++Big Flower Press Holdings, Inc. 1,400 29,050
++Billing Information Concepts 1,600 55,800
++Bio-Rad Laboratories, Inc. (Class A) 1,000 26,063
++Bio Technology General Corp. 2,800 37,800
Birmingham Steel Corp. 2,300 35,650
++Black Box Corporation 1,300 52,325
Black Hills Corporation 1,600 45,600
Block Drug Company, Inc. (Class A) 900 39,150
Blount International, Inc. (Class A) 900 38,306
Bob Evans Farms, Inc. 4,300 72,831
Boole & Babbage, Inc. 1,600 34,000
++Boston Beer Company, Inc. (Class A) 1,700 16,787
++Boston Technology, Inc. 1,400 41,388
Brady (W.H.) Company (Class A) 1,600 46,400
Brightpoint, Inc. 1,300 42,331
++Brinker International, Inc. 3,800 54,150
++Bristol Hotel Company 1,400 53,900
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
++Amerco 1,100 33,138
++America West Holdings Corp. (Class B) 2,900 42,050
American Health Properties, Inc. 1,800 45,225
++American Management Systems, Inc. 2,200 58,850
American Mobile 1,700 17,425
++American Oncology Resources, Inc. 4,200 70,875
++American Radio Systems Corp. 1,400 55,825
++AmeriCredit Corp. 2,500 52,500
++Amerin Corporation 1,800 43,650
++AmeriSource Health Corp. (Class A) 1,400 69,825
++Amylin Pharmaceuticals, Inc. 2,000 27,500
Analysts International Corp. 1,800 60,300
Anchor Bancorp, Inc. 600 29,250
++Anchor Gaming 600 28,650
++Anixter International Inc. 2,900 49,844
++AnnTaylor Stores Corporation 1,600 31,200
Apogee Enterprises, Inc. 2,000 43,000
Apple South, Inc. 2,300 35,075
Applebee's International, Inc. 2,300 61,525
Applied Industrial Technologies, Inc. 1,300 46,800
++Applied Magnetics Corp. 1,400 31,675
++Apria Healthcare Group, Inc. 2,500 44,375
AptarGroup, Inc. 1,300 58,825
Arbor Drugs, Inc. 1,800 36,225
++Arbor Software Corp. 1,000 35,250
++Arcadia Financial Ltd. 3,000 27,563
Argonaut Group, Inc. 1,000 29,500
++Argyle Television Operations, Inc. 1,200 30,600
++Armco, Inc. 6,600 25,575
Arrow International, Inc. 1,000 29,250
++Arterial Vascular Engineering, Inc. 1,700 54,719
Arvin Industries, Inc. 1,300 35,425
++Ascent Entertainment Group, Inc. 1,000 9,125
Aspect Telecommunications Corp. 2,600 57,850
Aspen Technologies, Inc. 1,400 52,675
Associated Banc-Corp 1,400 55,300
Associated Estates Realty Corp. 600 14,100
Astoria Financial Corp. 1,300 61,750
Atlantic Energy, Inc. 3,600 60,525
Atmos Energy Corporation 1,700 40,800
++Auspex Systems, Inc. 2,400 23,100
Authentic Fitness Corp. 1,800 22,725
++Avant Corporation 1,400 45,238
++Avid Technology, Inc. 2,200 58,025
++Aztar Corporation 4,100 28,956
++Broderbund Software, Inc. 1,200 29,625
Brush Wellman, Inc. 1,400 29,313
++Buckeye Cellulose Corp. 1,400 47,250
++Buffets, Inc. 4,000 33,750
++Burlington Industries, Inc. 3,600 43,200
Burnham Pacific Properties, Inc. 7,200 99,000
Burr-Brown Corp. 1,700 58,650
CBL & Associates Properties, Inc. 1,900 45,600
CCB Financial Corp. 800 58,500
CILCORP, Inc. 1,300 53,544
CKE Restaurants, Inc. 2,300 72,738
CMAC Investment Corp. 2,200 105,050
CNB Bancshares, Inc. 1,300 52,650
++CONMED Corporation 800 13,600
CORESTAFF, Inc. 1,800 48,600
++CORT Business Services Corp. 1,500 44,250
CPI Corporation 1,200 25,200
CRIIMI MAE, Inc. 2,700 43,200
++CSG Systems International, Inc. 1,900 58,663
++CSS Industries, Inc. 1,000 31,625
CWM Mortgage Holdings Inc. 3,100 74,206
++Cable Design Technologies 1,300 38,269
++Cablevision System Corp. 1,000 53,500
Cabot Oil & Gas Corp. 2,400 42,300
Calgon Carbon Corporation 3,700 51,338
++California Microwave, Inc. 1,400 19,600
California Water Service Co. 600 26,400
CalMat Company 1,700 36,550
Cambrex Corporation 1,000 39,750
Camden Property Trust 832 26,312
++Canandaigua Wine Company, Inc. 1,100 39,463
Capital Re Corporation 900 48,150
Caraustar Industries, Inc. 2,100 72,713
Carlisle Companies, Inc. 1,900 66,262
++Carmike Cinemas, Inc. (Class A) 900 29,475
Carpenter Technology Corporation 900 41,175
++Carson Pirie Scott & Company 1,400 44,450
Carter-Wallace, Inc. 2,400 42,900
Casey's General Stores, Inc. 2,500 53,828
Cash America International, Inc. 3,200 33,600
++Castle & Cooke, Inc. 1,300 21,531
Catalina Marketing Corporation 1,400 67,375
++C-Cube Microsystems, Inc. 1,900 33,369
++Cellular Communications International, Inc. 900 29,475
CenterPoint Properties Corp. 1,200 38,100
</TABLE>
49
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series (continued)
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
(continued)
Central Louisiana Electric 2,100 $ 59,062
Central Maine Power Company 3,400 42,074
++Cephalon, Inc. 1,800 20,700
++Cerner Corporation 2,200 46,200
++Champion Enterprises, Inc. 2,800 42,000
++Chancellor Corporation (Class A) 1,300 52,000
++Charming Shoppes, Inc. 6,500 33,922
++Checkfree Corporation 1,900 33,487
ChemFirst Inc. 1,600 43,400
Chesapeake Corporation 1,400 47,250
Chesapeake Energy Corp. 2,500 24,531
Chittenden Corporation 1,200 41,100
++Choice Hotels International, Inc. 3,200 54,200
Church & Dwight Co., Inc. 1,100 29,425
Cincinnati Milacron, Inc. 2,300 59,656
++Cirrus Logic, Inc. 3,100 32,550
CitFed Bancorp, Inc. 700 27,125
++Citrix Systems, Inc. 1,900 83,363
Claire's Stores, Inc. 2,500 43,750
Clarcor, Inc. 1,700 42,075
++Cliffs Drilling Company 1,000 36,500
++Coast Savings Financial, Inc. 900 40,894
++Coeur D'Alene Mines Corporation 2,400 31,050
++Cognex Corporation 1,900 50,350
++Coherent, Inc. 700 31,150
Cohu, Inc. 800 25,000
++Cole National Corporation 1,000 44,000
Collective Bancorp, Inc. 1,100 49,363
++Collins & Aikman Corp. 4,700 47,000
Colonial Properties Trust 2,400 70,500
++Columbia Laboratories, Inc. 2,500 40,938
Columbus Realty Trust 1,000 22,750
Commerce Bancorporation Inc. 1,400 54,250
Commerce Group, Inc. 1,100 27,088
Commercial Federal Corp. 1,300 48,263
Commercial Metals Co. 1,100 35,475
++Commnet Cellular, Inc. 1,200 41,700
Commonwealth Bancorp, Inc. 1,700 27,838
Community First Bankshares, Inc. 1,900 72,913
++Compdent Corporation 900 18,956
++Computer Horizons Corporation 1,350 46,238
++Computer Products, Inc. 1,500 37,500
Eastern Enterprises 1,500 52,030
Eastern Utilities Associates 2,300 41,975
Eaton Vance Corp. 1,700 47,281
Elcor Corp. 1,100 30,662
Electroglas, Inc. 1,400 35,263
Emmis Broadcasting Corp. (Class A) 700 30,538
Empire District Electric Company (The) 1,900 32,894
Enhanced Financial Services Group, Inc. 1,300 57,038
Envoy Corporation 900 29,925
Enzo Biochem, Inc. 1,900 29,806
Equity Inns Inc. 2,100 28,088
Esterline Technologies Corporation 800 28,150
Etec Systems, Inc. 1,200 51,450
Ethan Allen Interiors, Inc. 900 51,300
Exabyte Corporation 2,000 25,625
Excel Realty Trust, Inc. 1,300 34,288
Executive Risk Inc. 900 46,800
Exide Corporation 1,600 35,100
Expeditors International of Washington, Inc. 2,000 56,750
Express Scripts, Inc. (Class A) 1,300 53,788
F & M National Corp. 1,600 41,600
++FSI International, Inc. 1,800 28,800
Fabri-Centers of America, Inc. (Class A) 1,000 27,250
Fair Isaac & Company, Inc. 800 35,650
Fedders Corporation 4,400 25,025
Federal Mogul Corp. 2,200 77,000
FelCor Suite Hotels, Inc. 1,600 59,600
Ferro Corporation 1,800 66,713
Fibreboard Corporation 500 27,500
++Figgie International, Inc. 1,700 22,950
++FileNet Corporation 1,500 21,750
Financial Security Assurance Holdings Ltd. 2,400 93,450
Fingerhut Companies, Inc. 3,200 55,800
First Citizens Bancshares, Inc. 600 52,200
First Commonwealth Financial Corp. 1,700 36,125
First Federal Savings Bank of Colorado 1,700 32,513
First Financial Bancorp Ohio 900 36,225
First Financial Corporation of Wisconsin 2,000 58,750
First Industrial Realty Trust, Inc. 1,200 35,100
First Michigan Bank Corp. 2,090 63,223
First Midwest Bancorp, Inc. 1,500 47,531
++First Plus Financial Group Inc. 1,500 51,000
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Computer Task Group, Inc. 1,200 44,700
++Computervision Corporation 5,200 24,050
++Comverse Technology, Inc. (New Shares) 1,000 52,000
++Converse, Inc. 1,400 30,975
Coors (Adolph) Co. (Class B) 2,100 55,912
++CopyTele, Inc. 4,100 22,294
Cousins Properties, Inc. 2,100 58,275
++Covance, Inc. 3,000 57,938
++Coventry Ventures, Inc. 2,400 36,300
++Creative BioMolecules, Inc. 2,600 18,363
++Credence Systems Corp. 1,600 47,900
++Credit Acceptance Corp. 1,600 20,600
++Crescent Operating, Inc. 570 6,840
Cross Timbers Oil Company 2,600 50,050
Cullen/Frost Bankers, Inc. 1,300 55,088
++Culligan Water Technologies, Inc. 1,400 62,650
++Cygnus, Inc. 900 15,525
++Cymer, Inc. 900 43,875
++Cyrix Corporation 1,200 25,650
Cytogen Corp. 4,300 20,962
DII Group, Inc. 1,100 48,400
DSP Communications, Inc. 3,000 33,000
D.R. Horton, Inc. 600 6,225
Data General Corporation 2,300 59,800
Data Transmission Network Corp. 800 25,400
Dekalb Genetics Corporation (Class B) 800 63,800
Delta & Pine Land Company 1,933 68,863
Department 56, Inc. 2,200 48,813
Devry, Inc. 2,100 56,700
Dexter Corporation (The) 1,700 54,400
Diamond Multimedia Systems, Inc. 3,200 23,000
Digital Microwave Corp. 1,000 30,000
Dimon, Inc. 2,000 53,000
Dionex Corporation 1,100 56,375
Donaldson Company, Inc. 1,400 53,200
Downey Financial Corp. 900 21,262
Dreyers Grand Ice Cream, Inc. 900 35,550
Durco International Inc. 1,900 55,575
Duty Free International, Inc. 2,000 37,500
Dynatech Corporation 1,000 35,750
Dynex Capital, Inc. 3,800 52,962
++ENCAD Inc. 900 37,350
ESS Technology, Inc. 1,400 18,812
E'Town Corporation 900 27,787
++E* Trade Group, Inc. 1,900 37,288
Eagle Hardware & Garden, Inc. 1,400 32,025
Earthgrains Company (The) 700 45,894
First Western Bancorp, Inc. 1,200 45,300
Firstbank of Illinois Co. 1,000 39,125
Fisher Scientific International, Inc. 1,100 52,250
Fleming Companies, Inc. 2,500 45,000
Florida Rock Industries, Inc. 700 28,438
++Foodmaker, Inc. 3,300 54,038
++Footstar, Inc. 1,900 49,638
Foremost Corporation of America 800 47,900
Forest Oil Corporation 1,700 24,969
Fort Wayne National Corp. 1,200 56,400
Franchise Finance Corporation of America 2,300 59,944
++Franklin Covey Co. 1,400 35,438
Freeport-McMoran Copper & Gold Co., Inc. 1,600 46,200
Fremont General Corporation 800 32,200
++Friedman's, Inc. (Class A) 1,500 34,313
Frontier Insurance Group, Inc. 900 58,275
Fuller (H.B.) Company 1,000 55,000
Fulton Financial Corporation 2,300 62,100
Fund American Enterprises Inc. 600 63,000
++Furniture Brands International, Inc. 3,300 63,938
G & K Services, Inc. (Class A) 1,600 59,600
++GC Companies, Inc. 1,100 50,325
++Gadzooks Inc. Company 700 13,650
Gallagher (Arthur J.) & Co. 1,100 41,525
++Galoob Lewis Toys, Inc. 1,300 24,538
++Garden Ridge Corp. 2,000 25,000
++Gaylord Container Corp. 4,300 33,056
++GelTex Pharmaceuticals, Inc. 1,200 24,150
++Genesco Inc. 2,300 32,631
++GenRad, Inc. 2,000 45,250
++Gentex Corporation 2,000 39,500
Geon Company (The) 1,700 34,425
++Geotek Communications, Inc. 5,300 28,819
Gerber Scientific, Inc. 1,900 37,525
++Getchell Gold Corp. 1,300 45,825
++Gibson Greetings, Inc. 1,400 31,500
Giddings & Lewis, Inc. 2,700 56,363
++Gilead Sciences, Inc. 1,800 49,725
++Glenayre Technologies, Inc. 3,000 49,125
Glimcher Realty Trust Inc. 2,000 41,250
++Global Industrial Technologies, Inc. 2,000 41,000
++Global Industries Ltd. 2,300 53,727
++Golden Books Family Entertainment, Inc. 1,600 20,000
Great Financial Corp. 1,500 52,688
Greenfield Industries, Inc. 1,400 37,800
Greif Brothers Corporation (Class A) 1,700 45,900
++Griffon Corporation 2,800 38,325
</TABLE>
51
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series (continued)
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
(continued)
Guaranty Life Company 1,200 $ 30,150
Guaranty National Corp. 1,400 33,600
++Gulf South Medical Supply, Inc. 1,300 25,350
++Gymboree Corp. 1,500 36,000
HCC Insurance Holdings, Inc. 2,000 53,375
++HMT Technology Corporation 2,300 29,756
HNC Software Inc. 1,300 49,563
HPR Inc. 1,300 24,050
HSB Group Inc. 1,200 64,050
HUBCO, Inc. 1,300 37,700
++Hadco Corporation 500 32,750
++Haemonetics Corporation 2,100 40,163
Hancock Holding Co. 600 29,400
++Handleman Company 3,400 21,675
++Harbinger Corp. 1,200 33,600
++Harken Energy Corporation 5,300 37,100
++Harland (John H.) Co. (The) 1,800 41,063
Harman International Industries, Inc. 900 37,913
Hayes Wheels International, Inc. 1,900 60,325
Health Care Property Investors, Inc. 1,900 66,975
Healthcare Realty Trust Inc. 1,100 30,663
Healthplan Services Corporation 1,400 26,425
Hecla Mining Company 5,200 27,950
Heftel Broadcasting Corp. (Class A) 500 27,625
Heilig-Meyers Company 2,800 54,950
Heritage Media Corporation 2,900 54,738
Hexcel Corporation 2,200 37,950
Highlands Insurance Group, Inc. 1,300 26,163
Highwaymaster Communications, Inc. 1,600 24,400
Highwoods Properties, Inc. 2,100 67,200
++Hollywood Entertainment Corp. 1,700 38,888
Hologic, Inc. 800 21,300
Horizon/CMS Healthcare Corporation 2,700 54,169
Horizon Group, Inc. 1,700 22,844
Hospitality Properties Trust 1,700 52,063
Host Marriott Corporation 3,100 36,425
Houghton Mifflin Company 900 60,075
Hughes Supply, Inc. 700 28,000
Hugoton Energy Corp. 2,900 40,238
Human Genome Sciences, Inc. 1,100 36,575
Hutchinson Technology, Inc. 1,000 24,375
++Hyperion Software Corp. 1,200 26,850
Jones Medical Industries, Inc. 1,200 57,000
Jostens, Inc. 2,300 61,525
Juno Lighting, Inc. 2,000 32,500
Just For Feet, Inc. 1,400 24,412
K2, Inc. 1,500 47,531
Kaman Corporation (Class A) 1,900 29,212
Kaufman and Broad Home Corporation 3,200 56,200
Kaydon Corporation 1,200 59,550
Kellwood Company 1,300 36,075
Kelly Services, Inc. 1,700 53,337
Kemet Corporation 2,700 67,163
Kennametal Inc. 1,500 64,500
Kent Electronics Corporation 1,600 58,700
Keystone Financial, Inc. 2,100 65,625
Kimball International, Inc. 1,600 64,400
++Kirby Corporation 2,700 49,275
Koger Equity Inc. 1,700 31,025
Kuhlman Corporation 900 29,025
Kulicke and Soffa Industries, Inc. 1,100 35,716
LTC Porperties, Inc. 1,800 32,625
Laboratory Corp. of America Holdings 6,600 17,325
Landry's Seafood Restaurants, Inc. 1,500 34,500
Lands' End, Inc. 1,100 32,588
Landstar System, Inc. 1,100 30,937
Legato Systems, Inc. 1,400 25,900
Legg Mason, Inc. 1,400 75,338
Lennar Corporation 2,000 63,875
Level One Communications, Inc. 1,100 42,281
Libbey, Inc. 1,300 45,500
Liberty Property Trust 2,200 54,725
Life Technologies, Inc. 900 24,975
++Ligand Pharmaceuticals 2,200 28,325
Lilly Industries, Inc. (Class A) 2,300 46,288
Lindsay Manufacturing Co. 1,100 36,025
Liposome Company, Inc. 2,000 17,875
++Littelfuse, Inc. 2,300 64,975
Living Centers of America, Inc. 900 35,550
Logicon, Inc. 1,100 58,300
Lomak Petroleum, Inc. 1,900 33,844
++Lone Star Industries, Inc. 700 31,719
++Lone Star Steakhouse & Saloon, Inc. 1,900 49,400
++Lone Star Technologies, Inc. 1,700 48,662
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
++I-Stat Corporation 1,200 20,550
ICN Pharmaceuticals, Inc. 2,100 60,244
ICOS Corporation 1,900 15,675
++IDEC Pharmaceuticals Corporation 1,100 26,675
IDEX Corp. 2,200 72,600
IES Industries, Inc. 1,900 56,050
IRT Property Company 2,300 27,025
++Imation Corp. 2,400 63,300
Imnet Systems, Inc. 900 27,956
Imperial Bancorp 1,000 28,875
Imperial Credit Industries, Inc. 1,500 30,844
Incyte Pharmaceuticals, Inc. 600 40,200
++Information Resources, Inc. 2,300 32,488
++Input/Output, Inc. 2,200 39,875
Insignia Financial Group, Inc. (Class A) 2,400 43,500
Inso Corporation 700 14,394
International Network Services 1,400 36,400
Integon Corporation 800 20,000
++Integrated Device Technology, Inc. 4,000 42,000
Integrated Health Services, Inc. 1,400 53,900
++Integrated Process Equipment Corp. 1,300 32,906
InterDigital Communications Corp. 4,200 23,100
Interface, Inc. (Class A) 1,400 30,975
Intergraph Corporation 3,500 29,750
++Interim Services, Inc. 1,200 53,400
Intermedia Communications, Inc. 1,400 45,325
International Dairy Queen, Inc. (Class A) 1,600 38,400
International Multifoods Corporation 1,000 25,125
++International Rectifier Corporation 2,800 52,150
Interneuron Pharmaceuticals, Inc. 1,500 30,188
Interra Financial, Inc. 700 29,356
Interstate Power Company 1,000 28,625
Invacare Corporation 1,900 44,413
Ionics, Incorporated (Ordinary) 1,200 54,600
Irvine Apartment Communities, Inc. 1,700 50,150
Isis Pharmaceuticals, Inc. 1,900 27,669
Itron, Inc. 900 23,288
J&L Specialty Steel, Inc. 1,700 20,400
JLG Industries, Inc. 2,500 34,063
JP Foodservice, Inc. 1,400 40,163
++Jacobs Engineering Group, Inc. 1,700 45,688
++Jacor Communications, Inc. 1,800 68,850
Jefferies Group, Inc. 500 28,500
Jefferson Bankshares, Inc. 1,400 50,400
John Alden Financial Corporation 1,800 37,688
Long Island Bancorp, Inc. 1,900 68,994
Longs Drug Stores Corp. 1,800 47,137
Longview Fibre Company 3,000 49,875
Luby's Cafeterias, Inc. 2,500 49,844
Lukens Inc. 1,300 24,456
++Lydall, Inc. 2,200 46,475
MAF Bancorp, Inc. 900 37,687
MDU Resources Group, Inc. 2,200 52,800
MMI Companies, Inc. 1,200 31,350
Mac Frugal's Bargains Close-Outs, Inc. 1,600 43,600
Macerich Company (The) 1,900 52,725
Madison Gas & Electric Company 1,800 36,900
Magellan Health Services, Inc. 1,800 53,100
Magna Bancorp, Inc. 1,200 32,850
Magna Group, Inc. 2,000 69,500
Magnetek, Inc. 1,700 28,262
Manitowoc Company, Inc. (The) 900 42,075
Manufactured Home Communities, Inc. 1,600 36,900
++Manugistics Group, Inc. 1,000 44,500
Marcus Corporation (The) 1,800 44,325
Marine Drilling Companies, Inc. 2,300 45,137
++Mariner Health Group, Inc. 2,700 41,681
++Marshall Industries 1,600 59,600
++Martek Biosciences Corporation 1,000 11,750
Mascotech, Inc. 2,200 45,925
Mastec, Inc. 600 28,387
Material Sciences Corporation 2,000 30,875
Matthews International Corporation 1,100 40,150
++Maxicare Health Plans, Inc. 1,600 35,800
McClatchy Newspapers, Inc. (Class A) 2,200 64,625
McDonald's & Company Investments 800 36,700
++McLeodusa Inc. Company 1,900 64,125
++Medaphis Corp. 4,200 42,262
Medical Assurance, Inc. 700 28,437
++Medicis Pharmaceutical Corp. 800 39,900
Medimmune, Inc. 1,000 18,500
++MedPartners, Inc. 1,062 22,966
Medusa Corporation 1,400 53,725
Men's Wearhouse, Inc. (The) 1,000 31,500
Mentor Corporation 1,500 44,438
++Mentor Graphics Corporation 3,900 36,075
Mesa, Inc. 4,200 24,150
Methode Electronics, Inc. (Class A) 2,700 53,663
Metromedia International Group, Inc. 2,800 35,525
++Michaels Stores, Inc. 1,400 29,662
</TABLE>
53
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series (continued)
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
(continued)
Micros Systems, Inc. 700 $ 29,400
Mid Am, Inc. 2,200 40,150
Mid-America Apartment Communities, Inc. 900 25,256
Mid Atlantic Medical Services, Inc. 2,900 45,131
Minerals Technologies, Inc. 1,800 67,500
Minnesota Power & Light Company 2,000 60,750
Mississippi Chemical Corporation 2,300 47,725
Mobile Telecommunication
Technologies Corp. 4,500 64,406
Modine Manufacturing Company 1,200 35,700
++Mohawk Industries, Inc. 1,300 29,575
Morgan Keegan, Inc. 1,900 37,763
++Mueller Industries, Inc. 1,300 56,875
++Multicare Cos Inc. (The) 1,200 32,850
++Mycogen Corp. 1,000 19,625
++Myriad Genetics, Inc. 800 21,600
++NABI, Inc. 2,100 13,912
++NBTY, Inc. 1,000 28,000
++NCS Healthcare, Inc. (Class A) 1,400 42,525
++NTL Inc. 1,900 47,262
Nac Re Corp. 800 38,700
Nash-Finch Company 1,900 42,038
National Computer System, Inc. 1,500 39,938
++National Media Corp. 2,000 13,000
++National Oil Well Inc. 1,000 57,500
++National Steel Corp. 1,200 20,175
++National Surgery Centers, Inc. 800 28,300
Nationwide Health Properties, Inc. 3,700 81,400
Natures Sunshine Products, Inc. 1,400 25,375
++Nautica Enterprises, Inc. 1,900 50,231
++Neoprobe Corp. 1,800 25,200
++Network Appliance, Inc. 1,000 38,000
++Network Equipment Technologies, Inc. 1,900 34,200
++Network General Corp. 2,600 38,675
++Neurex Corporation 1,400 19,775
++Neurogen Corporation 700 15,925
++Neuromedical Systems, Inc. 3,000 16,594
Nevada Power Company 2,900 61,625
New England Business Service, Inc. 1,300 34,206
New York Bancorp Inc. 900 31,275
Newfield Exploration Co. 3,100 62,000
++Newpark Resources, Inc. 1,800 60,750
Patriot American Hospitality, Inc. 2,400 61,200
++Patterson Dental Co. 1,000 34,312
++Pediatrix Medical Group Inc. 800 36,650
Penncorp Financial Group, Inc. 1,600 61,600
Peoples Heritage Financial Group, Inc. 1,400 53,025
++Perceptron, Inc. 700 18,987
++Perrigo Co. 4,100 51,250
++Personnel Group of America, Inc. 1,000 28,812
++Petco Animal Supplies, Inc. 1,200 36,000
++Pharmaceutical Product Development, Inc. 1,300 28,600
Phoenix Duff & Phelps Corp. 4,900 36,138
Phoenix Technologies Ltd. 1,700 22,100
Photronics, Inc. 600 28,650
++Physician Corp. of America 2,100 13,387
++Physicians Resource Group, Inc. 2,100 18,900
++Physio-Control International Corp. 1,200 18,000
Piedmont Natural Gas Company, Inc. 2,100 53,944
Pier 1 Imports, Inc. 2,400 63,600
Pioneer Group, Inc. 2,000 46,000
Pittston Minerals Group 1,800 50,625
++Platinum Technology, Inc. 3,000 39,750
++Playboy Enterprises, Inc. (Class B) 1,600 18,500
++Playtex Products, Inc. 2,200 20,625
Polaris Industries, Inc. 1,900 61,869
++Policy Management Systems Corporation 1,000 47,000
++Pool Energy Services Co. 1,700 30,813
++Premiere Technologies, Inc. 1,100 28,600
++Prepaid Legal Services, Inc. 1,800 38,025
Price Enterprises, Inc. 1,100 21,175
++Pride Petroleum Services, Inc. 2,400 57,600
++Primark Corp. 1,800 47,925
++Prime Hospitality Corp. 1,800 35,550
++Prime Service, Inc. 1,400 44,712
++Proffitt Systems, Inc. 1,100 48,263
++Protein Design Labs, Inc. 900 25,650
Provident Bankshares Corp. 730 30,386
++Proxim, Inc. 900 21,825
Public Service Company of New Mexico 3,800 67,925
Pulte Corp. 700 24,194
++Pure Atria Corp. 2,000 28,250
Quaker State Corporation 2,700 41,175
++Quality Food Centers, Inc. 900 34,200
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
++Nexstar Pharmaceuticals, Inc. 2,400 34,200
Norrell Corp. 1,500 49,500
North American Mortgage Co. 1,200 28,425
Northwestern Public Service Company 2,400 51,600
++NovaCare, Inc. 3,300 45,787
++Nuevo Energy Co. 1,300 53,300
OEA, Inc. 1,300 51,350
O M Group Inc. 2,300 76,188
++OMI Corp. 4,000 38,250
ONBANCorp, Inc. 800 40,800
ONEOK, Inc. 1,100 35,406
++Oak Industries, Inc. 1,600 46,000
++Oak Technology, Inc. 2,900 28,275
Oakwood Homes Corporation 2,100 50,400
Oasis Residential, Inc. 1,300 30,550
++OccuSystems, Inc. 1,600 46,400
++Ocean Energy, Inc. 700 32,375
++Oceaneering International, Inc. 1,700 31,450
++Octel Communications Corporation 2,800 65,625
Ogden Corporation 3,100 67,425
Old National Bancorp 1,600 70,400
Omega Healthcare Investors, Inc. 1,600 52,300
One Valley Bancorp, Inc. 900 37,800
++Orbital Sciences Corp. 2,400 38,100
Oregon Steel Mills, Inc. 2,100 41,869
++Organogenesis, Inc. 1,375 26,898
Orion Capital Corporation 700 51,625
++Orthodontic Center 1,900 34,556
Otter Tail Power Company 1,300 42,900
Outboard Marine Corporation 1,900 33,725
++Outdoor Systems, Inc. 1,200 45,900
Overseas Shipholding Group, Inc. 2,900 56,913
Owens & Minor, Inc. 2,400 35,850
++P-COM, Inc. 1,000 33,000
++PHP Healthcare Corp. 1,000 13,125
++PMC-Sierra, Inc. 4,100 107,625
++PMT Services, Inc. 2,300 35,075
++PRI Automation, Inc. 1,000 37,937
++PSINet, Inc. 2,800 21,000
++Paging Network, Inc. 5,600 49,175
++Papa John's International, Inc. 1,100 40,425
++Parexel International Corporation 1,900 60,325
Park Electrochemical Corporation 1,000 26,312
++Parker Drilling Company 3,800 42,275
++PathoGenesis Corp. 900 26,212
++Quick Response Services, Inc. 600 21,750
RCSB Financial, Inc. 600 28,650
RFS Hotel Investors, Inc. 2,200 39,600
++Ralcorp Holdings Inc. 2,800 41,300
++Rational Software Corporation 2,400 40,350
++Read-Rite Corp. 2,300 48,012
Realty Income, Corp. 2,100 55,125
++Reckson Associates Realty Corp. 1,800 41,400
Redwood Trust, Inc. 700 32,725
Regal-Beloit Corp. 1,900 50,350
Regency Realty Corp. 900 24,525
++Regeneron Pharmaceuticals, Inc. 2,100 21,262
Reinsurance Group of America 1,200 69,000
Reliance Steel & Aluminum Co. 1,050 27,300
++Remedy Corp. 1,300 52,000
++Renal Treatment Centers, Inc. 2,200 59,125
++Renters Choice, Inc. 1,300 25,837
++Respironics, Inc. 1,600 33,800
++Rexall Sundown, Inc. 900 35,100
Richfood Holdings Inc. (Class A) 2,600 67,600
++Rio Hotel & Casino, Inc. 1,500 22,594
++Risk Capital Holdings, Inc. 1,600 33,600
++Robert Mondavi (Class A) 900 42,525
Rochester Gas and Electric Corporation 1,600 33,700
Rock-Tenn Co. (Class A) 2,600 45,663
++Rohr, Inc. 1,600 35,100
Rollins, Inc. 1,900 38,237
Rollins Truck Leasing Corp. 3,800 56,525
Roosevelt Financial Group, Inc. 2,000 44,000
Roper Industries, Inc. 900 46,687
++RoTech Medical Corp. 1,700 34,106
++Ruby Tuesday, Inc. 1,500 33,656
++Rural/Metro Corp. 1,500 43,547
++Ryan's Family Steak House, Inc. 5,600 47,600
Rykoff-Sexton, Inc. 1,700 39,631
++S3 Inc. 3,000 33,000
S&T Bancorp Inc. 1,300 43,550
++SEACOR SMIT, Inc. 900 47,081
SEI Corporation 1,600 38,600
SEMCO Energy, Inc. 1,655 28,963
++SMART Modular Technologies, Inc. 1,500 50,625
++SPS Technologies, Inc. 500 35,375
SPX Corp. 600 38,887
++Sabre Group Holdings Inc. 1,600 43,400
++Safeguard Scientifics, Inc. 1,500 47,719
</TABLE>
55
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series (continued)
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
(continued)
++Safeskin Corp. 1,200 $ 35,325
Safety-Kleen Corp. 3,100 52,312
++Samsonite Corp. 700 30,887
++SangStat Medical Corp. 1,100 25,437
++Sanmina Corp. 1,000 63,500
Saul Centers, Inc. 3,200 55,200
++Scholastic Corp. 1,000 35,000
Schulman (A.), Inc. 2,600 64,025
Schweitzer-Mauduit International, Inc. 1,700 63,750
++Scientific Games Holdings Corp. 1,100 22,687
++Scopus Technology, Inc. 1,400 31,325
Scotsman Industries, Inc. 1,500 42,750
++Scotts Co. (The) 1,800 52,200
Security Capital Corp. 700 66,150
Security Connecticut Corp. 900 49,556
Selective Insurance Group, Inc. 1,100 53,281
++Sepracor, Inc. 1,700 43,881
++Sequa Corporation (Class A) 700 39,462
++Sequent Computer Systems, Inc. 2,100 44,231
++Sequus Pharmaceuticals, Inc. 2,000 12,750
++Service Merchandise Company, Inc. 8,200 24,600
++Shoney's, Inc. 4,500 26,719
++Showbiz Pizza Time, Inc. 1,500 39,563
Showboat, Inc. 1,300 22,669
++Siebel Systems, Inc. 1,600 51,600
++Sierra Health Services, Inc. 1,200 37,500
Sierra Pacific Resources 2,000 64,000
Sigcorp, Inc. 2,300 58,363
Silgan Holdings, Inc. 1,300 50,375
++Silicon Valley Bancshares 800 36,200
++Silicon Valley Group, Inc. 1,700 44,837
++Sitel Corporation 2,600 53,625
Smith (A.O.) Corp. 1,200 42,675
Smith (Charles E) Residential Realty, Inc. 900 25,987
++Smith Food & Drug Centers, Inc. 900 48,262
++Smithfield Foods, Inc. 900 55,350
Smucker J.M. Company (The) (Class A) 2,200 47,850
Snyder Oil Corp. 3,300 60,638
++Sola International, Inc. 1,600 53,600
++Sonic Corp. 1,400 30,800
Sothebys Holdings, Inc. 3,700 62,438
Southdown, Inc. 1,200 52,350
Thomas Industries, Inc. 1,200 34,500
Thornburg Mortgage Asset Corp. 1,400 30,100
++Timberland Company (Class A) 600 39,000
++Toll Brothers, Inc. 700 12,862
++Tom Brown, Inc. 2,200 46,750
Toro Company (The) 1,100 41,662
++Total Renal Care Holdings, Inc. 1,400 56,252
++Toy Biz, Inc. 1,500 12,375
++Tracor, Inc. 1,600 40,200
Trans Financial, Inc. 1,300 36,238
++Trans World Airlines, Inc. 1,700 14,344
++Transition Systems, Inc. 2,200 40,012
Trenwick Group, Inc. 850 31,875
++Triangle Pacific 1,600 51,200
++Triarc Companies, Inc. (Class A) 2,700 55,012
++Trigon Healthcare, Inc. 2,300 55,775
++Trimble Navigation Ltd. 2,000 35,500
Trinet Corporate Realty Trust, Inc. 1,100 36,369
++TriQuint Semiconductor, Inc. 600 20,625
True North Communications, Inc. 2,000 49,500
++Trump Hotels & Casino Resorts, Inc. 2,700 29,025
Trust Company of New Jersey (The) 2,100 40,425
TrustCo Bank Corp. N.Y. 2,100 44,888
Trustmark Corporation 1,300 36,400
++Tuboscope Vetco International Corp. 3,000 59,625
UGI Corp. (New Shares) 1,700 37,613
UMB Financial Corp. 700 30,187
US Freightways Corp. 1,800 46,575
USBancorp, Inc. 600 32,700
++U.S. Bioscience Inc. 2,000 19,250
++U.S. Home Corporation 600 15,937
++U.S. Office Products Co. 2,100 64,181
U.S. Trust Corporation 1,000 47,125
++Ultratech Stepper, Inc. 1,300 29,737
Unifirst Corp. 1,700 34,000
++Uniphase Corp. 1,000 58,250
United Bankshares, Inc. 1,100 46,475
United Carolina Bancshares Corporation 1,400 72,800
United Companies Financial Corporation 1,600 45,200
United Illuminating Company (The) 1,600 49,400
++United International Holdings Inc. (Class A) 3,500 36,312
++Unitrode Corporation 1,000 50,375
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Southwestern Energy Company 2,900 37,700
Sovereign Bancorp Inc. 3,400 51,850
++Spine-Tech, Inc. 800 29,700
++Sports Authority, Inc. (The) 2,500 48,594
St. John Knits, Inc. 1,100 59,400
St. Paul Bancorp Inc. 1,600 53,000
Standard Financial, Inc. 2,200 53,900
Standard Pacific Corp. 1,500 15,375
Stanhome, Inc. 900 29,587
++Steel Dynamics, Inc. 2,100 52,500
Stewart & Stevenson Services, Inc. 1,800 46,800
++Stillwater Mining Co. 1,200 25,725
Stone & Webster, Inc. 600 25,612
Storage Realty Trust Inc. 1,100 29,150
Storage USA, Inc. 1,700 65,025
++Stratus Computer, Inc. 1,300 65,000
Stride Rite Corp. (The) 2,900 37,337
++Structural Dynamics Research Corp. 2,000 52,500
Sturm, Ruger & Company, Inc. 1,700 33,363
Summit Properties, Inc. 1,600 33,000
++Summit Technology, Inc. 2,000 13,250
++Sun Healthcare Group, Inc. 2,300 47,869
Superior Industries International, Inc. 1,400 37,100
Susquenhanna Bancshares, Inc. 1,200 47,100
++Swift Energy Company 1,500 35,813
++Sylvan Learning Systems, Inc. 1,200 40,800
++Symantec Corp. 3,100 60,450
++Synetic, Inc. 1,000 37,000
++System Software Associates, Inc. 2,800 21,175
++Systems & Computer Technology Corp. 1,500 40,125
++TBC Corporation 2,200 18,425
TCA Cable TV, Inc. 1,400 52,675
++TECNOL Medical Products, Inc. 1,600 35,600
TETRA Tech, Inc. 1,200 28,950
TETRA Technologies, Inc. 1,000 24,750
TJ International, Inc. 1,500 35,250
TNP Enterprises, Inc. 1,500 34,781
TR Financial Corporation 1,400 35,262
++Technology Solutions Co. 1,100 43,450
Tejas Gas Corp. 1,000 39,250
Tel-Save Holdings 2,500 38,125
Telxon Corporation 1,400 25,200
Tennant Co. 1,100 36,575
Tesoro Petroleum Corporation 3,000 44,438
Texas Industries, Inc. 1,600 42,500
TheraTech, Inc. 1,300 15,275
Universal Foods Corporation 1,600 61,000
Urban Shopping Centers, Inc. 400 12,750
++VWR Scientific Products Corporation 1,700 26,775
++Vail Resorts, Inc. 1,800 45,562
Valmont Industries, Inc. 2,000 38,000
++Value Health, Inc. 2,500 50,625
++ValuJet, Inc. 2,800 19,337
++Vanguard Cellular Systems, Inc. (Class A) 2,600 35,425
++Vanstar Corporation 2,800 39,550
++Varco International, Inc. 1,100 35,475
++Veritas DGC Inc. 1,300 29,575
++Veritas Software Corp. 700 35,175
++Veritex Pharmaceuticals, Inc. 1,200 45,900
Vesta Insurance Group, Inc. 1,400 60,550
++Viasoft, Inc. 900 45,675
++Vical, Inc. 1,200 15,300
++Vicor Corporation 2,600 58,500
++Videoserver, Inc. 1,300 17,225
++Visio Corp. 800 56,400
++Vitalink Pharmacy Services, Inc. 1,500 28,688
++Vivus, Inc. 1,800 42,862
WD-40 Company 700 42,000
++WMS Industries, Inc. 1,300 32,581
WPL Holdings, Inc. 2,100 58,669
WPS Resources Corporation 2,000 53,500
++Waban, Inc. 1,800 57,937
Wabash National Corporation 1,700 47,387
Walden Residential Properties, Inc. 1,000 25,625
++Walter Industries, Inc. 2,900 48,575
++Wang Laboratories, Inc. 2,100 44,756
Washington Gas Light Company 2,400 60,300
Washington Real Estate Investment Trust 2,700 47,925
++Waters Corp. 1,800 64,575
Watsco, Inc. 1,100 27,500
Watts Industries Inc. (Class A) 1,600 38,400
Wausau Paper Mills Company 2,400 45,300
Webb (Del E.) Corporation 1,600 26,000
Weeks Corp. 1,100 34,375
Wellman, Inc. 2,300 39,962
Wesbanco, Inc. 1,000 39,625
West America Bancorp. 800 60,800
++West Marine, Inc. 1,000 25,750
Western Investment Real Estate Trust 7,200 99,900
++Western Wireless Corporation 4,200 66,675
++Westwood One, Inc. 2,700 87,075
Whitney Holding Corp. 1,300 54,925
</TABLE>
57
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch Small Cap Index Series (concluded)
Shares Value
Issue Held (Note 1a)
<S> <C> <C>
COMMON
STOCKS
(concluded)
++Whole Foods Market, Inc. 1,300 $ 43,062
Wicor, Inc. 900 35,044
Wiley (John) & Sons, Inc. (Class A) 1,100 37,262
++Williams-Sonoma, Inc. 1,100 47,025
Wilmare Industries, Inc. 1,100 26,812
++Wind River Systems, Inc. 1,300 49,725
Windmere Corporation 1,700 27,837
++Winstar Communications, Inc. 2,100 28,087
++Wolverine Tube, Inc. 1,200 33,450
++World Color Press, Inc. 2,500 59,375
Wyle Electronics 900 35,550
++Wyman-Gordon Company 1,100 29,700
Wynn's International, Inc. 1,600 45,400
++Xircom, Inc. 1,500 18,656
Xtra Corporation 1,000 43,937
++Xylan Corp. 2,200 37,400
++Yahoo! Inc. 900 31,725
++Yellow Corporation 1,700 37,825
++Young Broadcasting Inc. (Class A) 1,100 35,750
++Zale Corporation 2,100 41,606
++Zebra Technologies Corporation (Class A) 1,400 39,025
++Zenith Electronics Corporation 1,900 22,444
Zila, Inc. 2,200 14,850
++Zilog, Inc. 1,600 30,400
Zurich Reinsurance Centre Holdings, Inc. 1,300 51,350
Zurn Industries, Inc. 1,100 31,625
Zygo Corp. 700 21,525
Total Common Stocks (Cost--$33,633,639)--92.6% 37,305,084
<CAPTION>
SHORT-TERM Face
OBLIGATIONS Amount Issue
<S> <C> <C>
US Government $ 3,194,000 Federal Home Loan Mortgage Corp., 6% due 7/01/1997 3,194,000
Agency Obligations*
Total Short-Term Obligations (Cost--$3,194,000)--7.9% 3,194,000
Total Investments (Cost--$36,827,639)--100.5% 40,499,084
Variation Margin on Stock Index Futures Contracts++++--0.0% 7,650
Liabilities in Excess of Other Assets--(0.5%) (210,799)
-----------
Net Assets--100.0% $40,295,935
===========
<FN>
*Certain US Government Agency Obligations are traded on a
discount basis; the interest rates shown are the discount
paid at the time of purchase by the Series.
++Non-income producing security.
++++Stock index futures contracts purchased as of June 30,
1997 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
<C> <S> <S> <C>
12 Russell 2000 September 1997 $2,393,400
6 S&P MidCap 400 September 1997 868,800
(Total Contract Price--$3,249,555) $3,262,200
==========
See Notes to Financial Statements.
</TABLE>
58
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$36,827,639) (Note 1a) $ 40,499,084
Variation margin on stock index futures (Notes 1a & 1b) 7,650
Cash on deposit for stock index futures contracts (Note 1b) 70,800
Cash 1,400
Receivables:
Securities sold $ 5,546,648
Contributions 235,059
Dividends 38,897
Investment adviser (Note 2) 5,867 5,826,471
Deferred organization expenses (Note 1e) ------------ 8,376
------------
Total assets 46,413,781
------------
Liabilities: Payables:
Securities purchased 5,859,358
Withdrawals 241,682 6,101,040
------------
Accrued expenses and other liabilities 16,806
------------
Total liabilities 6,117,846
------------
Net Assets: Net assets $ 40,295,935
============
Net Assets Partners capital $ 36,611,845
Consist of: Unrealized appreciation on investments--net 3,684,090
------------
Net assets $ 40,295,935
============
See Notes to Financial Statements.
</TABLE>
59
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30 1997
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES For the Period April 9, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Dividends $ 126,268
(Note 1d): Interest and discount earned 32,289
------------
Total income 158,557
------------
Expenses: Custodian fees $ 6,254
Investment advisory fees (Note 2) 6,005
Amortization of organization expenses (Note 1e) 5,652
Accounting services (Note 2) 3,259
Pricing fees 3,128
Professional fees 1,936
Trustees' fees and expenses 878
Other 957
------------
Total expenses before reimbursement 28,069
Reimbursement of expenses (Note 2) (11,872)
------------
Total expenses after reimbursement 16,197
------------
Investment income--net 142,360
------------
Realized & Realized gain from investments--net 901,465
Unrealized Gain on Unrealized appreciation on investments--net 3,684,090
Investments-- ------------
Net (Notes 1b, Net Increase in Net Assets Resulting from Operations $ 4,727,915
1d & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP April 9, 1997++ to
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 142,360
Realized gain on investments--net 901,465
Unrealized appreciation on investments--net 3,684,090
------------
Net increase in net assets resulting from operations 4,727,915
------------
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C>
Capital Contributions 37,247,334
Transactions: Withdrawals (1,679,314)
------------
Net increase in net assets derived from capital transactions 35,568,020
------------
Net Assets: Total increase in net assets 40,295,935
------------
Beginning of period --
End of period* $ 40,295,935
============
<FN>
*Undistributed investment income--net $ 142,360
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP The following ratios have been derived from April 9, 1997++ to
INDEX SERIES information provided in the financial statements. June 30, 1997
<S> <S> <C>
Ratios to Average Expenses, net of reimbursement .22%*
Net Assets: ============
Expenses .37%*
============
Investment income--net 1.90%*
============
Supplemental Net assets, end of period (in thousands) $ 40,296
Data: ============
Portfolio turnover 26.02%
============
Average commission rate paid $ 0.0132
============
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
61
<PAGE>
Merrill Lynch SmallCap Index Fund, June 30, 1997
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
SMALL CAP
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Small Cap Index Series (the "Series") is part of
Merrill Lynch Index Trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940 and is organized as a
Delaware business trust. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking
any sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the last quoted bid price at the
close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Securities traded in
the NASDAQ National Market System are valued at the last sale price
prior to the time of valuation. Portfolio securities which are
traded both on the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are
valued at the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market,
the last bid price. Other investments, including futures contracts
and related options, are stated at market value. Short-term
securities are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not
readily available are valued at fair market value, as determined in
good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in
various portfolio investment techniques to provide liquidity, or in
connection with the Series' arbitrage strategies. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Series may purchase or sell stock
index futures contracts and options on such futures contracts as a
proxy for a direct investment in securities underlying the Series'
index. Upon entering into a contract, the Series deposits and
maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Series as unrealized gains or losses. When
the contract is closed, the Series records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* Options--The Series is authorized to purchase and write call and
put options. When the Series writes an option, an amount equal to
the premium received by the Series is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Series enters into a closing transaction), the
Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent that the
cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Series will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Series. Therefore, no
Federal income tax provision is required.
(d) Security transactions and investment income--Security trans-
actions are accounted for on the date the securities are purchased
or sold (the trade dates). Dividend income is recorded on the ex-
dividend dates. Interest income (including amortization of discount)
is recognized on the accrual basis. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are charged to expense on a straight-line basis over a five-year
period.
62
<PAGE>
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Series has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Series' portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Series. For such
services, the Series pays a monthly fee at an annual rate of 0.08%
of the average daily value of the Series' net assets. For the period
April 9, 1997 to June 30, 1997, MLAM earned fees of $6,005, all of
which were voluntarily waived. MLAM also reimbursed the Series for
additional expenses of $5,867.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or
directors of MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period April 9, 1997 to June 30, 1997 were $39,425,645 and
$6,553,341, respectively.
Net realized and unrealized gains as of June 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 759,135 $ 3,671,445
Stock index futures contracts 142,330 12,645
------------ ------------
Total $ 901,465 $ 3,684,090
============ ============
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $3,671,445, of which $4,113,563 related to
appreciated securities and $442,118 related to depreciated
securities. At June 30, 1997, the aggregate cost of investments for
Federal income tax purposes was $36,827,639.
63
<PAGE>
[This page is intentionally left blank.]
64
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR
AGGREGATE BOND INDEX FUND AND AGGREGATE BOND INDEX SERIES
FOR THE PERIOD APRIL 3, 1997 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1997
65
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND As of June 30, 1997
<S> <S> <C> <C>
Assets: Investment in Merrill Lynch Aggregate Bond Index Series, at
value (Note 1a) (identified cost--$176,358,861) $177,084,330
Receivable from administrator (Note 2) 30,708
Deferred organization expenses (Note 1d) 11,255
Other assets 31,395
------------
Total assets 177,157,688
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) $ 333,564
Distributor (Note 2) 5,415 338,979
------------
Accrued expenses and other liabilities 8,470
------------
Total liabilities 347,449
------------
Net Assets: Net assets $176,810,239
============
Net Assets Class A Shares of Common Stock, $0.0001 par value,
Consist of: 125,000,000 shares authorized $ 1,479
Class D Shares of Common Stock, $0.0001 par value,
125,000,000 shares authorized 264
Paid-in capital in excess of par 175,868,262
Undistributed realized capital gains on investments from
the Series--net 214,765
Unrealized appreciation on investments from the Series--net 725,469
------------
Net assets $176,810,239
============
Net Asset Class A--Based on net assets of $150,048,167 and 14,794,047
Value: shares outstanding $ 10.14
============
Class D--Based on net assets of $26,762,072 and 2,637,505
shares outstanding $ 10.15
============
See Notes to Financial Statements.
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND For the Period April 3, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Investment income allocated from the Series $ 1,341,668
(Note 1b): Expenses allocated from the Series (38,307)
------------
Net investment income from the Series 1,303,361
------------
Expenses: Registration fees (Note 1d) $ 34,292
Administration fee (Note 2) 28,078
Account maintenance fee--Class D (Note 2) 15,931
Printing and shareholder reports 12,343
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Transfer agent fees--Class A (Note 2) 5,362
Professional fees 3,635
Transfer agent fees--Class D (Note 2) 3,107
Accounting services (Note 2) 1,591
Amortization of organization expenses (Note 1d) 852
Directors' fees and expenses 227
Other 1,185
------------
Total expenses before reimbursement 106,603
Reimbursement of expenses (Note 2) (58,786)
------------
Total expenses after reimbursement 47,817
------------
Investment income--net 1,255,544
------------
Realized & Realized gain on investments from the Series--net 214,765
Unrealized Unrealized appreciation on investments from the Series--net 725,469
Gain from the ------------
Series--Net: Net Increase in Net Assets Resulting from Operations $ 2,195,778
============
</TABLE>
[FN]
++Commencement of Operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
AGGREGATE BOND April 3, 1997++ to
INDEX FUND Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 1,255,544
Realized gain on investments from the Series--net 214,765
Unrealized appreciation on investments from the Series--net 725,469
------------
Net increase in net assets resulting from operations 2,195,778
------------
Dividends to Investment income--net:
Shareholders Class A (867,406)
(Note 1e): Class D (388,138)
------------
Net decrease in net assets resulting from dividends to shareholders (1,255,544)
------------
Capital Share Net increase in net assets derived from capital share transactions 175,845,005
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 176,785,239
Beginning of period 25,000
------------
End of period $176,810,239
============
</TABLE>
[FN]
++Commencement of Operations.
See Notes to Financial Statements.
67
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
MERRILL LYNCH from information provided in the financial statements. April 3, 1997++ to
AGGREGATE BOND June 30, 1997
INDEX FUND Increase (Decrease) in Net Asset Value: Class A Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net .15 .15
Realized and unrealized gain on investments from the Series--net .14 .15
-------- --------
Total from investment operations .29 .30
-------- --------
Less dividends from investment income--net (.15) (.15)
-------- --------
Net asset value, end of period $ 10.14 $ 10.15
======== ========
Total Investment Based on net asset value per share 2.95%+++ 2.99%+++
Return: ======== ========
Ratios to Average Expenses, net of reimbursement++++ .38%* .54%*
Net Assets: ======== ========
Expenses++++ .70%* 1.05%*
======== ========
Investment income--net 6.34%* 6.09%*
======== ========
Supplemental Net assets, end of period (in thousands) $150,048 $ 26,762
Data: ======== ========
</TABLE>
[FN]
*Annualized.
++Commencement of Operations.
+++Aggregate total investment return.
++++Includes the Fund's share of the Series' allocated expenses.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Fund (the "Fund") is part of
Merrill Lynch Index Funds, Inc. The Fund is registered under the
Investment Company Act of 1940 as a non-diversified mutual fund. The
Fund seeks to achieve its investment objective by investing all of
its assets in the Merrill Lynch Aggregate Bond Index Series (the
"Series") of the Merrill Lynch Index 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, is included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund offers two classes of shares, Class A Shares and Class D
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
68
<PAGE>
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. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Series' Notes to Financial Statements which is
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net invesment income of the Series, less all
actual and accrued expenses of the Fund determined in accordance
with generally accepted accounting principles.
(c) Income taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
shareholders. Therefore, no Federal income tax provision is
required.
(d) Prepaid registration fees and deferred organization expenses--
Prepaid registration fees are charged to expense as the related
shares are issued. Deferred organization expenses are charged to an
expense on a straight-line basis over a five-year period.
(e) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance fees. The fees are accrued daily and
paid monthly at the annual rate of 0.25% based upon the average
daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of Merrill
Lynch & Co., Inc. ("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.
The Fund has also entered into an Administrative Services Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund pays
a monthly fee at an annual rate of 0.14% 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. For the period April 3, 1997 to June
30, 1997, MLAM earned fees of $28,078, all of which were waived.
MLAM also reimbursed the Fund for additional expenses of $30,708.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), an indirect
wholly-owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for
the period April 3, 1997 to June 30, 1997 were $178,182,525 and
$4,146,367, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $175,845,005 for the period April 3, 1997 to June 30, 1997.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
April 3, 1997++ to June 30, 1997 Shares Amount
Shares sold 15,331,405 $154,894,110
Shares issued to shareholders in
reinvestment of dividends 51,543 522,806
---------- ------------
Total issued 15,382,948 155,416,916
Shares redeemed (590,151) (5,923,622)
---------- ------------
Net increase 14,792,797 $149,493,294
========== ============
[FN]
++Prior to April 3, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
Class D Shares for the Period Dollar
April 3, 1997++ to June 30, 1997 Shares Amount
Shares sold 3,165,927 $ 31,686,723
Shares issued to shareholders in
reinvestment of dividends 24,380 246,099
---------- ------------
Total issued 3,190,307 31,932,822
Shares redeemed (554,052) (5,581,111)
---------- ------------
Net increase 2,636,255 $ 26,351,711
========== ============
[FN]
++Prior to April 3, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
69
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series
Face Interest Maturity Value
Issue Amount Rate Date(s) Cost (Note 1a)
<S> <S> <C> <C> <C> <C> <C>
US Government United States Treasury $10,600,000 8.75 % 5/15/2017 $ 12,612,736 $ 12,753,072
Obligations--49.68% Bonds 6,110,000 6.625 2/15/2027 5,901,940 5,978,268
United States Treasury 7,020,000 6.25 6/30/1998 7,036,305 7,050,677
Notes 16,550,000 6.25 5/31/1999 16,596,958 16,596,506
19,020,000 6.375 5/15/2000 19,077,869 19,088,282
16,300,000 6.50 5/31/2002 16,362,893 16,366,178
1,000,000 6.25 6/30/2002 998,100 994,060
5,350,000 6.25 2/15/2007 5,158,502 5,234,654
3,880,000 6.625 5/15/2007 3,921,770 3,912,127
Total Investments in
US Government Obligations--49.68% 87,667,073 87,973,824
US Government Agency Federal Home Loan Mortgage 5,511,876 6.50 2/01/2012--6/01/2012 5,393,521 5,405,055
Mortgage-Backed Corporation Participation 315,000 6.50(1) TBA(3) 313,917 313,718
Obligations*--29.24% Certificates--Gold Program 5,796,396 7.00 3/01/2012--5/01/2027 5,644,430 5,714,928
1,195,000 7.00(2) TBA(3) 1,202,842 1,199,099
3,750,251 7.50 5/01/2012--6/01/2027 3,741,785 3,774,954
2,097,051 8.00 5/01/2012--6/01/2027 2,132,570 2,164,982
4,398,414 9.50 2/01/2019--10/01/2024 4,728,125 4,737,365
Federal National 234,005 5.50 6/01/2011 218,356 221,645
Mortgage Association 2,097,655 6.00 2/01/2026--4/01/2027 1,906,581 1,950,561
Mortgage-Backed Securities 400,000 6.00 TBA(3) 373,000 371,872
1,504,098 6.50(2) 4/01/2004--7/01/2004 1,466,086 1,473,077
358,200 6.50 6/01/2027 338,499 342,414
4,765,000 7.00 6/01/2027 4,675,341 4,668,175
3,135,000 7.50 TBA(3) 3,137,812 3,141,834
Government National 997,626 6.00 3/15/2011--5/15/2011 965,204 967,698
Mortgage Association 920,376 6.50 4/15/2026 868,029 880,394
Mortgage-Backed Securities 1,715,000 7.00 TBA(3) 1,679,092 1,683,375
3,975,000 7.50 TBA(3) 3,992,594 3,986,170
5,546,591 8.00 5/15/2026--6/15/2027 5,658,867 5,674,828
2,994,464 8.50 9/15/2026--5/15/2027 3,119,076 3,111,428
Total Investments in
US Government Agency Mortgage-Backed Obligations--29.24% 51,555,727 51,783,572
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes
<S> <S> <S> <S> <S> <C> <C>
Asset-Backed AAA Aaa $1,000,000 Standard Credit Card Master Trust,
Securities--.56% 5.50% due 12/07/2000 990,000 989,370
Banking--3.60% A- A1 1,000,000 Chase Manhattan Corp., 9.75% due
11/01/2001 1,112,050 1,107,320
BBB+ A3 1,020,000 Fleet/Norstar Financial Group, Inc.,
8.125% due 7/01/2004 1,066,374 1,076,916
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <S> <S> <S> <C> <C>
A A2 500,000 Malayan Banking BHD, New York, 7.125%
due 9/15/2005 499,615 497,675
BBB A3 1,000,000 Merita Bank, Ltd., 6.50% due 1/15/2006 926,810 953,070
AA- Aa3 1,835,000 Norwest Corporation, 5.75% due 2/01/2003 1,730,864 1,743,232
BBB+ A1 1,000,000 Wells Fargo Capital, 8.125% due
12/01/2026 (a) 967,500 996,970
------------ ------------
6,303,213 6,375,183
Financial Services-- BBB+ A2 200,000 Heller Financial, Inc., 7% due
1.95% 5/15/2002 197,878 200,594
A+ A1 275,000 International Lease Finance Corp.,
6.625% due 4/01/1999 274,461 276,238
BBB Baa1 1,000,000 Salomon Inc., 6.50% due 3/01/2000 986,750 994,960
A A2 2,000,000 Smith Barney Holdings, Inc., 7.125%
due 10/01/2006 1,996,200 1,987,500
------------ ------------
3,455,289 3,459,292
Financial Services-- A+ Aa3 200,000 CIT Group Holdings, Inc., 5.875%
Consumer--.83% due 10/15/2008 178,758 181,048
A+ A2 1,000,000 Ford Motor Credit Co., 7.75% due
11/15/2002 1,025,760 1,038,530
A A3 250,000 Household Finance Corp., 7.75% due
6/01/1999 254,788 255,845
------------ ------------
1,459,306 1,475,423
Foreign Government BBB+ A3 1,600,000 People's Republic of China, 6.625%
Obligations--.89% due 1/15/2003 1,571,552 1,566,208
Industrial-- AA- A1 1,000,000 Anheuser-Busch Co., Inc., 6.75% due
Consumer Goods-- 11/01/2006 969,880 972,550
1.25% A+ A2 550,000 Grand Metropolitan Investment, 9%
due 8/15/2011 617,518 636,075
BBB Baa2 250,000 Levi Strauss & Co., 7% due 11/01/2006 (a) 241,410 246,025
A A2 365,000 Philip Morris Companies, Inc., 6.95%
due 6/01/2006 367,606 366,215
------------ ------------
2,196,414 2,220,865
Industrial-- AA Aa2 100,000 Mobil Corp., 7.25% due 3/15/1999 101,251 101,528
Energy--.06%
Industrial-- AA- Aa3 1,000,000 E.I. du Pont de Nemours, 7.95%
Manufacturing-- due 1/15/2023 1,009,260 1,009,930
3.03% AAA Aaa 300,000 General Electric Capital Corp.,
8.375% due 3/01/2001 316,032 316,443
A- A3 1,600,000 General Motors Acceptance Corp.,
5.45% due 3/01/1999 1,571,584 1,575,568
BBB+ Baa1 100,000 General Motors Acceptance Corp.,
9.375% due 4/01/2000 106,398 106,687
NR++ NR++ 1,000,000 International Business Machines
Corp., 7.125% due 12/01/2096 948,080 942,380
A A2 900,000 Lucent Technologies Inc., 6.90%
due 7/15/2001 895,563 907,938
BBB Baa3 500,000 Seagate Technology Inc., 7.45%
due 3/01/2037 505,315 502,380
------------ ------------
5,352,232 5,361,326
Industrial-- A A2 1,000,000 Commercial Credit Corp., 6.125%
Other--1.59% due 3/01/2000 985,890 985,670
BBB+ Baa1 1,500,000 Norfolk Southern Corp., 7.70%
due 5/15/2017 1,538,160 1,533,870
A A2 300,000 WMC Finance, USA, 7.25% due 11/15/2013 291,822 294,336
------------ ------------
2,815,872 2,813,876
</TABLE>
71
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series (concluded)
S&P Moody's Face Value
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes Cost (Note 1a)
<S> <S> <S> <S> <S> <C> <C>
Industrial-- BBB+ Baa1 $1,000,000 Dayton Hudson Co., 10% due
Services--1.66% 1/01/2011 $ 1,227,430 $ 1,215,190
A A3 750,000 GTE Corp., 7.83% due 5/01/2023 722,123 742,485
A A2 360,000 May Department Stores Co., 7.60%
due 6/01/2025 345,942 359,849
A A2 200,000 Penney (J.C.) & Co., 7.95% due
4/01/2017 204,476 208,140
BBB- Ba1 400,000 Time Warner, Inc., 8.18% due 8/15/2007 410,104 416,444
------------ ------------
2,910,075 2,942,108
Telecommunications-- BBB- Baa3 100,000 Tele-Communications, Inc., 9.80%
.06% due 2/01/2012 110,548 114,459
Utilities-- AAA Aaa 900,000 BellSouth Telecommunications, Inc.,
Communications-- 6.75% due 10/15/2033 796,973 809,946
.65% A A2 150,000 MCI Communications Corp., 7.50%
due 8/20/2004 155,665 155,665
A Aa3 200,000 U S West Communications Inc.,
6.875% due 9/15/2033 178,850 178,850
------------ ------------
1,131,488 1,144,461
Utilities-- AA+ A1 1,470,000 Baltimore Gas & Electric Co.,
Gas & Electric-- 8.375% due 8/15/2001 1,551,364 1,555,789
2.61% BBB+ A3 100,000 Detroit Edison Co., 5.93% due
2/01/2001 96,905 97,040
A- A3 1,700,000 Public Service Electric & Gas Co.,
6.50% due 6/01/2000 1,699,252 1,699,575
AA+ A2 1,250,000 Wisconsin Electric Power Co.,
7.25% due 8/01/2004 1,280,137 1,273,837
------------ ------------
4,627,658 4,626,241
Yankees-- AA- Aa3 425,000 Abbey National First Capital,
Corporate--1.03% 8.20% due 10/15/2004 450,003 452,808
A+ A2 1,000,000 Hydro-Quebec, 8.875% due 3/01/2026 1,116,000 1,135,510
AA Aa2 230,000 Swiss Bank Corp. (New York),
7.50% due 7/15/2025 225,195 228,321
------------ ------------
1,791,198 1,816,639
Total Investments in Corporate Bonds & Notes--19.77% 34,816,096 35,006,979
Face Amount Short-Term Securities
Repurchase $ 3,516,000 Nikko Securities Co., purchased on
Agreements**--1.99% 6/30/1997 to yield 6.05% to 7/01/1997 3,516,000 3,516,000
US Government 15,000,000 Federal Home Loan Mortgage Corp.,
Agency Discount 5.41% due 7/14/1997 14,970,696 14,970,696
Obligations***--8.45%
Total Investments in Short-Term Securities--10.44% 18,486,696 18,486,696
Total Investments--109.13% $192,525,592 193,251,071
============
Liabilities in Excess of Other Assets--(9.13%) (16,163,168)
------------
Net Assets--100.00% $177,087,903
============
</TABLE>
72
<PAGE>
[FN]
*Mortgage-Backed Obligations are subject to principal paydowns as a
result of prepayments or refinancings of the underlying mortgage
instruments. As a result, the average life may be substantially
less than the original maturity.
**Repurchase Agreements are fully collateralized by US Government
Agency Obligations.
***Certain US Government Agency Obligations are traded on a
discount basis; the interest rates shown are the discount
rates paid at the time of purchase by the Series.
++Not Rated.
(a)The security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
(1)Represents balloon mortgages that amortize on a 30-year schedule
and have 5-year maturities.
(2)Represents balloon mortgages that amortize on a 30-year schedule
and have 7-year maturities.
(3)Represents a "to-be-announced" (TBA) transaction. The Series has
committed to purchasing securities for which all specific
information is not available at this time.
See Notes to Financial Statements.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$192,525,592) (Note 1a) $193,251,071
Cash 5,763
Receivables:
Interest $ 1,753,723
Contributions 1,681,516
Investment adviser (Note 2) 5,421
Loaned securities 4,381
Securities sold 79 3,445,120
------------
Deferred organization expenses (Note 1e) 17,076
Total assets 196,719,030
------------
Liabilities: Payables:
Securities purchased 19,373,297
Withdrawals 212,826 19,586,123
------------
Accrued expenses and other liabilities 45,004
------------
Total liabilities 19,631,127
------------
Net Assets: Net assets $177,087,903
============
Net Assets Partners capital $176,362,424
Consist of: Unrealized appreciation on investments--net 725,479
------------
Net assets $177,087,903
============
See Notes to Financial Statements.
</TABLE>
73
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES For the Period April 3, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 1,327,540
(Note 1d): Other 14,151
------------
Total income 1,341,691
------------
Expenses: Amortization of organization expenses (Note 1e) $ 14,655
Investment advisory fees (Note 2) 12,712
Accounting services (Note 2) 8,519
Custodian fees 8,355
Professional fees 6,747
Pricing fees 2,565
Trustees' fees and expenses 1,452
Other 1,435
------------
Total expenses before reimbursement 56,440
Reimbursement of expenses (Note 2) (18,133)
------------
Total expenses after reimbursement 38,307
------------
Investment income--net 1,303,384
------------
Realized & Realized gain from investments--net 214,770
Unrealized Gain on Unrealized appreciation on investments--net 725,479
Investments-- ------------
Net (Notes 1b, Net Increase in Net Assets Resulting from Operations $ 2,243,633
1d & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND For the Period
INDEX SERIES April 3, 1997++ to
Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 1,303,384
Realized gain on investments--net 214,770
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C>
Unrealized appreciation on investments--net 725,479
------------
Net increase in net assets resulting from operations 2,243,633
------------
Capital Contributions 178,989,404
Transactions: Withdrawals (4,145,134)
------------
Net increase in net assets derived from capital transactions 174,844,270
------------
Net Assets: Total increase in net assets 177,087,903
Beginning of period --
------------
End of period $177,087,903
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERRILL LYNCH For the Period
AGGREGATE BOND The following ratios have been derived from April 3, 1997++ to
INDEX SERIES information provided in the financial statements. June 30, 1997
<S> <S> <C>
Ratios to Average Expenses, net of reimbursement .18%*
Net Assets: ============
Expenses .27%*
============
Investment income--net 6.15%*
============
Supplemental Net assets, end of period (in thousands) $ 177,088
Data: ============
Portfolio turnover 62.75%
============
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
75
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1997
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Series (the "Series") is part of
Merrill Lynch Index Trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940 and is organized as a
Delaware business trust. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking
any sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the last quoted bid price at the
close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Securities traded in
the NASDAQ National Market System are valued at the last sale price
prior to the time of valuation. Portfolio securities which are
traded both on the over-the-counter market and on a stock ex-change
are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchas-ed
are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the last bid price. Other investments, including futures
contracts and related options, are stated at market value. Short-
term securities are valued at amortized cost, which approximates
market value. Securities and assets for which market quotations are
not readily available are valued at fair market value, as determined
in good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in
various portfolio investment techniques to provide liquidity, or in
connection with the Series' arbitrage strategies. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Series may purchase or sell stock
index futures contracts and options on such futures contracts as a
proxy for a direct investment in securities underlying the Series'
index. Upon entering into a contract, the Series deposits and
maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Series as unrealized gains or losses. When
the contract is closed, the Series records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* Options--The Series is authorized to purchase and write call and
put options. When the Series writes an option, an amount equal to
the premium received by the Series is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Series enters into a closing transaction), the
Series realizes a gain or loss on the option to the extent of the
premiums received or paid (or a gain or loss to the extent that the
cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Series will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Series. Therefore, no
Federal income tax provision is required.
(d) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Dividend income is recorded on
the ex-dividend dates. Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are charged to expense on a straight-line basis over a five-year
period.
76
<PAGE>
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Series has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Series' portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Series. For such
services, the Series pays a monthly fee at an annual rate of 0.06%
of the average daily value of the Series' net assets. For the period
April 3, 1997 to June 30, 1997, MLAM earned fees of $12,712, all of
which was voluntarily waived. MLAM also reimbursed the Series for
additional expenses of $5,421.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or
directors of MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period April 3, 1997 to June 30, 1997 were $229,141,005 and
$55,314,987, respectively.
Net realized and unrealized gains as of June 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 214,770 $ 725,479
------------ ------------
Total $ 214,770 $ 725,479
============ ============
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $725,479, of which $835,666 related to
appreciated securities and $110,187 related to depreciated
securities. At June 30, 1997, the aggregate cost of investments for
Federal income tax purposes was $192,525,592.
4. Loaned Securities:
At June 30, 1997, the Series held US Treasury Notes having an
aggregate value of approximately $45,073,000 as collateral for
portfolio securities loaned having a market value of approximately
$44,096,000.
77
<PAGE>
[This page is intentionally left blank.]
78
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR
INTERNATIONAL INDEX FUND AND INTERNATIONAL INDEX SERIES
FOR THE PERIOD APRIL 9, 1997 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1997
79
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND As of June 30, 1997
<S> <S> <C> <C>
Assets: Investment in Merrill Lynch International Index Series,
at value (identified cost--$117,247,594) (Note 1a) $127,536,219
Deferred organization expenses (Note 1d) 18,388
Other assets 31,202
------------
Total assets 127,585,809
------------
Liabilities: Payables:
Administrative fees (Note 2) $ 26,994
Distributor (Note 2) 5,450 32,444
------------
Accrued expenses and other liabilities 9,245
------------
Total liabilities 41,689
------------
Net Assets: Net assets $127,544,120
============
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000
Consist of: shares authorized $ 883
Class D Shares of Common Stock, $0.0001 par value, 125,000,000
shares authorized 224
Paid-in capital in excess of par 115,427,125
Undistributed investment income--net 826,482
Undistributed realized capital gains on investments and foreign
currency transactions from the Series--net 1,000,781
Unrealized appreciation on investments and foreign currency
transactions from the Series--net 10,288,625
------------
Net assets $127,544,120
============
Net Asset Class A--Based on net assets of $101,725,573 and 8,831,531
Value: shares outstanding $ 11.52
============
Class D--Based on net assets of $25,818,547 and 2,242,149
shares outstanding $ 11.52
============
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND For the Period April 9, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Investment income allocated from the Series $ 978,032
(Note 1b): Expenses allocated from the Series (43,230)
------------
Net investment income from the Series 934,802
------------
Expenses: Administration fee (Note 2) $ 50,554
Registration fees (Note 1d) 36,742
Account maintenance fee--Class D (Note 2) 14,371
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C>
Printing and shareholder reports 8,885
Transfer agent fees--Class A (Note 2) 7,472
Professional fees 6,692
Transfer agent fees--Class D (Note 2) 3,060
Accounting services (Note 2) 1,597
Amortization of organization expenses (Note 1d) 987
Directors' fees and expenses 228
Other 1,293
------------
Total expenses before reimbursement 131,881
Reimbursement of expenses (Note 2) (23,561)
------------
Total expenses after reimbursement 108,320
------------
Investment income--net 826,482
------------
Realized & Realized gain from the Series on:
Unrealized Investments--net 698,833
Gain from the Foreign currency transactions--net 301,948 1,000,781
Series--Net: ------------
Unrealized appreciation on investments
and foreign currency transactions from the Series--net 10,288,625
------------
Net realized and unrealized gain on investments and
foreign currency transactions from the Series 11,289,406
------------
Net Increase in Net Assets Resulting from Operations $ 12,115,888
============
</TABLE>
[FN]
++Commencement of Operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL April 9, 1997++ to
INDEX FUND Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 826,482
Realized gain on investments and foreign currency transactions
from the Series--net 1,000,781
Unrealized appreciation on investments and foreign currency transactions
from the Series--net 10,288,625
------------
Net increase in net assets resulting from operations 12,115,888
------------
Capital Share Net increase in net assets derived from capital share transactions 115,403,232
Transactions ------------
(Note 4):
Net Assets: Total increase in net assets 127,519,120
Beginning of period 25,000
------------
End of period* $127,544,120
============
<FN>
*Undistributed investment income--net $ 826,482
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
81
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH The following per share data and ratios have been derived For the Period
INTERNATIONAL from information provided in the financial statements. April 9, 1997++ to
INDEX FUND June 30, 1997
Increase in Net Asset Value: Class A Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net .07 .09
Realized and unrealized gain on investments
and foreign currency transactions from the Series--net 1.45 1.43
-------- --------
Total from investment operations 1.52 1.52
-------- --------
Net asset value, end of period $ 11.52 $ 11.52
======== ========
Total Investment Based on net asset value per share 15.20%+++ 15.20%+++
Return: ======== ========
Ratios to Average Expenses, net of reimbursement++++ .67%* .86%*
Net Assets: ======== ========
Expenses++++ .87%* 1.14%*
======== ========
Investment income--net 4.08%* 3.51%*
======== ========
Supplemental Net assets, end of period (in thousands) $101,726 $ 25,818
Data: ======== ========
</TABLE>
[FN]
*Annualized.
++Commencement of Operations.
+++Aggregate total investment return.
++++Includes the Fund's share of the Series' allocated expenses.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
INTERNATIONAL
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch International Index Fund (the "Fund") is part of
Merrill Lynch Index Funds, Inc. The Fund is registered under the
Investment Company Act of 1940 as a non-diversified mutual fund. The
Fund seeks to achieve its investment objective by investing all of
its assets in the Merrill Lynch International Index Series (the
"Series") of the Merrill Lynch Index 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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund offers two classes of shares, Class A Shares and Class D
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
82
<PAGE>
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.
The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Series' Notes to Financial Statements which are
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Series, less all
actual and accrued expenses of the Fund determined in accordance
with generally accepted accounting principles.
(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 all of its taxable income to
shareholders. Therefore, no Federal income tax provision is
required.
(d) Prepaid registration fees and deferred organization expenses--
Prepaid registration fees are charged to expense as the related
shares are issued. Deferred organization expenses are charged to
expense on a straight-line basis over a five-year period.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into a Distribution Agreement and Distribution
Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance fees. The fees are accrued daily and
paid monthly at the annual rate of 0.25% based upon the average
daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of Merrill
Lynch & Co., Inc. ("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.
The Fund has also entered into an Administrative Services Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund pays
a monthly fee at an annual rate of 0.24% 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. For the period April 9, 1997 to June
30, 1997, MLAM earned fees of $50,554, of which $23,561 was
voluntarily waived.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), an indirect
wholly-owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for
the period April 9, 1997 to June 30, 1997 were $117,470,166 and
$2,158,154, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $115,403,232 for the period April 9, 1997 to June 30, 1997.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
April 9, 1997++ to June 30, 1997 Shares Amount
Shares sold 9,403,418 $ 99,309,149
Shares redeemed (573,137) (6,117,455)
----------- ------------
Net increase 8,830,281 $ 93,191,694
=========== ============
[FN]
++Prior to April 9, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
Class D Shares for the Period Dollar
April 9, 1997++ to June 30, 1997 Shares Amount
Shares sold 2,713,916 $ 27,268,348
Shares redeemed (473,017) (5,056,810)
----------- ------------
Net increase 2,240,899 $ 22,211,538
=========== ============
[FN]
++Prior to April 9, 1997 (commencement of operations), the Fund
issued 1,250 shares to MLAM for $12,500.
83
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch International Index Series
Shares Value
COUNTRY Investments Held (Note 1a)
<S> <S> <C> <C>
Australia Australian Gas Light Company (The) 28,500 $ 166,614
Broken Hill Proprietary Company Ltd. 28,500 416,171
Coca-Cola Amatil Ltd. 10,400 134,071
Coles Myer Ltd. 18,200 93,986
Foster's Brewing Group Ltd. 54,000 99,564
Howard Smith Ltd. 9,000 84,993
ICI Australia Ltd. 13,300 130,087
National Australia Bank Ltd. 25,500 362,559
News Corporation Ltd. (The) 28,800 137,069
News Corporation Ltd. (The) (Preferred) 35,900 140,455
North Ltd. 37,800 143,072
Pacific Dunlop Ltd. 45,500 133,681
Pioneer International Ltd. 26,200 100,541
Rio Tinto Ltd. 6,500 110,004
Santos Ltd. 19,400 80,989
Tabcorp Holdings Ltd. 15,400 83,105
WMC Limited 22,000 137,683
Westpac Banking Corporation Ltd. 27,100 161,882
Total Investments in Australia (Cost--$2,544,609)--2.1% 2,716,526
Austria Bank Austria AG 4,050 224,651
Creditanstalt-Bankverein AG 2,150 125,573
EA--Generali AG 500 131,536
Flughafen Wien AG 2,550 107,749
OMV AG (Class A) 1,950 249,878
Oesterreichische
Elektrizitaetswirtschafts AG (Verbund) 2,600 183,192
VA--Technologie AG (VA TECH) 1,000 183,070
Wienerberger Baustoffindustrie AG 1,250 256,852
Total Investments in Austria (Cost--$1,415,604)--1.1% 1,462,501
Belgium Barco NV (Belgian American Radio Corp.) 800 162,316
Bekaert NV 200 135,680
Cimenteries CBR
Cementbedrijven SA 2,400 220,429
Electrabel SA 1,200 257,501
Etablissements Delhaize
Freres & Cie 'Le Lion' SA 2,600 136,766
Fortis AG 900 186,112
Generale de Banque SA 500 192,736
Glaverbel SA 500 73,476
Groupe Bruxelles Lambert SA 700 117,478
Petrofina SA 700 265,447
Royale Belge SA 600 174,506
Solvay SA 200 118,007
++Union Miniere SA (b) 900 84,414
Total Investments in Belgium (Cost--$2,003,133)--1.7% 2,124,868
Denmark D/S Norden A/S (Class B) 9 322,413
D/S Svendborg A/S 6 310,421
Den Danske Bank A/S 1,600 155,904
FLS Industries A/S 3,000 101,815
Novo Nordisk A/S (Class B) 1,900 207,491
Tele Danmark A/S 4,200 218,562
Unidanmark A/S 2,100 118,150
Total Investments in Denmark (Cost--$1,294,879)--1.1% 1,434,756
Finland Kesko OY 7,000 99,896
Merita OY (Class A) 32,250 105,730
Nokia OY AB (Series A) 6,000 453,003
Nokia OY AB (Series K) 3,000 223,898
Outokumpu OY 6,750 134,078
Rauma OY 2,000 45,898
Sampo Insurance Company Ltd. 750 73,042
UPM-Kymmene OY 8,750 202,492
Total Investments in Finland (Cost--$1,199,144)--1.0% 1,338,037
France Accor SA 1,050 157,279
Alcatel Alsthom Cie Generale
d'Electricite SA 4,600 576,282
L'Air Liquide SA 1,700 269,979
L'Oreal SA 1,750 737,544
Lafarge SA 2,650 164,867
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Axa SA 8,800 547,482
Banque Nationale de Paris SA (BNP) 6,300 259,725
Bouygues SA 1,150 94,644
Canal+ 1,050 204,463
Carrefour SA 1,050 762,804
Compagnie Bancaire SA 1,100 140,428
Compagnie de Saint-Gobain SA 2,400 350,100
Compagnie de Suez SA 99,000 243,502
Compagnie Financiere de Paribas 3,800 262,609
Compagnie Generale des Eaux SA 3,350 429,378
Compagnie Generale des Eaux SA
(Warrants) (a) 1,500 899
Compagnie Generale des Etablissements
Michelin (Class B) 4,150 249,287
Comptoirs Modernes SA 400 211,067
Elf Aquitaine SA 7,000 755,417
Eridania Beghin-Say SA 950 142,300
Groupe Casino Guichard Perachon SA 2,600 128,741
Groupe Danone SA 2,050 338,823
Havas SA 2,300 165,799
Imetal SA 850 112,708
LVMH Moet-Hennessy Louis Vuitton SA 2,550 685,799
Lagardere SCA 4,350 126,393
Legrand SA 900 158,556
Lyonnaise des Eaux SA 1,900 191,459
Pernod Ricard SA 2,400 123,781
Peugeot SA 1,650 159,526
Pinault-Printemps Redoute SA (b) 650 312,448
Promodes SA 650 253,255
Rhone-Poulenc SA (Class A) 8,900 363,581
SAGEM SA 250 127,023
Sanofi SA 3,150 308,839
Schneider SA 4,300 228,947
Sidel SA 1,300 100,683
Societe Bic SA 900 147,220
Societe Generale de France SA 2,700 301,486
Societe Nationale d'Exploitation
Industrielle des Tabacs et Allumettes SA 2,550 80,733
Sodexho Alliance SA 250 128,045
Thomson-CSF SA 4,000 103,083
Total SA (Class B) 6,550 662,258
Usinor-Sacilor 9,450 170,505
Valeo SA 2,250 139,790
Total Investments in France (Cost--$11,526,871)--9.5% 12,179,537
Germany Aachener und Muenchener Beteiligungs AG 200 176,747
Adidas AG 2,250 249,197
Allianz AG Holding 10,850 2,272,610
BASF AG 24,600 909,830
Bayer AG 29,150 1,121,102
Bayerische Hypotheken-und
Wechsel-Bank AG 11,350 339,666
Bayerische Vereinsbank AG 11,550 472,578
Beiersdorf AG 3,750 193,676
CKAG Colonia Konzern AG 1,200 110,869
Continental AG 5,650 140,715
Daimler-Benz AG 21,200 1,721,451
Degussa AG 7,500 397,251
Deutsche Bank AG 19,650 1,149,050
Deutsche Lufthansa AG 16,450 315,765
Deutsche Telekom AG 91,100 2,195,685
Dresdner Bank AG 18,200 629,783
Friedrich Grohe AG (Preferred) 550 170,435
Heidelberger Zement AG 2,100 198,841
Hochtief AG 3,400 152,186
Karstadt AG 700 249,455
Linde AG 350 268,134
MAN AG 500 154,080
METRO AG 3,850 422,205
Mannesmann AG 1,600 713,417
Merck KGaA 7,600 335,602
Muenchener Rueckversicherungs-
Gesellschaft AG 350 982,153
Preussag AG 700 205,067
RWE AG 13,700 589,636
RWE AG (Preferred) 8,450 294,339
SAP AG 2,650 532,251
SAP AG (Preferred) 1,850 384,311
SGL CARBON AG 1,000 137,037
Schering AG 3,150 336,854
Siemens AG 22,600 1,342,953
Thyssen AG 1,350 319,953
VEBA AG 19,950 1,121,944
Viag AG 1,100 500,574
Volkswagen AG 1,200 920,693
Volkswagen AG (Preferred) 400 224,951
Total Investments in Germany (Cost--$21,336,204)--18.0% 22,953,046
</TABLE>
85
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
Shares Value
COUNTRY Investments Held (Note 1a)
<S> <S> <C> <C>
Hong Kong Cheung Kong (Holdings) Limited 33,000 $ 325,876
Hang Seng Bank Limited 12,000 171,167
Hong Kong Telecommunications Ltd. 83,000 198,211
Hutchison Whampoa Ltd. 27,000 233,516
Sun Hung Kai Properties Limited 16,000 192,596
Swire Pacific Ltd. (Class A) 13,000 117,048
Total Investments in Hong Kong (Cost--$1,053,553)--1.0% 1,238,414
Ireland CRH PLC 17,300 180,987
Greencore Group PLC 41,300 202,921
Jefferson Smurfit Group PLC 46,200 134,103
Total Investments in Ireland (Cost--$513,738)--0.4% 518,011
Italy Assicurazioni Generali SpA 39,200 712,476
Banca Commerciale Italiana SpA 99,700 206,425
Banca Popolare di Milano (SCRL) 18,100 108,434
Banco Ambrosiano Veneto SpA 34,100 98,282
Benetton SpA 9,256 147,815
Cartiere Burgo SpA 13,000 72,107
Credito Italiano SpA 124,900 228,480
Edison SpA 37,800 187,988
Ente Nazionale Idrocarburi (ENI) 371,400 2,102,656
Fiat SpA 168,900 608,004
Fiat SpA (Preferred) 59,800 110,448
Istituto Bancario San Paolo di Torino SpA 43,700 318,477
Istituto Mobiliare Italiano SpA 31,800 286,183
Istituto Nazionale delle Assicurazioni SpA 252,800 385,126
Italcementi SpA 13,900 86,665
Italgas Torino SpA 37,700 121,963
Mediaset SpA 60,500 256,754
Mediobanca-Banca di Credito
Finanziario SpA 24,100 146,293
Montedison SpA 291,200 192,181
++Olivetti SpA 217,100 61,487
Parmalat Finanziaria SpA 80,600 114,019
Pirelli SpA 73,100 181,019
Riunione Adriatica di Sicurta SpA 21,600 170,884
Sirti SpA 20,100 115,923
TIM SpA 76,500 136,792
TIM SpA (RNC) 319,900 1,034,910
Telecom Italia SpA 321,900 963,750
Telecom Italia SpA (RNC) 78,200 154,781
Total Investments in Italy (Cost--$8,703,158)--7.3% 9,310,322
Japan Acom Co., Ltd. 5,000 241,111
Advantest Corporation 2,000 153,752
Asahi Bank, Ltd. 32,000 272,560
Asahi Chemical Industry Co., Ltd. 27,000 161,571
Asahi Glass Co., Ltd. 13,000 129,466
Bank of Tokyo-Mitsubishi, Ltd. 57,000 1,145,278
Bridgestone Corporation 11,000 255,613
Canon Inc. 11,000 299,817
Chugai Pharmaceutical Co., Ltd. 32,000 287,936
Cosmo Oil Company, Ltd. 29,000 138,831
Dai Nippon Printing Co., Ltd. 10,000 226,260
Daiei, Inc. (The) 17,000 109,155
Dainippon Ink & Chemicals, Inc. 54,000 233,039
Daiwa House Industry Co., Ltd. 18,000 220,145
Daiwa Securities Co., Ltd. 19,000 150,048
East Japan Railway Co. 442 26,016
NTN Corporation 40,000 223,989
Nankai Electric Railway Co., Ltd. 28,000 142,850
Nikon Corporation 7,000 118,022
Nippon Express Co., Ltd. 21,000 167,861
Nippon Oil Co., Ltd. 43,000 235,529
Nippon Paper Industries Co., Ltd. 14,000 81,087
Nippon Steel Corporation 80,000 255,788
Nippon Telegraph & Telephone Corp. 230 1,105,092
Nippondenso Finance NV 12,000 287,237
Nissan Motor Co., Ltd. 38,000 295,117
Nitto Denko Corp. 5,000 97,405
Nomura Securities Co., Ltd. (The) 25,000 345,069
Obayashi Corporation 27,000 180,912
Omron Corporation 6,000 127,370
Orix Corporation 1,000 74,168
Rohm Company, Ltd. 2,000 206,168
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Fanuc Ltd. 4,000 153,752
Fuji Bank, Ltd. 36,000 540,928
Fuji Photo Film Co., Ltd. 7,000 281,908
Fujitsu Limited 24,000 333,362
Hitachi Ltd. 41,000 458,461
Honda Motor Co., Ltd. 13,000 391,806
Hoya Corporation 2,000 89,106
Industrial Bank of Japan Ltd. 32,000 497,598
Ito-Yokado Co., Ltd. 5,000 290,469
++Japan Airlines Company, Ltd. 24,000 109,234
Japan Energy Corp. 51,000 133,659
Jusco Co., Ltd. 5,000 169,040
Kajima Corporation 26,000 152,407
Kaneka Corporation 38,000 238,351
Kansai Electric Power Co., Inc. (The) 10,000 193,064
Kawasaki Steel Corporation 48,000 156,408
Keihin Electric Express Railway Co., Ltd. 34,000 159,797
Kirin Brewery Company Ltd. 20,000 207,915
Komatsu Ltd. 26,000 211,234
Kubota Corporation 65,000 318,555
Kyocera Corporation 3,000 238,490
Lion Corporation 78,000 357,054
Marui Co., Ltd. 5,000 93,037
Matsushita Electric Industrial Co., Ltd. 26,000 524,679
Minebea Co., Ltd. 10,000 106,578
Mitsubishi Chemical Corp. 49,000 160,094
Mitsubishi Corporation 18,000 224,862
Mitsubishi Electric Corporation 31,000 173,591
Mitsubishi Estate Co., Ltd. 18,000 261,029
Mitsubishi Heavy Industries, Ltd. 40,000 307,155
Mitsubishi Oil Company, Ltd. 29,000 129,204
Mitsubishi Trust and Banking Corp. 17,000 268,804
Mitsui & Co., Ltd. 23,000 221,019
Mitsui Fudosan Co., Ltd. 14,000 193,238
Mitsui Toatsu Chemicals, Inc. 86,000 236,656
Mitsui Trust & Banking Company, Ltd. 18,000 136,018
Murata Manufacturing Co., Ltd. 4,000 159,343
NEC Corporation 21,000 293,527
NKK Corporation 69,000 148,283
SMC Corporation 2,000 169,127
Sakura Bank Limited 45,000 345,156
Sankyo Company, Limited 6,000 201,800
Sanyo Electric Co., Ltd. 44,000 197,571
Secom Co., Ltd. 3,000 220,407
Seino Transportation Co., Ltd. 16,000 173,320
Sekisui Chemical Co., Ltd. 10,000 101,337
Sekisui House, Ltd. 15,000 152,005
Sharp Corporation 15,000 207,041
Shin-Etsu Chemical Co., Ltd. 7,000 185,900
Shiseido Company, Ltd. 13,000 214,641
Shizuoka Bank, Ltd. (The) 17,000 194,549
Sony Corporation 5,000 436,359
Sumitomo Bank, Ltd. 39,000 640,517
Sumitomo Chemical Co., Ltd. 27,000 122,416
Sumitomo Corporation 19,000 180,921
Sumitomo Electric Industries, Ltd. 13,000 218,048
Sumitomo Metal & Mining Co., Ltd. 16,000 113,217
Sumitomo Metal Industries, Ltd. 58,000 165,179
Taisho Pharmaceutical Co., Ltd. 5,000 134,970
Takeda Chemical Industries, Ltd. 11,000 309,426
Teikoku Oil Co., Ltd. 42,000 188,224
Toho Co., Ltd. 500 82,554
Tokai Bank, Limited 27,000 278,326
Tokio Marine & Fire Insurance Co., Ltd. 18,000 235,870
Tokyo Electric Power Co., Inc. (The) 16,000 336,857
Tokyo Electron Limited 3,000 143,618
Tokyu Corporation 23,000 142,858
Toppan Printing Co., Ltd. 15,000 235,870
Toray Industries, Inc. 23,000 164,157
Tostem Corporation 5,000 138,464
Toyo Seikan Kaisha, Ltd. 6,000 133,135
Toyobo Co., Ltd. 89,000 235,581
Toyoda Automatic Loom Works, Ltd. 13,000 295,274
Toyota Motor Corporation 46,000 1,358,260
Wacoal Corp. 11,000 136,455
Yamaha Corporation 4,000 73,382
Yamato Transport Co., Ltd. 20,000 249,847
Total Investments in Japan (Cost--$22,570,397)--20.9% 26,626,616
</TABLE>
87
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
Shares Value
COUNTRY Investments Held (Note 1a)
<S> <S> <C> <C>
Malaysia Rashid Hassain BHD 51,000 $ 161,667
Resorts World BHD 31,000 93,355
Total Investments in Malaysia (Cost--$303,627)--0.2% 255,022
Netherlands ABN AMRO Holding N.V. 15,100 281,797
Elsevier N.V. 10,800 180,624
Heineken N.V. 800 136,651
Internationale Nederlanden Groep N.V. 10,312 475,849
Koninklijke Ahold N.V. 3,600 303,977
Philips Electronics N.V. 4,600 329,778
Royal Dutch Petroleum N.V. 19,200 999,551
Royal PTT Nederland N.V. 6,900 270,906
Unilever N.V. 2,000 421,375
Wolters Kluwer N.V. 1,200 146,237
Total Investments in the Netherlands (Cost--$3,094,059)--2.8% 3,546,745
New Zealand Brierley Investments Limited 137,600 134,243
Fletcher Challenge Forests Division 2,520 3,654
Fletcher Challenge Paper 63,000 152,376
Telecom Corporation of New Zealand 37,700 191,563
Total Investments in New Zealand (Cost--$436,283)--0.4% 481,836
Norway Aker RGI ASA (Class A) 2,500 49,158
Aker RGI ASA (Class B) 500 8,739
Christiania Bank og Kreditkasse 32,200 109,923
Dyno Industriere ASA 4,100 106,373
Elkem ASA 3,700 72,501
Kvaerner ASA 1,700 102,952
Norsk Hydro ASA 7,200 392,282
Orkla ASA (A Shares) 1,900 140,360
++Petroleum geo-Services ASA 1,600 77,124
++Storebrand ASA 11,200 66,833
Total Investments in Norway (Cost--$1,077,809)--0.9% 1,126,245
Singapore City Developments Ltd. 11,000 107,745
DBS Land Ltd. 31,000 98,034
Keppel Corporation Ltd. 28,500 126,618
++Keppel Corporation Ltd. (A Shares) 3,500 15,182
Singapore Airlines Ltd. 'Foreign' 31,000 277,618
Total Investments in Singapore (Cost--$639,084)--0.5% 625,197
Spain Acerinox S.A. 500 93,752
Autopistas Concesionaria Espanola S.A.
(ACESA) 12,000 162,988
Banco Bilbao Vizcaya S.A. 8,200 666,581
Banco Central Hispanoamericano S.A. 7,200 263,552
Banco Santander S.A. 18,000 554,975
Corporacion Bancaria de Espana
(Argentaria) 4,500 252,122
Corporacion Financiera Alba S.A. 1,100 139,620
Empresa Nacional de Electricidad S.A.
(Endesa) 9,600 806,465
Fomento de Construciones y Contratas S.A. 800 102,085
Gas Natural SDG S.A. 1,500 327,912
Iberdrola S.A. 35,600 449,684
Repsol S.A. 10,800 456,937
Tabacalera S.A. (Class A) 1,900 102,064
Telefonica de Espana S.A. 34,300 992,312
Union Electrica-Fenosa S.A. 12,700 115,572
Total Investments in Spain (Cost--$4,736,659)--4.3% 5,486,621
Sweden ABB AB (A Shares) 13,500 189,455
Astra AB 'A' Fria1 7,290 322,032
Electrolux AB 1,500 108,260
Forsakrings AB Skandia 2,200 81,098
++Granges AB 750 9,943
Skanska Banken AB (B Shares) 2,100 92,894
Svenska Cellulosa AB (SCA) (B Shares) 6,500 136,198
Svenska Handelsbanken AB 3,700 117,728
Telefonaktiebolaget LM
Ericsson (B Shares) 12,900 508,064
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C>
H & M Hennes & Mauritz AB 3,000 105,544
Skandinaviska Enskilda Banken AB 8,200 88,561
Volvo AB (B Shares) 4,500 120,483
Total Investments in Sweden (Cost--$1,654,462)--1.5% 1,880,260
Switzerland ABB AG (Bearer) 100 151,609
Credit Suisse Group AG (Registered Shares) 1,350 173,647
Nestle SA 300 396,378
Novartis AG 400 640,461
Roche Holding AG 50 452,940
Schweizerische Rueckversicherungs-
Gesellschaft 100 141,661
Schweizerischer Bankverein 600 160,733
Union Bank of Switzerland (UBS) 200 229,128
Zuerich Versicherungs-Gesellschaft 550 219,215
Total Investments in Switzerland (Cost--$2,186,646)--2.0% 2,565,772
United Kingdom Abbey National PLC 10,800 147,275
B.A.T. Industries PLC 28,600 255,645
BG PLC 47,200 172,686
BTR PLC 35,700 122,003
Barclays PLC 12,700 251,752
Bass PLC 10,700 130,431
Boots Company PLC (The) 20,000 234,317
British Aerospace PLC 4,200 93,349
British Airways PLC 11,700 133,184
British Petroleum Co. PLC (The) 42,200 524,234
British Sky Broadcasting Group PLC 16,700 121,642
British Telecommunications PLC 52,400 388,650
Burmah Castrol PLC 15,900 268,648
Cable and Wireless PLC 26,400 241,468
Carlton Communications PLC 30,500 257,919
General Electric Company (The) PLC 31,500 188,060
Glaxo Wellcome PLC 27,800 574,425
Granada Group PLC 8,400 110,357
Grand Metropolitan PLC 23,700 227,808
Great Universal Stores PLC 11,300 114,537
Guinness PLC 16,800 164,278
HSBC Holdings PLC 14,300 423,241
HSBC Holdings PLC (75p) 7,000 215,184
Imperial Chemical Industries PLC 11,000 152,564
J Sainsbury PLC 19,300 116,829
Kingfisher PLC 15,500 175,796
Marks and Spencer PLC 29,200 241,827
National Power PLC 11,600 100,698
Peninsular & Oriental Steam
Navigation Co. PLC 14,900 148,177
Prudential Corporation PLC 15,400 150,311
RTZ Corporation PLC 8,300 144,447
Rank Group PLC (The) 17,600 111,368
Reuters Holdings PLC 13,900 146,322
Royal & Sun Alliance Insurance
Group PLC 15,000 110,756
Royal Bank of Scotland Group PLC (The) 11,100 103,741
Scottish & Newcastle PLC 18,200 195,522
Scottish Power PLC 17,100 110,905
Smithkline Beecham PLC 22,200 408,135
TSB Group PLC 42,700 438,132
Tesco PLC 21,372 131,859
Thorn PLC 10,700 192,176
Unilever PLC 7,300 208,685
Vodafone Group PLC 38,800 189,056
Zeneca Group PLC 7,800 257,612
Total Investments in the United Kingdom (Cost--$8,765,492)--7.2% 9,196,011
</TABLE>
89
<PAGE>
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (concluded)
SHORT-TERM Face Value
SECURITIES Amount Issue (Note 1a)
<S> <C> <S> <C>
US Government $ 2,000,000 Federal Home Loan Bank, 5.37% due 7/29/1997 (c) $ 1,991,647
Agency Obligations* 16,623,000 Federal Home Loan Mortgage Corp., 6% due 7/01/1997 16,623,000
Total Investments in Short-Term Securities (Cost--$18,614,647)--14.6% 18,614,647
Total Investments (Cost--$115,670,058)--98.5% 125,680,990
Unrealized Depreciation on Forward Foreign Exchange Contracts**--(0.1%) (111,636)
Variation Margin on Stock Index Futures Contracts***--(0.1%) (65,360)
Other Assets Less Liabilities--1.7% 2,046,651
------------
Net Assets--100.0% $127,550,645
<FN>
(a)Warrants entitle the Series to purchase a predetermined number of
shares of common stock. The purchase price and number of shares are
subject to adjustments under certain conditions until the expiration
date.
(b)Security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(c)Security held as collateral in connection with open futures
contracts.
*Certain US Government Agency Obligations are traded on a discount
basis; the interest rate shown is the discount rate paid at the time
of purchase by the Series.
**Forward foreign exchange contracts as of June 30, 1997 were as
follows:
<CAPTION>
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
<S> <C> <S> <C>
A$ 386,341 September 1997 $ (262)
DM 3,851,823 September 1997 (25,989)
Pta 57,849,200 September 1997 (4,582)
Frf 6,324,145 September 1997 (11,303)
Pound Sterling 702,908 September 1997 16,184
HK$ 1,160,640 July 1997 (30)
Lit 1,270,490,000 September 1997 (4,147)
Skr 1,921,815 July 1997 (576)
YEN 392,327,200 September 1997 (80,931)
----------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$9,874,601) $ (111,636)
==========
***Stock index futures contracts sold as of June 30, 1997 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Note 1a)
<C> <S> <S> <S> <C>
9 IBEX 35 MEFF September 1997 $ 422,526
9 DTB DTB September 1997 1,959,486
-----------
Total Stock Index Futures Contracts Sold
(Total Contract Price--$2,381,289) $ 2,382,012
===========
Stock index futures contracts purchased as of June 30, 1997 were as
follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Note 1a)
<C> <S> <S> <S> <C>
4 Hang Seng HKFE July 1997 $ 393,840
22 OMX OMLX July 1997 688,621
12 FTSE LIFFE September 1997 2,297,933
23 CAC MATIF September 1997 2,262,064
512 Nikkei 300 OSAKA September 1997 13,472,036
14 MIB 30 MSE September 1997 1,668,620
24 All Ordinaries SFE September 1997 1,243,870
-----------
Total Stock Index Futures Contracts Purchased
(Total Contract Price--$21,625,704) $22,026,984
===========
</TABLE>
++Non-income producing security.
See Notes to Financial Statements.
90
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$115,670,058) (Note 1a) $125,680,990
Cash 930
Foreign cash (Note 1b) 734,786
Receivables:
Contributions $ 1,146,644
Dividends 316,521
Securities sold 982 1,464,147
------------
Deferred organization expenses (Note 1f) 18,682
------------
Total assets 127,899,535
------------
Liabilities: Unrealized depreciation on forward
foreign exchange contracts (Note 1b) 111,636
Variation margin on stock index futures
contracts (Notes 1a & 1b) 65,360
Payables:
Withdrawals 119,458
Securities purchased 1,580
Forward foreign exchange contracts (Note 1b) 915 121,953
------------
Accrued expenses and other liabilities 49,941
------------
Total liabilities 348,890
------------
Net Assets: Net assets $127,550,645
============
Net Assets Partners capital $117,261,776
Consist of: Unrealized appreciation on investments--net 10,288,869
------------
Net assets $127,550,645
============
See Notes to Financial Statements.
</TABLE>
91
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES For the Period April 9, 1997++ to June 30, 1997
<S> <S> <C> <C>
Investment Income Dividends (net of $120,469 foreign withholding tax) $ 806,660
(Notes 1d & 1e): Interest and discount earned 170,731
Other 673
------------
Total income 978,064
------------
Expenses: Investment advisory fees (Note 2) $ 23,163
Custodian fees 12,203
Accounting services (Note 2) 10,781
Amortization of organization expenses (Note 1f) 10,218
Professional fees 4,023
Pricing fees 2,534
Trustees' fees and expenses 2,245
Other 1,227
------------
Total expenses before reimbursement 66,394
Reimbursement of expenses (Note 2) (23,163)
------------
Total expenses after reimbursement 43,231
------------
Investment income--net 934,833
------------
Realized & Realized gain from:
Unrealized Gain Investments--net 698,876
(Loss) on Foreign currency transactions--net 301,947 1,000,823
Investments & ------------
Foreign Currency Unrealized appreciation (depreciation) from:
Transactions--Net Investments--net 10,411,489
(Notes 1b, 1c, Foreign currency transactions--net (122,620) 10,288,869
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 11,289,692
------------
Net Increase in Net Assets Resulting from Operations $ 12,224,525
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL April 9, 1997++ to
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 1997
<S> <S> <C>
Operations: Investment income--net $ 934,833
</TABLE>
92
<PAGE>
<TABLE>
<S> <C> <C>
Realized gain on investments and foreign currency transactions--net 1,000,823
Unrealized appreciation on investments and foreign currency transactions--net 10,288,869
------------
Net increase in net assets resulting from operations 12,224,525
------------
Capital Contributions 117,484,274
Transactions: Withdrawals (2,158,154)
------------
Net increase in net assets derived from capital transactions 115,326,120
------------
Net Assets: Total increase in net assets 127,550,645
Beginning of period --
------------
End of period $127,550,645
============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL The following ratios have been derived from April 9, 1997++ to
INDEX SERIES information provided in the financial statements. June 30, 1997
<S> <S> <C>
Ratios to Average Expenses, net of reimbursement .21%*
Net Assets: ============
Expenses .32%*
============
Investment income--net 4.44%*
============
Supplemental Net assets, end of period (in thousands) $ 127,551
Data: ============
Portfolio turnover 5.45%
============
Average commission rate paid+++ $ .0124
============
<FN>
*Annualized.
++Commencement of Operations.
+++Includes commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
93
<PAGE>
Merrill Lynch International Index Fund, June 30, 1997
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch International Index Series (the "Series") is part of
Merrill Lynch Index Trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940 and is organized as a
Delaware business trust. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The following is a summary of significant accounting policies
followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued or, lacking
any sales, at the closing bid price. Securities traded in the over-
the-counter market are valued at the last quoted bid price at the
close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Securities traded in
the NASDAQ National Market System are valued at the last sale price
prior to the time of valuation. Portfolio securities which are
traded both on the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are
valued at the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market,
the last bid price. Other investments, including futures contracts
and related options, are stated at market value. Short-term
securities are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not
readily available are valued at fair market value, as determined in
good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in
various portfolio investment techniques to provide liquidity, or in
connection with the Series' arbitrage strategies. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Series may purchase or sell stock
index futures contracts and options on such futures contracts as a
proxy for a direct investment in securities underlying the Series'
index. Upon entering into a contract, the Series deposits and
maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Series as unrealized gains or losses. When
the contract is closed, the Series records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* 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.
* Forward foreign exchange contracts--The Series is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Series' records. However, the effect on
operations is recorded from the date the Series enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Foreign currency options and futures--The Series may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Series,
sold by the Series but not yet delivered, or committed or
anticipated to be purchased by the Series.
94
<PAGE>
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--The Series is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Series will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Series. Therefore, no
Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest,
dividends, and capital gains at various rates.
(e) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Dividend income is recorded on
the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the
Series has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Deferred organization expenses--Deferred organization expenses
are charged to expense on a straight-line basis over a five-year
period.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.") which is
the limited partner.
MLAM is responsible for the management of the Series' portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Series. For such
services, the Series pays a monthly fee at an annual rate of 0.11%
of the average daily value of the Series' net assets. For the period
April 9, 1997 to June 30, 1997, MLAM earned fees of $23,163, all of
which was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or
directors of MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period April 9, 1997 to June 30, 1997 were $100,331,160 and
$3,407,203, respectively.
Net realized and unrealized gains (losses) as of June 30, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 139,629 $ 10,010,932
Stock index futures contracts 559,247 400,557
------------ ------------
Total investments 698,876 10,411,489
------------ ------------
Currency transactions:
Foreign currency transactions 39,662 (10,984)
Forward foreign exchange contracts 262,285 (111,636)
------------ ------------
Total currency transactions 301,947 (122,620)
------------ ------------
Total $ 1,000,823 $ 10,288,869
============ ============
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $10,010,932, of which $10,834,618 related to
appreciated securities and $823,686 related to depreciated
securities. At June 30, 1997, the aggregate cost of investments for
Federal income tax purposes was $115,670,058.
95
<PAGE>
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96
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Merrill Lynch Index Funds, Inc.
We have audited the accompanying statements of assets and liabilities of the
Merrill Lynch S&P 500 Index Fund, Merrill Lynch SmallCap Index Fund, Merrill
Lynch Aggregate Bond Index Fund and Merrill Lynch International Index Fund of
Merrill Lynch Index Funds, Inc. as of January 17, 1997. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 statements of assets and liabilities present fairly, in
all material respects, the financial position of the Merrill Lynch S&P 500
Index Fund, Merrill Lynch SmallCap Index Fund, Merrill Lynch Aggregate Bond
Index Fund and Merrill Lynch International Index Fund of Merrill Lynch Index
Funds, Inc. as of January 17, 1997, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 22, 1997
97
<PAGE>
MERRILL LYNCH INDEX FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 17, 1997
<TABLE>
<CAPTION>
MERRILL LYNCH
MERRILL LYNCH MERRILL LYNCH AGGREGATE MERRILL LYNCH
S&P 500 INDEX SMALL CAP BOND INTERNATIONAL
FUND INDEX FUND INDEX FUND INDEX FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash in Bank........... $ 25,000 $25,000 $25,000 $25,000
Prepaid registration
fees (Note 3)......... 173,685 43,421 28,947 28,947
Deferred organization
expenses (Note 4)..... 84,211 21,053 14,035 14,035
-------- ------- ------- -------
Total Assets........... 282,896 89,474 67,982 67,982
LIABILITIES:
Liabilities and accrued
expenses.............. 257,896 64,474 42,982 42,982
-------- ------- ------- -------
Net Assets (equivalent
to $0.0001 per share on
1,250 Class A shares of
Common Stock (par value
$0.0001), 1,250 Class D
shares of Common Stock
(par value $0.0001)
outstanding with
1,000,000,000 shares
authorized) (Note 1)... $ 25,000 $25,000 $25,000 $25,000
======== ======= ======= =======
Net Assets Consist of:
Class A Shares of
Common Stock, $0.0001
par value, 125,000,000
shares authorized..... $ 1 $ 1 $ 1 $ 1
Class D Shares of
Common Stock, $0.0001
par value, 125,000,000
shares authorized..... 1 1 1 1
Paid-in Capital in
excess of par......... 24,998 24,998 24,998 24,998
-------- ------- ------- -------
Net Assets.............. $ 25,000 $25,000 $25,000 $25,000
======== ======= ======= =======
Net Asset Value:
Class A--Based on net
assets of $12,500 and
1,250 shares
outstanding............ $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======= ======= =======
Class D--Based on net
assets of $12,500 and
1,250 shares
outstanding............ $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======= ======= =======
</TABLE>
- --------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Index Funds, Inc. (the "Corporation") was organized as a
Maryland corporation on October 25, 1996 and consists of four portfolios
or series; Merrill Lynch S&P 500 Index Fund, Merrill Lynch Small Cap Index
Fund, Merrill Lynch Aggregate Bond Index Fund and Merrill Lynch
International Index Fund. The Corporation is registered under the
Investment Company Act of 1940 as a non-diversified mutual fund. To date,
the Corporation has not had any transactions other than those relating to
organizational matters and the sale of 5,000 Class A shares and 5,000
Class D shares of Common Stock to Merrill Lynch Asset Management, L.P.
(the "Administrator").
(2) The Corporation has entered into an administration agreement (the
"Administration Agreement") with the Administrator, and a distribution
agreement (the "Distribution Agreement") with Merrill Lynch Funds
Distributor, Inc. (the "Distributor"). (See "Management of the Funds--
Administration Arrangements" in the Statement of Additional Information.)
Certain officers and/or directors of the Corporation are officers and/or
directors of the Administrator and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the
date the Corporation commences operations not exceeding five years. In the
event that the Administrator (or any subsequent holder) redeems any of its
original shares prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares shall be reduced by the
pro rata share (based on the proportionate share of the original shares
redeemed to the total number of original shares outstanding at the time of
redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that the Corporation is liquidated
prior to the end of the five-year period, the Administrator (or any
subsequent holder) shall bear the unamortized deferred organization
expenses.
98
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investor,
Merrill Lynch Index Trust:
We have audited the accompanying statements of assets and liabilities of the
Merrill Lynch S&P 500 Index Series, Merrill Lynch SmallCap Index Series,
Merrill Lynch Aggregate Bond Index Series and Merrill Lynch International Index
Series of the Merrill Lynch Index Trust as of January 30, 1997. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 statements of assets and liabilities present fairly, in
all material respects, the financial position of the Merrill Lynch S&P 500
Index Series, Merrill Lynch SmallCap Index Series, Merrill Lynch Aggregate Bond
Index Series and Merrill Lynch International Index Series of the Merrill Lynch
Index Trust as of January 30, 1997, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 31, 1997
99
<PAGE>
MERRILL LYNCH INDEX TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 30, 1997
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
S&P 500 INDEX SMALL CAP AGGREGATE BOND INTERNATIONAL
SERIES INDEX SERIES INDEX SERIES INDEX SERIES
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash in Bank.......... $25,000 $25,000 $25,000 $25,000
Deferred organization
expenses (Note 3).... 53,685 13,421 8,947 8,947
------- ------- ------- -------
Total Assets........ 78,685 38,421 33,947 33,947
Liabilities:
Liabilities and
accrued expenses..... 53,685 13,421 8,947 8,947
------- ------- ------- -------
Net Assets applicable to
investors' interest in
each Portfolio (Note
1)..................... $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
</TABLE>
- --------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Index Trust (the "Trust") was organized as a Delaware
business trust on August 28, 1996 and consists of four portfolios or
series: Merrill Lynch S&P 500 Index Series, Merrill Lynch Small Cap Index
Series, Merrill Lynch Aggregate Bond Index Series and Merrill Lynch
International Index Series. The Trust is registered under the Investment
Company Act of 1940 as a diversified management investment company. To
date, the Trust has not had any transactions other than those relating to
organizational matters and an indirect $25,000 capital contribution to each
of the portfolios by Merrill Lynch Asset Management, L.P. ("the Manager")
through the corresponding portfolios in the Merrill Lynch Index Funds, Inc.
(2) The Trust has entered into an investment management agreement (the
"Management Agreement") with the Manager. (See "Management of the Fund--
Management and Advisory Arrangements" in Part B of the Registration
Statement). Certain officers and/or Trustees of the Trust are officers
and/or directors of the Manager.
(3) Deferred organization expenses will be amortized over a period from the
date the Trust commences operations not exceeding five years. In the event
that the Manager (or any subsequent holder) redeems any of its original
interest prior to the end of the five-year period, the proceeds of the
redemption payable in respect of such interest shall be reduced by the pro
rata share (based on the proportionate share of the original interest
redeemed to the total original interest outstanding at the time of
redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that the Trust is liquidated prior to
the end of the five-year period, the Manager (or any subsequent holder)
shall bear the unamortized deferred organization expenses.
100
<PAGE>
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<PAGE>
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<PAGE>
[This page is intentionally left blank.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
IN THIS
STATEMENT
---------
<S> <C>
Investment Objectives and
Policies............... 2
Investment Restrictions. 2
Management of the Funds.. 4
Directors and Officers.. 4
Compensation of
Directors............. 5
Administration
Arrangements.......... 5
Management and Advisory
Arrangements.......... 6
Purchase of Shares....... 7
Redemption of Shares..... 8
Portfolio Transactions
and Brokerage.......... 9
Determination of Net
Asset Value............ 11
Shareholder Services..... 12
Investment Account...... 12
Automatic Reinvestment
of Dividends and
Capital Gains
Distributions......... 12
Systematic Withdrawal
Plans................. 13
Automatic Investment
Plans................. 13
Retirement Plans........ 13
Dividends, Distributions
and Taxes.............. 13
Dividends and
Distributions......... 13
Taxes................... 13
Tax Treatment of Options
and Futures
Transactions.......... 15
Special Rules for
Certain Foreign
Currency Transactions. 16
The Series.............. 17
Performance Data......... 17
General Information...... 20
Description of Shares... 20
Computation of Offering
Price per Share....... 21
Independent Auditors.... 22
Custodian............... 22
Transfer Agent.......... 22
Legal Counsel........... 22
Reports to Shareholders. 22
Additional Information.. 22
Unaudited Financial
Statements............. 25
Independent Auditors'
Report of Merrill Lynch
Index Funds, Inc....... 97
Audited Financial
Statements of Merrill
Lynch Index Funds,
Inc.................... 98
Independent Auditors'
Report of Merrill Lynch
Index Trust............ 99
Audited Financial
Statements of Merrill
Lynch Index Trust...... 100
</TABLE>
Code 19004-0997
[LOGO] MERRILL LYNCH
Merrill Lynch
Index Funds, Inc.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
September 3, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS
Contained in Part A, the Prospectus:
Financial Highlights for the period April 3, 1997 (commencement of
operations) to June 30, 1997 for the S&P 500 Index Fund and the
Aggregate Bond Index Fund, and for the period April 9, 1997
(commencement of operations) to June 30, 1997 for the Small Cap Index
Fund and the International Index Fund (unaudited).
Contained in Part B, the Statement of Additional Information:
Statement of Assets and Liabilities as of June 30, 1997 of the S&P 500
Index Fund, S&P 500 Index Series, Small Cap Index Fund, Small Cap
Index Series, Aggregate Bond Index Fund, Aggregate Bond Index Series,
International Index Fund and the International Index Series
(unaudited).
Statement of Operations for the period April 3, 1997 (commencement of
operations) to June 30, 1997 of the S&P 500 Index Fund, S&P 500 Index
Series, Aggregate Bond Index Fund and the Aggregate Bond Index
Series, and for the period April 9, 1997 (commencement of operations)
to June 30, 1997 of the Small Cap Index Fund, Small Cap Index Series,
International Index Fund and the International Index Series
(unaudited).
Statement of Changes in Net Assets for the period April 3, 1997
(commencement of operations) to June 30, 1997 of the S&P 500 Index
Fund, S&P 500 Index Series, Aggregate Bond Index Fund and the
Aggregate Bond Index Series, and for the period April 9, 1997
(commencement of operations) to June 30, 1997 of the Small Cap Index
Fund, Small Cap Index Series, International Index Fund and the
International Index Series (unaudited).
Financial Highlights for the period April 3, 1997 (commencement of
operations) to June 30, 1997 of the S&P 500 Index Fund, S&P 500 Index
Series, Aggregate Bond Index Fund, Aggregate Bond Index Series, and
for the period April 9, 1997 (commencement of operations) to June 30,
1997 of the Small Cap Index Fund, Small Cap Index Series,
International Index Fund and the International Index Series
(unaudited).
Schedule of Investments, June 30, 1997 of the S&P 500 Index Series,
Small Cap Index Series, Aggregate Bond Index Series and the
International Index Series (unaudited).
Statement of Assets and Liabilities of Merrill Lynch Index Funds, Inc.
as of January 17, 1997 (audited).
Statement of Assets and Liabilities of Merrill Lynch Index Trust as of
January 30, 1997 (audited).
(B)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Articles of Incorporation of Registrant.*
1(b) --Articles of Amendment.**
2 --By-Laws of Registrant.*
3 --None.
4 --Instrument Defining Rights of Shareholders. Incorporated by refer-
ence to Exhibits 1 and 2 above.**
5 --Not Applicable.
6 --Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.**
7 --None.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8(a) --Form of Custody Agreement between Registrant and Merrill Lynch Trust
Company.**
8(b) --Form of Custody Agreement between Registrant and State Street Bank
and Trust Company.**
9(a) --Form of Administration Agreement between Registrant and Merrill
Lynch Asset Management, L.P.**
(b) --Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill Lynch Fi-
nancial Data Services, Inc.**
(c) --License Agreement relating to Use of Name between Merrill Lynch &
Co., Inc. and Registrant.**
10 --Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP,
counsel for Registrant.**
11(a) --Consent of Deloitte & Touche LLP, independent auditors for the Reg-
istrant.
11(b) --Consent of Deloitte & Touche LLP, independent auditors for Merrill
Lynch Index Trust.
12 --None.
13 --Certificate of Merrill Lynch Asset Management.**
14 --Not applicable.
15 --Account Maintenance Plan of the Registrant and Plan Sub-Agreement.**
16(a) --Schedule for computation of each performance quotation relating to
Class A shares of S&P 500 Index Fund provided in the Registration
Statement in response to Item 22.
16(b) --Schedule for computation of each performance quotation relating to
Class D shares of S&P 500 Index Fund provided in the Registration
Statement in response to Item 22.
16(c) --Schedule for computation of each performance quotation relating to
Class A shares of Small Cap Index Fund provided in the Registration
Statement in response to Item 22.
16(d) --Schedule for computation of each performance quotation relating to
Class D shares of Small Cap Index Fund provided in the Registration
Statement in response to Item 22.
16(e) --Schedule for computation of each performance quotation relating to
Class A shares of Aggregate Bond Index Fund provided in the Registra-
tion Statement in response to Item 22.
16(f) --Schedule for computation of each performance quotation relating to
Class D shares of Aggregate Bond Index Fund provided in the Registra-
tion Statement in response to Item 22.
16(g) --Schedule for computation of each performance quotation relating to
Class A shares of International Index Fund provided in the Registra-
tion Statement in response to Item 22.
16(h) --Schedule for computation of each performance quotation relating to
Class D shares of International Index Fund provided in the Registra-
tion Statement in response to Item 22.
17(a) --Financial Data Schedule for Class A shares of S&P 500 Index Fund.
17(b) --Financial Data Schedule for Class D shares of S&P 500 Index Fund.
17(c) --Financial Data Schedule for Class A shares of Small Cap Index Fund.
17(d) --Financial Data Schedule for Class D shares of Small Cap Index Fund.
17(e) --Financial Data Schedule for Class A shares of Aggregate Bond Index
Fund.
17(f) --Financial Data Schedule for Class D shares of Aggregate Bond Index
Fund.
17(g) --Financial Data Schedule for Class A shares of International Index
Fund.
17(h) --Financial Data Schedule for Class D shares of International Index
Fund.
17(i) --Financial Data Schedule for S&P 500 Index Series.
17(j) --Financial Data Schedule for Small Cap Index Series.
17(k) --Financial Data Schedule for Aggregate Bond Index Series.
17(l) --Financial Data Schedule for International Index Series.
17(m) --Powers of Attorney.**
18 --Rule 13f-3 Plan.**
</TABLE>
- --------
* Incorporated by reference to identically numbered Exhibit to Registrant's
initial Registration Statement on Form N-1A (File No. 333-15265).
** Incorporated by reference to identically numbered Exhibit to the Pre-
Effective Amendment No. 1 to the Registrant's Registration Statement on Form
N-1A (File No. 333-15265).
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
FUND TITLE OF CLASS JULY 31, 1997
- ---- -------------- -------------
<S> <C> <C>
S&P 500 Index Fund...... Class A Common Stock, par value $.0001 per share 47,144
Class D Common Stock, par value $.0001 per share 11,992
Small Cap Index Fund.... Class A Common Stock, par value $.0001 per share 4,124
Class D Common Stock, par value $.0001 per share 3,864
Aggregate Bond Index
Fund................... Class A Common Stock, par value $.0001 per share 23,775
Class D Common Stock, par value $.0001 per share 3,076
International Index
Fund................... Class A Common Stock, par value $.0001 per share 12,481
Class D Common Stock, par value $.0001 per share 2,156
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General
Corporation Law.
Article VI of the By-Laws provides that each current and former officer and
Director of the Registrant shall be indemnified by the Registrant to the full
extent permitted under the General Laws of the State of Maryland, except that
such indemnity shall not protect any such person against any liability to the
Registrant or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. Absent
a court determination that an officer or director seeking indemnification was
not liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer or director
is not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Each officer and Director of the Registrant claiming indemnification with the
scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or Director of the Registrant.
The Registrant has purchased an insurance policy insuring its officers and
Directors against liabilities, and certain costs of defending claims against
such officers and Directors, to the extent such officers and
C-3
<PAGE>
Directors are not found to have committed conduct constituting willful
misfeasance, bad faith, gross negligence or reckless disregard in the
performance of their duties.
Article IV of the Administration Agreement between Registrant and MLAM
(Exhibit 9(a) hereof) limits the liability of MLAM to liabilities arising from
willful misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard of their respective duties and
obligations.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P. (the "Manager" or "MLAM"), the
investment adviser of Merrill Lynch Index Trust, acts as the investment adviser
for the following open-end registered investment companies: Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Fund, Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc.,
Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch
Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill
Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of
MLAM); and the following closed-end investment companies: Convertible Holdings,
Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust,
C-4
<PAGE>
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc.; MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund,
Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc.
and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager, FAM, Princeton Services,
Inc. ("Princeton Services") and Princeton Administrators L.P. ("Princeton
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081,
Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.")
is World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The address of Merrill Lynch Financial Data Services ("MLFDS") is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1994, for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President,
Mr. Glenn is Executive Vice President, and Mr. Richard is Treasurer of
substantially all of the investment companies described in the first two
paragraphs of this Item 28, and Messrs. Giordano, Harvey, Kirstein and Monagle
are directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- -------------- ----------------------------------
<C> <S> <C>
ML & Co. ............. Limited Partner Financial Services Holding Company; Limited
Partner of FAM
Princeton Services.... General Partner General Partner of FAM
Arthur Zeikel......... President President of FAM; President and Director of
Princeton Services; Director of MLFD;
Executive Vice President of ML & Co.
Terry K. Glenn........ Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President and Director of MLFD;
Director of MLFDS; President of Princeton
Administrators L.P.
Vincent R. Giordano... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- -------------------------- ----------------------------------
<S> <C> <C>
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel and
General Counsel, Secretary of FAM; Senior Vice President,
Secretary and General Counsel, Director and Secretary of
Director Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller FAM; Senior Vice President and Controller
of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators L.P.; Senior Vice President
of Princeton Services
Joseph T. Monagle....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael J. Quinn........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of
Merrill Lynch from 1989 to 1995
Richard L. Reller....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of FAM;
and Treasurer Senior Vice President and Treasurer of
Princeton Services; Vice President and
Treasurer of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as a sub-
adviser for the following registered investment companies: Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
C-6
<PAGE>
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Utility Income Fund,
Inc., Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World Income
Fund, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
investment companies is P.O. Box 9011, Princeton, New Jersey 08543-90011. The
address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM U.K.
indicating each business, profession, vocation or employment of a substantial
nature in which each person has been engaged since December 1, 1995, for his or
her own account or in the capacity of director, officer, partner or trustee. In
addition, Messrs. Zeikel, Albert, Bascand, Glenn, Richard and Yardley are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ -----------------------------------
<C> <S> <C>
Arthur Zeikel...... Director and Chairman President of the Manager and FAM;
President and Director of Princeton
Services; Director of MLFD; Executive
Vice President of ML & Co.
Alan J. Albert..... Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall. Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group.
Gerald M. Richard.. Senior Vice President Senior Vice President and Treasurer of
the Manager and FAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President and Treasurer
of MLFD
Carol Ann Langham.. Company Secretary None
Debra Anne Searle.. Assistant Company None
Secretary
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant, placement
agent for Merrill Lynch Index Trust and as principal underwriter for each of
the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., and The Municipal Fund
Accumulation Program, Inc. and MLFD also acts as principal underwriter for the
following closed-end funds: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund, Inc.
C-7
<PAGE>
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Aldrich,
Breen, Crook, Fatseas and Wasel is One Financial Center, Boston, Massachusetts
02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
---- --------------------- ---------------------
<C> <S> <C>
Terry K. Glenn........................ President and Director President
Arthur Zeikel......................... Director None
Philip L. Kirstein.................... Director None
William E. Aldrich.................... Senior Vice President None
Robert W. Crook....................... Senior Vice President None
Michael G. Clark...................... Vice President None
Michael J. Brady...................... Vice President None
William M. Breen...................... Vice President None
James T. Fatseas...................... Vice President None
Debra W. Landsman-Yaros............... Vice President None
Michelle T. Lau....................... Vice President None
Gerald M. Richard..................... Vice President and Treasurer
Treasurer
Salvatore Venezia..................... Vice President None
William Wasel......................... Vice President None
Robert Harris......................... Secretary None
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its Transfer Agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Funds" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Funds" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not party
to any Management-related service contract.
ITEM 32. UNDERTAKINGS.
The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the Township of Plainsboro, and State of New Jersey, on the 3rd day of
September, 1997.
Merrill Lynch Index Funds, Inc.
(Registrant)
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/ Terry K. Glenn President and
Director
(Principal Executive Officer)
- ------------------------------------- September 3,
(TERRY K. GLENN) 1997
Treasurer (Principal Financial
* Accounting Officer)
and Director
September 3,
- ------------------------------------- 1997
(GERALD M. RICHARD)
* Director
- ------------------------------------- September 3,
(JACK B. SUNDERLAND) 1997
* Director
- ------------------------------------- September 3,
(STEPHEN B. SWENSRUD) 1997
* Director
- ------------------------------------- September 3,
(J. THOMAS TOUCHTON) 1997
</TABLE>
/s/ Terry K. Glenn
*By: ___________________________
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-9
<PAGE>
SIGNATURES
Merrill Lynch Index Trust has duly caused this Post-Effective Amendment to
the Registration Statement of Merrill Lynch Index Funds, Inc. to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 3rd day of September, 1997.
Merrill Lynch Index Trust
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, PRESIDENT)
This Post-Effective Amendment to the Registration Statement of Merrill Lynch
Index Funds, Inc. has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Terry K. Glenn
- -------------------------------------------
(TERRY K. GLENN) President and Trustee September 3, 1997
(Principal Executive
Officer)
*
- -------------------------------------------
(GERALD M. RICHARD) Treasurer (Principal September 3, 1997
Financial Accounting
Officer) and Trustee
*
- -------------------------------------------
(JACK B. SUNDERLAND) Trustee September 3, 1997
*
- -------------------------------------------
(STEPHEN B. SWENSRUD) Trustee September 3, 1997
*
- -------------------------------------------
(J. THOMAS TOUCHTON) Trustee September 3, 1997
</TABLE>
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, ATTORNEY-IN-
FACT)
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
11(a) --Consent of Deloitte & Touche, LLP, Independent Auditors for the
Registrant
11(b) --Consent of Deloitte & Touche, LLP, Independent Auditors for Merrill
Lynch Index Trust
16(a) --Schedule for computation of each performance quotation relating to
Class A shares of S&P 500 Index Fund provided in the Registration
Statement in response to Item 22.
16(b) --Schedule for computation of each performance quotation relating to
Class D shares of S&P 500 Index Fund provided in the Registration
Statement in response to Item 22.
16(c) --Schedule for computation of each performance quotation relating to
Class A shares of Small Cap Index Fund provided in the Registration
Statement in response to Item 22.
16(d) --Schedule for computation of each performance quotation relating to
Class D shares of Small Cap Index Fund provided in the Registration
Statement in response to Item 22.
16(e) --Schedule for computation of each performance quotation relating to
Class A shares of Aggregate Bond Index Fund provided in the
Registration Statement in response to Item 22.
16(f) --Schedule for computation of each performance quotation relating to
Class D shares of Aggregate Bond Index Fund provided in the
Registration Statement in response to Item 22.
16(g) --Schedule for computation of each performance quotation relating to
Class A shares of International Index Fund provided in the
Registration Statement in response to Item 22.
16(h) --Schedule for computation of each performance quotation relating to
Class D shares of International Index Fund provided in the
Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for Class A shares of S&P 500 Index Fund
17(b) --Financial Data Schedule for Class D shares of S&P 500 Index Fund
17(c) --Financial Data Schedule for Class A shares of Small Cap Index Fund
17(d) --Financial Data Schedule for Class D shares of Small Cap Index Fund
17(e) --Financial Data Schedule for Class A shares of Aggregate Bond Index
Fund
17(f) --Financial Data Schedule for Class D shares of Aggregate Bond Index
Fund
17(g) --Financial Data Schedule for Class A shares of International Index
Fund
17(h) --Financial Data Schedule for Class D shares of International Index
Fund
17(i) --Financial Data Schedule for S&P 500 Index Series
17(j) --Financial Data Schedule for Small Cap Index Series
17(k) --Financial Data Schedule for Aggregate Bond Index Series
17(l) --Financial Data Schedule for International Index Series
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> MERRILL LYNCH S & P 500 INDEX FUND -- CLASS A
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-03-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 269750796
<INVESTMENTS-AT-VALUE> 295268960
<RECEIVABLES> 0
<ASSETS-OTHER> 124243
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295393203
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80001
<TOTAL-LIABILITIES> 80001
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 266528680
<SHARES-COMMON-STOCK> 19984351
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<NAME> MERRILL LYNCH S&P 500 INDEX FUND -- CLASS D
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<NAME> MERRILL LYNCH SMALL CAP INDEX FUND -- CLASS A
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<NAME> MERRILL LYNCH SMALL CAP INDEX FUND -- CLASS D
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<NAME> MERRILL LYNCH AGGREGATE BOND INDEX FUND -- CLASS A
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<NAME> MERRILL LYNCH AGGREGATE BOND INDEX FUND -- CLASS D
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<NAME> MERRILL LYNCH INTERNATIONAL INDEX FUND -- CLASS A
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<NAME> MERRILL LYNCH INTERNATIONAL INDEX FUND -- CLASS D
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<NAME> MERRILL LYNCH S&P 500 INDEX SERIES
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<NAME> MERRILL LYNCH SMALL CAP INDEX SERIES
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<DIVIDEND-INCOME> 126268
<INTEREST-INCOME> 32289
<OTHER-INCOME> 0
<EXPENSES-NET> (16197)
<NET-INVESTMENT-INCOME> 142360
<REALIZED-GAINS-CURRENT> 901465
<APPREC-INCREASE-CURRENT> 3684090
<NET-CHANGE-FROM-OPS> 4727915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 40295935
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28069
<AVERAGE-NET-ASSETS> 33413823
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MERRILL LYNCH AGGREGATE BOND INDEX SERIES
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-03-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 192525592
<INVESTMENTS-AT-VALUE> 193251071
<RECEIVABLES> 3445120
<ASSETS-OTHER> 22839
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 196719030
<PAYABLE-FOR-SECURITIES> 19373297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 257830
<TOTAL-LIABILITIES> 19631127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176362424
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 725479
<NET-ASSETS> 177087903
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1327540
<OTHER-INCOME> 14151
<EXPENSES-NET> (38307)
<NET-INVESTMENT-INCOME> 1303384
<REALIZED-GAINS-CURRENT> 214770
<APPREC-INCREASE-CURRENT> 725479
<NET-CHANGE-FROM-OPS> 2243633
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 177087903
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56440
<AVERAGE-NET-ASSETS> 87874191
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> MERRILL LYNCH INTERNATIONAL INDEX SERIES
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-09-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 115670058
<INVESTMENTS-AT-VALUE> 125680990
<RECEIVABLES> 1464147
<ASSETS-OTHER> 754398
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127899535
<PAYABLE-FOR-SECURITIES> 1580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 347310
<TOTAL-LIABILITIES> 348890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117261776
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10288869
<NET-ASSETS> 127550645
<DIVIDEND-INCOME> 806660
<INTEREST-INCOME> 170731
<OTHER-INCOME> 673
<EXPENSES-NET> (43231)
<NET-INVESTMENT-INCOME> 934833
<REALIZED-GAINS-CURRENT> 1000823
<APPREC-INCREASE-CURRENT> 10288869
<NET-CHANGE-FROM-OPS> 12224525
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 127550645
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23163
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66394
<AVERAGE-NET-ASSETS> 93731359
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 11(a)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Index Funds, Inc.:
We consent to the use in Post-Effective Amendment No. 1 to Registration
Statement No. 333-15265 of our report dated January 22, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
September 2, 1997
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Index Trust:
We consent to the use in Post-Effective Amendment No. 1 to Registration
Statement No. 333-15265 of our report dated January 31, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
September 2, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16 (a)
Since Inception
S&P 500 Index Fund - Class A Average Annual Since Inception
April 3, 1997 to June 30, 1997 Total Return* Total Return*
====================================================== =============== ===============
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.00
------------
Divided by Net Asset Value 10.00
------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend Reinvestment - -
------------ ------------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at Ending Period Date 11.84 11.84
------------ ------------
Equals Ending Redeemable Value (ERV) at Period End Date $1,184.00 $1,184.00
Divide ERV by $1000 (P) 1.1840 1.1840
Subtract 1 0.1840 0.1840
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 18.40%
===========
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 18.40%
===========
Divide ERV by $1000 (P) 1.1840
Raise to the power of 4.1477
Equals 2.0149
Subtract 1 1.0149
Expressed as a Percentage - Equals the
Average Annualized Total Return for the Period 101.49%
===========
</TABLE>
* Does NOT include sales charge for the period.
<PAGE>
Exhibit 16(b)
Since Inception
S&P 500 Index Fund - Class D Average Annual Since Inception
April 3 1997 to June 30, 1997 Total Return* Total Return*
====================================== =============== ===============
Initial Investment $ 1,000.00 $ 1,000.00
Divided by Initial Maximum Offering
Price 10.00
---------------
Divided by Net Asset Value 10.00
---------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend
Reinvestment -- --
--------------- ---------------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at
Ending Period Date 11.84 11.84
--------------- ---------------
Equals Ending Redeemable Value (ERV)
at Period End Date $ 1,184.00 $ 1,184.00
Divide ERV by $1000 (P) 1.1840 1.1840
Subtract 1 0.1840 0.1840
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 18.40%
===============
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 18.40%
===============
Divide ERV by $1000 (P) 1.1840
Raise to the power of 4.1477
Equals 2.0149
Subtract 1 1.0149
Expressed as a Percentage - Equals the
Average Annualized Total Return for
the Period 101.49%
===============
* Does NOT include sales charge for the period.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16 (c)
Since Inception
Small Cap Index Fund - Class A Average Annual Since Inception
April 9, 1997 to June 30, 1997 Total Return* Total Return*
====================================================== =============== ===============
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.00
-----------
Divided by Net Asset Value 10.00
-----------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend Reinvestment - -
----------- -----------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at Ending Period Date 11.51 11.51
----------- -----------
Equals Ending Redeemable Value (ERV) at Period End Date $1,151.00 $1,151.00
Divide ERV by $1000 (P) 1.1510 1.1510
Subtract 1 0.1510 0.1510
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.10%
==========
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.10%
==========
Divide ERV by $1000 (P) 1.1510
Raise to the power of 4.4512
Equals 1.8701
Subtract 1 0.8701
Expressed as a Percentage - Equals the
Average Annualized Total Return for the Period 87.01%
==========
</TABLE>
* Does NOT include sales charge for the period.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16 (d)
Since Inception
Small Cap Index Fund - Class D Average Annual Since Inception
April 9, 1997 to June 30, 1997 Total Return* Total Return*
===================================================== =============== ===============
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.00
------------
Divided by Net Asset Value 10.00
------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend Reinvestment - -
------------ ------------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at Ending Period Date 11.51 11.51
------------ ------------
Equals Ending Redeemable Value (ERV) at Period End Date $1,151.00 $1,151.00
Divide ERV by $1000 (P) 1.1510 1.1510
Subtract 1 0.1510 0.1510
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.10%
===========
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.10%
===========
Divide ERV by $1000 (P) 1.1510
Raise to the power of 4.4512
Equals 1.8701
Subtract 1 0.8701
Expressed as a Percentage - Equals the
Average Annualized Total Return for the Period 87.01%
===========
</TABLE>
* Does NOT include sales charge for the period.
<PAGE>
Exhibit 16(e)
Since Inception
Aggregate Bond Index Fund - Class A Average Annual Since Inception
April 3, 1997 to June 30, 1997 Total Return* Total Return*
====================================== =============== ===============
Initial Investment $ 1,000.00 $ 1,000.00
Divided by Initial Maximum Offering
Price 10.00
---------------
Divided by Net Asset Value 10.00
---------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend
Reinvestment 1.335 1.335
--------------- ---------------
Equals Shares held at Ending Period Date 101.335 101.335
Multiplied by Net Asset Value at
Ending Period Date 10.16 10.16
--------------- ---------------
Equals Ending Redeemable Value (ERV)
at Period End Date $ 1,029.53 $ 1,029.53
Divide ERV by $1000 (P) 1.0295 1.0295
Subtract 1 0.0295 0.0295
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 2.95%
===============
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 2.95%
===============
Divide ERV by $1000 (P) 1.0295
Raise to the power of 4.1477
Equals 1.1283
Subtract 1 0.1283
Expressed as a Percentage - Equals the
Average Annualized Total Return for
the Period 12.83%
===============
* Does NOT include sales charge for the period.
<PAGE>
30 Day Standardized Yield
For the 30 Day Period Ending
Aggregate Bond Index Fund - Class A
<TABLE>
<CAPTION>
30 Day Yield
===============
<S> <C>
Long term income generally based on
yield to maturity times market value of each security $ 538,545.19
Plus short term income accrued for the period 65,463.99
---------------
Equals Total Income 604,009.18
Less expenses 31,928.61
---------------
Equals net monthly income for yield calculation 572,080.57
Average shares outstanding for the period 10,972,476.050
Times Maxium Offering Price / Net Assets Value 10.14
---------------
Equals total dollars 111,260,907.15
---------------
Net monthly income divided by total dollars 0.00514179
Add 1 1.00514179
Raise to the power of 6 1.03125006
Subtract 1 0.03125006
Times 2 0.062500117
Expressed as a percentage equals the
Standardized Yield for the 30 Day Period 6.25%
===============
Tax Rate 28.00%
1 minus tax rate 72.00%
Tax Equilivant 30 Day Standardized Yield 8.68%
===============
</TABLE>
<PAGE>
Exhibit 16(f)
Since Inception
Aggregate Bond Index Fund - Class D Average Annual Since Inception
April 3, 1997 to June 30, 1997 Total Return* Total Return*
====================================== =============== ===============
Initial Investment $ 1,000.00 $ 1,000.00
Divided by Initial Maximum Offering
Price 10.00
---------------
Divided by Net Asset Value 10.00
---------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend
Reinvestment 1.282 1.282
--------------- ---------------
Equals Shares held at Ending Period Date 101.282 101.282
Multiplied by Net Asset Value at
Ending Period Date 10.17 10.17
--------------- ---------------
Equals Ending Redeemable Value (ERV)
at Period End Date $ 1,029.93 $ 1,029.93
Divide ERV by $1000 (P) 1.0299 1.0299
Subtract 1 0.0299 0.0299
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 2.99%
===============
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 2.99%
===============
Divide ERV by $1000 (P) 1.0299
Raise to the power of 4.1477
Equals 1.1301
Subtract 1 0.1301
Expressed as a Percentage - Equals the
Average Annualized Total Return for
the Period 13.01%
===============
* Does NOT include sales charge for the period.
<PAGE>
30 Day Standardized Yield
For the 30 Day Period Ending
Aggregate Bond Index Fund - Class D
<TABLE>
<CAPTION>
30 Day Yield
==============
<S> <C>
Long term income generally based on
yield to maturity times market value of each security $ 133,477.90
Plus short term income accrued for the period 16,225.18
--------------
Equals Total Income 149,703.08
Less expenses 13,253.38
--------------
Equals net monthly income for yield calculation 136,449.70
Average shares outstanding for the period 2,685,814.630
Times Maxium Offering Price / Net Assets Value 10.15
--------------
Equals total dollars 27,261,018.49
--------------
Net monthly income divided by total dollars 0.00500530
Add 1 1.00500530
Raise to the power of 6 1.03041014
Subtract 1 0.03041014
Times 2 0.060820282
Expressed as a percentage equals the
Standardized Yield for the 30 Day Period 6.08%
=============
Tax Rate 28.00%
1 minus tax rate 72.00%
Tax Equilivant 30 Day Standardized Yield 8.45%
==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16 (g)
Since Inception
International Index Fund - Class A Average Annual Since Inception
April 9, 1997 to June 30, 1997 Total Return* Total Return*
===================================================== =============== ===============
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.00
---------------
Divided by Net Asset Value 10.00
--------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend Reinvestment - -
--------------- --------------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at Ending Period Date 11.52 11.52
--------------- --------------
Equals Ending Redeemable Value (ERV) at Period End Date $1,152.00 $1,152.00
Divide ERV by $1000 (P) 1.1520 1.1520
Subtract 1 0.1520 0.1520
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.20%
==============
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.20%
=============
Divide ERV by $1000 (P) 1.1520
Raise to the power of 4.4512
Equals 1.8773
Subtract 1 0.8773
Expressed as a Percentage - Equals the
Average Annualized Total Return for the Period 87.73%
==============
</TABLE>
* Does NOT include sales charge for the period.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16 (h)
Since Inception
International Index Fund - Class D Average Annual Since Inception
April 9, 1997 to June 30, 1997 Total Return* Total Return*
===================================================== =============== ===============
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.00
---------------
Divided by Net Asset Value 10.00
--------------
Equals Shares Purchased 100.000 100.000
Plus Shares Acquired through Dividend Reinvestment - -
--------------- --------------
Equals Shares held at Ending Period Date 100.000 100.000
Multiplied by Net Asset Value at Ending Period Date 11.52 11.52
--------------- --------------
Equals Ending Redeemable Value (ERV) at Period End Date $1,152.00 $1,152.00
Divide ERV by $1000 (P) 1.1520 1.1520
Subtract 1 0.1520 0.1520
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.20%
==============
Expressed as a Percentage - Equals the
Aggregate Total Return for the Period 15.20%
=============
Divide ERV by $1000 (P) 1.1520
Raise to the power of 4.4512
Equals 1.8773
Subtract 1 0.8773
Expressed as a Percentage - Equals the
Average Annualized Total Return for the Period 87.73%
==============
</TABLE>
* Does NOT include sales charge for the period.
