MERRILL LYNCH
INTERNATIONAL
INDEX FUND
[GRAPHIC OMITTED]
Merrill Lynch
Index Funds, Inc.
STRATEGIC
Performance
Semi-Annual Report
June 30, 1998
<PAGE>
Merrill Lynch International Index Fund
Officers and
Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Jay C. Harbeck, Senior Vice President
Norman R. Harvey, Senior Vice President
Jeffrey B. Hewson, Senior Vice President
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Eric S. Mitofsky, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
DEAR SHAREHOLDER
For the six months ended June 30, 1998, Merrill Lynch International Index Fund's
Class A and Class D Shares had total returns of +21.87% and +21.88%,
respectively. This compares to a +21.88% total return for the unmanaged Morgan
Stanley Capital International EAFE(R) Gross Domestic Product (GDP) Weighted
Index (MSCI EAFE Index) for the same period. (For complete performance
information, see page 3 of this report to shareholders.)
Portfolio Matters
As was the case for the US equity market during the first half of 1998, returns
for the MSCI EAFE Index were significantly higher in the first quarter of the
year than in the second. Having finished 1997 at a level of 1,333.50, the MSCI
EAFE Index gained more than 200 points to close the first quarter of the year at
1,559.44, and had a total return of +17.30%. During this period, stock market
returns for the Pacific region were slightly positive at +3.18%, while European
equities surged by +20.30%. However, yet another round of concerns regarding the
financial and currency crises in Asia took their toll, and equity markets there
became especially unstable in the second quarter of the year. For example, in
the three months ended June 30, 1998, the Malaysian stock market fell by 46.2%,
Singapore by 32.6%, Hong Kong by 26.9%, while the Japan component fell by 4.6%.
The major European markets once again drastically outperformed the dismal
returns of the Asian markets as Germany advanced by 16.7%, France by 11.2%, and
Spain by 4.2%. Inflationary concerns led to the United Kingdom having a
particularly difficult month in June, with the market finishing the second
quarter of 1998 with a return of -2.0%. (References to markets of all countries
in this letter to shareholders correspond to those countries' stock market
components in the MSCI EAFE Index.)
MSCI revises its set of GDP weights for the constituent countries annually at
June month-end. This rebalancing of country weightings reflects the set of GDP
data from the prior year-end. Merrill Lynch International Index Fund invests all
of its assets in Merrill Lynch International Index Series, which has the same
investment objective as the Fund. As a GDP-weighted fund, Merrill Lynch
International Index Series also realigned its existing portfolio on June 30,
1998 to stay as closely weighted as possible to the newly revised set of country
weights. With the significant underperformance of the Pacific Rim countries in
the MSCI EAFE Index relative to the European countries during the prior 12
months, the weights of the Pacific Rim countries in the Series had declined
significantly below the weights based upon 1997 year-end GDP data. For the
Series, this implied a major reshuffling of the equities and futures holdings to
stay properly weighted to the MSCI EAFE Index benchmark. Since the GDPs of the
Asian countries had not fallen nearly as far as their market capitalizations, it
was necessary to raise the weight of the Pacific Rim nations while reducing the
weight of the European countries. This reweighting of the Series was
accomplished by a combination of equity and futures trades. Specifically, the
Series initiated a new long position in Nikkei 300 September futures contracts
and purchased a basket of Japanese equities, while simultaneously reducing or
eliminating positions in futures contracts in France, Italy, Spain and the
United Kingdom. In addition, the Series added several new positions in Portugal,
which officially entered the MSCI EAFE Index as a result of the June-end
rebalancing.
There are two principal investments made by the Series in its attempt to
replicate the returns of the Index. First, the Series holds a basket of stocks
designed to replicate the returns of the Index, with share quantities designed
to closely approximate each country's actual weight in the Index. In addition,
the Series holds long positions in several futures contracts, which are used
primarily as investing daily cash inflows into the Series. These futures
contracts also provide an efficient mechanism for keeping a pool of liquidity
available to meet potential redemption activity. As of June 30, 1998, the equity
portfolio of the Series was valued at $121.8 million, and the Series held a long
position in futures contracts valued at $6.9 million. It is the Series' goal to
be 100% invested at all times. At June 30, 1998, the Fund's net assets stood at
$111.4 million.
In Conclusion
We appreciate your investment in Merrill Lynch International Index Fund, and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Eric S. Mitofsky
Eric S. Mitofsky
Senior Vice President and
Portfolio Manager
August 17, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers two pricing alternatives:
o Class A Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible investors.
o Class D Shares do not incur a maximum initial sales charge or deferred
sales charge and bear no ongoing distribution fee. In addition, Class D
Shares are subject to an ongoing account maintenance fee of 0.25%.
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
Recent Performance Results
<TABLE>
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
===============================================================================================
<S> <C> <C> <C>
ML International Index Fund Class A Shares* +14.73% +4.13% +32.17%
- -----------------------------------------------------------------------------------------------
ML International Index Fund Class D Shares* +14.49 +4.21 +31.90
- -----------------------------------------------------------------------------------------------
MSCI EAFE Index--GDP Weighted** +15.14 +3.90 +28.36
===============================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's inception date is 4/09/97.
** This unmanaged gross domestic product-weighted Index is comprised 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. Since inception total return is from 4/30/97 to 6/30/98.
Average Annual Total Return
% Return
================================================================================
Class A Shares
================================================================================
Year Ended 6/30/98 +14.73%
- --------------------------------------------------------------------------------
Inception (4/09/97) through 6/30/98 +25.58
- --------------------------------------------------------------------------------
% Return
================================================================================
Class D Shares
================================================================================
Year Ended 6/30/98 +14.49%
- --------------------------------------------------------------------------------
Inception (4/09/97) through 6/30/98 +25.37
- --------------------------------------------------------------------------------
2 & 3
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND As of June 30, 1998
===================================================================================================================================
<S> <C> <C>
Assets: Investment in Merrill Lynch International Index Series, at
value (identified cost--$96,924,375) (Note 1a) ................. $111,495,908
Deferred organization expenses (Note 1d) ........................ 17,590
Prepaid registration fees and other assets (Note 1d) ............ 38,718
------------
Total assets .................................................... 111,552,216
------------
===================================================================================================================================
Liabilities: Payable to administrator (Note 2) ............................... 9,427
Payable to distributor (Note 2) ................................. 3,718
Accrued expenses and other liabilities .......................... 96,988
------------
Total liabilities ............................................... 110,133
------------
====================================================================================================================================
Net Assets: Net assets ...................................................... $111,442,083
============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000
Consist of: shares authorized .............................................. $ 732
Class D Shares of Common Stock, $0.0001 par value, 125,000,000
shares authorized .............................................. 134
Paid-in capital in excess of par ................................ 87,480,310
Undistributed investment income--net ............................ 1,134,251
Undistributed realized capital gains on investments and foreign
currency transactions from the Series--net ..................... 8,255,123
Unrealized appreciation on investments and foreign currency
transactions from the Series--net .............................. 14,571,533
------------
Net assets ...................................................... $111,442,083
============
===================================================================================================================================
Net Asset Class A--Based on net assets of $94,252,049 and 7,320,586
Value: shares outstanding ............................................. $ 12.87
============
Class D--Based on net assets of $17,190,034 and 1,336,155
shares outstanding ............................................. $ 12.87
============
===================================================================================================================================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND For the Six Months Ended June 30, 1998
===================================================================================================================================
<S> <C> <C> <C>
Investment Income Investment income allocated from the Series (net of $173,792
(Notes 1b & 1c): foreign withholding tax) ....................................... $ 1,734,610
Expenses allocated from the Series .............................. (144,235)
------------
Net investment income from the Series ........................... 1,590,375
------------
===================================================================================================================================
Expenses: Administration fee (Note 2) ..................................... $ 135,819
Registration fees (Note 1d) ..................................... 59,438
Transfer agent fees (Note 2) .................................... 41,832
Printing and shareholder reports ................................ 27,659
Account maintenance fee--Class D (Note 2) ....................... 21,849
Amortization of organization expenses (Note 1d) ................. 1,995
----------
Total expenses before reimbursement ............................. 288,592
Reimbursement of expenses (Note 2) .............................. (43,137)
----------
Total expenses after reimbursement .............................. 245,455
------------
Investment income--net .......................................... 1,344,920
------------
===================================================================================================================================
Realized & Realized gain from the Series on:
Unrealized Investments--net .............................................. 6,117,722
Gain from the Foreign currency transactions--net ............................ 2,011,994 8,129,716
Series--Net: ----------
Change in unrealized appreciation on investments and foreign
currency transactions from the Series--net ..................... 14,198,488
------------
Net realized and unrealized gain on investments and foreign
currency transactions from the Series .......................... 22,328,204
------------
Net Increase in Net Assets Resulting from Operations ............ $ 23,673,124
============
===================================================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
MERRILL LYNCH For the Six April 9,
INTERNATIONAL Months Ended 1997+ to
INDEX FUND Increase (Decrease) in Net Assets: June 30, 1998 Dec. 31, 1997
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .......................................... $ 1,344,920 $ 1,446,154
Realized gain on investments and foreign currency transactions
from the Series--net ........................................... 8,129,716 2,058,988
Change in unrealized appreciation on investments and foreign
currency transactions from the Series--net ..................... 14,198,488 373,045
------------- -------------
Net increase in net assets resulting from operations ............ 23,673,124 3,878,187
------------- -------------
===================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ....................................................... -- (1,258,141)
Shareholders Class D ....................................................... -- (188,013)
(Note 1e): In excess of investment income--net:
Class A ....................................................... -- (183,280)
Class D ....................................................... -- (27,389)
Realized gain on investments from the Series--net:
Class A ....................................................... -- (1,638,854)
Class D ....................................................... -- (294,727)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders .................................. -- (3,590,404)
------------- -------------
===================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions ............................................. (47,956,696) 135,412,872
(Note 4): ------------- -------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets ......................... (24,283,572) 135,700,655
Beginning of period ............................................. 135,725,655 25,000
------------- -------------
End of period* .................................................. $ 111,442,083 $ 135,725,655
============= =============
===================================================================================================================================
* Undistributed (accumulated distributions in excess of)
investment income--net ......................................... $ 1,134,251 $ (210,669)
============= =============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class D
The following per share data and ratios ----------------------------- ------------------------------
have been derived from information For the Six For the Period For the Six For the Period
MERRILL LYNCH provided in the financial statements. Months Ended April 9, 1997+ Months Ended April 9, 1997+
INTERNATIONAL June 30, to December 31, June 30, to December 31,
INDEX FUND Increase (Decrease) in Net Asset Value: 1998 1997 1998 1997
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ......... $ 10.56 $ 10.00 $ 10.56 $ 10.00
Operating ------- -------- ------- -------
Performance: Investment income--net ....................... .15 .10 .16 .15
Realized and unrealized gain on investments
and foreign currency transactions from the
Series--net.................................. 2.16 .75 2.15 .67
------- -------- ------- -------
Total from investment operations ............. 2.31 .85 2.31 .82
------- -------- ------- -------
Less dividends and distributions:
Investment income--net ..................... -- (.12) -- (.10)
In excess of investment income--net ........ -- (.02) -- (.01)
Realized gain on investments from the
Series--net ............................... -- (.15) -- (.15)
------- -------- ------- -------
Total dividends and distributions ............ -- (.29) -- (.26)
------- -------- ------- -------
Net asset value, end of period ............... $ 12.87 $ 10.56 $ 12.87 $ 10.56
======= ======== ======= =======
===================================================================================================================================
Total Investment Based on net asset value per share ........... 21.87%# 8.45%# 21.88%# 8.22%#
Return: ======= ======== ======= =======
===================================================================================================================================
Ratios to Average Expenses, net of reimbursement++ ............. .65%* .86%* .90%* 1.11%*
Net Assets: ======= ======== ======= =======
Expenses++ ................................... .73%* 1.10%* .98%* 1.35%*
======= ======== ======= =======
Investment income--net ....................... 2.42%* 1.64%* 2.17%* 1.67%*
======= ======== ======= =======
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ..... $94,252 $115,190 $17,190 $20,536
Data: ======= ======== ======= =======
===================================================================================================================================
</TABLE>
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated
expenses.
# Aggregate total investment return.
* Annualized.
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. 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 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. 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. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(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 period not exceeding five years.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates. Distributions in excess of net investment
income and realized capital gains are due primarily to differing tax treatments
for post-October losses.
(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 ("MLFD" or "Distributor"), a division of
Princeton Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc. Pursuant to 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.
6 & 7
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH INTERNATIONAL INDEX FUND
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 six months ended June 30, 1998, MLAM earned
fees of $135,819, of which $43,137 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, PFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for the six
months ended June 30, 1998 were $2,991,901 and $51,125,103, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(47,956,696) and $135,412,872 for the six months ended June 30, 1998 and
for the period April 9, 1997 to December 31, 1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,336,837 $(16,005,651
Shares redeemed .................. (4,929,480) (57,060,611)
---------- ------------
Net decrease ..................... (3,592,643) $(41,054,960)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Period Dollar
April 9, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 13,557,058 $146,212,922
Shares issued to shareholders in
reinvestment of dividends
and distributions ................ 282,548 3,003,483
---------- ------------
Total issued ..................... 13,839,606 149,216,405
Shares redeemed .................. (2,927,627) (32,681,148)
---------- ------------
Net increase ..................... 10,911,979 $116,535,257
========== ============
- --------------------------------------------------------------------------------
+ Prior to April 9, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 231,186 $ (2,796,464
Shares redeemed .................. (839,686) (9,698,200)
---------- ------------
Net decrease ..................... (608,500) $ (6,901,736)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Period Dollar
April 9, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 2,975,922 $ 30,254,277
Shares issued to shareholders in
reinvestment of dividends
and distributions ................ 44,774 475,948
---------- ------------
Total issued ..................... 3,020,696 30,730,225
Shares redeemed .................. (1,077,291) (11,852,610)
---------- ------------
Net increase ..................... 1,943,405 $ 18,877,615
========= ============
- --------------------------------------------------------------------------------
+ Prior to April 9, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch International Index Series
--------------------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
================================================================================================
<S> <C> <C> <C>
Australia Australian Gas Light Company (The) 9,700 $ 60,692
Boral Limited 36,500 68,513
Broken Hill Proprietary Company Ltd. 29,500 249,457
CSR Limited 29,200 84,297
Coca-Cola Amatil, Ltd. 13,900 92,999
Coles Myer Ltd. 18,200 71,032
Foster's Brewing Group Ltd. 46,800 110,172
ICI Australia Ltd. 13,300 78,686
National Australia Bank Limited 20,300 267,866
News Corporation Ltd. (The) 27,700 226,171
News Corporation Ltd. (The) (Preferred) 25,400 180,012
Normandy Mining Ltd. 42,300 34,590
North Ltd. 30,100 61,908
Pacific Dunlop Ltd. 45,500 73,569
Pioneer International Ltd. 28,600 68,213
Rio Tinto Ltd. 8,500 101,102
Santos Ltd. 19,400 60,092
Schroders Property Fund 75,200 113,671
Smith (Howard) Ltd. 9,000 52,967
Tabcorp Holdings Limited 14,400 73,597
WMC Limited 24,800 74,667
Westpac Banking Corporation 28,900 176,350
--------------------------------------------------------------------------------
Total Investments in Australia (Cost--$2,802,204)--1.9% 2,380,623
================================================================================================
Austria Bank Austria AG 6,450 525,075
Bank Austria AG (Rights) (c) 6,450 0
EA--Generali AG 550 161,599
Flughafen Wien AG 2,550 122,328
Mayr-Melnhof Karton AG 1,550 101,339
OMV AG (Class A) 1,850 247,881
Oesterreichische
Elektrizitaetswirtschafts AG (Verbund) 2,200 263,411
VA--Technologie AG (VA TECH) 1,200 149,350
Wienerberger Baustoffindustrie AG 850 205,687
--------------------------------------------------------------------------------
Total Investments in Austria (Cost--$1,474,954)--1.4% 1,776,670
================================================================================================
Belgium Barco NV (Belgian American Radio Corp.) 500 139,785
Bekaert NV 129 107,153
Cimenteries CBR Cementbedrijven SA 1,500 168,145
Electrabel SA 1,000 283,602
Establissements Delhaize
Freres & Cie 'Le Lion' SA 2,100 146,774
Fortis AG 900 229,839
Generale de Banque SA 400 297,043
Glaverbel SA 500 71,505
Groupe Bruxelles Lambert SA 700 141,317
Petrofina SA 600 246,371
Royale Belge SA 500 190,188
Solvay SA 2,000 158,602
Union Miniere SA 900 55,645
--------------------------------------------------------------------------------
Total Investments in Belgium (Cost--$1,631,245)--1.7% 2,235,969
================================================================================================
Denmark D/S Norden A/S 25 214,608
D/S Svendborg A/S 20 244,435
Danisco A/S 1,700 114,273
Den Danske Bank A/S 1,100 132,038
Novo Nordisk A/S (Class B) 1,600 220,690
Tele Danmark A/S (Class B) 3,300 316,892
Unidanmark A/S 1,400 125,884
--------------------------------------------------------------------------------
Total Investments in Denmark (Cost--$937,756)--1.1% 1,368,820
================================================================================================
Finland Kesko OY 4,600 72,592
Merita OY (Class A) 18,700 123,500
Nokia Oyj AB (Series A) 8,200 604,382
Nokia Oyj AB (Series K) 3,000 220,842
Outokumpu Oyj 6,300 80,455
Sampro Insurance Company Ltd. 1,900 90,125
UPM-Kymmene Oyj 5,500 151,515
--------------------------------------------------------------------------------
Total Investments in Finland (Cost--$765,895)--1.0% 1,343,411
================================================================================================
</TABLE>
8 & 9
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
--------------------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
================================================================================================
<S> <C> <C> <C>
France Accor SA 800 $ 223,976
Alcatel Alsthom Cie Generale
d'Electricite SA 3,650 743,468
Axa SA 7,400 832,630
Banque Nationale de Paris SA (BNP) 4,900 400,530
Bouygues SA 750 136,262
Canal+ (e) 750 140,233
Carrefour Supermarche SA 900 569,620
Compagnie de Saint-Gobain SA 2,100 389,526
Compagnie Financiere de Paribas SA 3,800 406,817
Compagnie Generale des
Etablissements Michelin SA (Class B) 3,300 190,568
Comptoirs Modernes SA 220 114,669
Elf Aquitaine SA 6,250 879,044
Eridania Beghin-Say SA 700 154,629
France Telecom SA 17,950 1,238,546
Generale des Eaux SA 3,000 640,854
Groupe Danone SA 1,600 441,334
Havas SA 2,000 169,769
Imetal SA 500 68,752
L'Air Liquide SA 2,081 344,378
L'Oreal SA 1,500 834,698
LVMH Moet-Hennessy Louis Vuitton SA 2,000 400,430
Lafarge SA 2,300 237,859
Lagardere SCA 3,000 124,944
Legrand SA 650 172,086
Lyonnaise des Eaux SA 2,750 452,759
Pathe SA 300 58,824
Pernod Ricard SA 1,500 103,996
Peugeot SA 1,200 258,129
Pinault-Printemps-Redoute SA 500 418,632
Promodes SA 450 249,442
Rallye, 3% due 1/01/2003 Ffr 537 34,298
Rallye, 4.50% due 1/01/2005 Ffr 537 51,536
Rhone-Poulenc SA (Class A) 8,250 465,500
SAGEM SA 100 77,836
Sanofi SA 2,550 300,000
Schneider SA 3,500 279,201
Sidel SA 950 69,165
Societe Bic SA 1,450 103,169
Societe Generale de France SA 2,250 467,982
Societe Nationale d'Exploitation
Industrielle des Tabacs et Allumettes SA 1,550 70,274
Sodexho Alliance SA 800 151,303
Thomson-CSF SA 2,800 106,561
Total SA (Class B) 5,550 721,817
Usinor-Sacilor SA 6,200 95,819
Valeo SA 1,700 173,840
--------------------------------------------------------------------------------
Total Investments in France (Cost--$10,064,095)--11.4% 14,565,705
================================================================================================
Germany AMB Aachener und Muenchener Beteiligungs AG 1,250 146,106
Adidas AG 1,400 243,906
Allianz AG 6,250 2,082,525
BASF AG 17,950 852,655
Bayer AG 20,350 1,052,897
Bayerische Hypotheken-und Wechsel-Bank AG 7,250 459,450
Bayerische Vereinsbank AG 8,550 724,657
Beiersdorf AG 3,350 213,411
Bugerus AG 200 99,723
CKAG Colonia Konzern AG 950 117,882
Continental AG 4,400 138,201
Daimler-Benz AG 14,200 1,396,244
Daimler-Benz AG (Rights) 14,200 15,732
Degussa AG 3,000 191,945
Deutsche Bank AG 14,250 1,204,603
Deutsche Telekom AG 62,300 1,704,864
Dresdner Bank AG 13,550 731,844
Friedrich Grohe AG (Preferred) 300 101,374
Heidelberger Zement AG 1,900 179,980
Hochtief AG 3,050 146,316
Karstadt AG 350 170,134
Linde AG 300 206,071
Lufthansa AG 11,550 290,797
MAN AG 450 175,493
METRO AG 6,600 398,515
METRO AG (Rights) (b) 6,600 256
Mannesmann AG 10,500 1,078,966
Merck KGaA 6,200 277,853
Muenchener Rueckversicherungs-Gesellschaft AG 2,200 1,091,957
Preussag AG 500 178,928
RWE AG 9,050 535,420
RWE AG (Preferred) 5,850 249,853
SAP AG 1,700 1,031,188
SAP AG (Preferred) 1,200 814,314
SGL CARBON AG 800 93,153
Schering AG 2,250 264,860
Siemens AG 15,300 933,578
Thyssen AG 1,100 279,692
VEBA AG 13,200 887,337
Viag AG 750 516,009
Volkswagen AG 800 772,435
Volkswagen AG (Preferred) 250 172,280
--------------------------------------------------------------------------------
Total Investments in Germany (Cost--$15,639,097)--17.3% 22,223,404
================================================================================================
Hong Kong Cheung Kong (Holdings) Limited 19,000 93,429
China Light & Power Company, Limited 14,000 63,783
Hang Seng Bank Limited 11,000 62,183
Hong Kong Telecommunications Ltd. 64,200 120,560
Hutchison Whampoa Ltd. 21,000 110,853
Sun Hung Kai Properties Limited 17,000 72,185
--------------------------------------------------------------------------------
Total Investments in Hong Kong (Cost--$830,421)--0.4% 522,993
================================================================================================
Ireland Allied Irish Banks PLC 23,100 333,261
CRH PLC 14,000 198,463
Greencore Group PLC 29,000 157,650
Jefferson Smurfit Group PLC 42,000 124,698
--------------------------------------------------------------------------------
Total Investments in Ireland (Cost--$612,569)--0.6% 814,072
================================================================================================
Italy Assicurazioni Generali SpA 36,400 1,183,973
Banca Commerciale Italiana SpA 77,600 464,203
Banca Popolare di Milano SpA (SCRL) 13,300 105,906
Banco Ambrosiano Veneto SpA 34,100 190,841
Benetton SpA (e) 98,000 203,500
Bulgari SpA 13,700 71,854
Cartiere Burgo SpA 13,000 104,139
Credito Italiano SpA 111,200 582,282
Edison SpA 31,800 255,277
Ente Nazionale Idrocarburi (ENI) SpA 331,900 2,175,934
Fiat SpA 157,900 691,312
Fiat SpA (Preferred) 52,500 130,733
Fiat SpA (RNC) 43,400 107,462
Istituto Bancario San Paolo di Torino SpA 35,600 513,866
Istituto Mobiliare Italiano SpA 26,600 419,133
Istituto Nazionale delle Assicurazioni (INA) SpA 180,600 513,241
Italcementi SpA 9,900 89,028
Italgas SpA 38,300 156,045
Mediaset SpA 51,600 329,433
Mediobanca-Banca di Credito 22,900 290,599
MontEdison SpA 224,900 279,068
Olivetti Group SpA (e) 130,300 193,947
Parmalat Finanziaria SpA 83,300 169,928
Pirelli SpA 80,400 251,109
Riunione Adriatica di Sicurta SpA 16,700 217,560
Sirti SpA 23,000 125,160
Telecom Italia Mobile SpA 152,700 1,124,412
Telecom Italia Mobile SpA (TIM) (RISP) 274,700 1,680,354
Telecom Italia Mobile SpA (TIM) (RNC) 68,700 231,964
Telecom Italia SpA 39,600 191,760
--------------------------------------------------------------------------------
Total Investments in Italy (Cost--$8,334,726)--10.2% 13,044,023
================================================================================================
Japan Acom Co., Ltd. 4,000 190,229
Advantest Corporation 2,200 118,438
Ajinomoto Co., Inc. 20,000 175,363
Alps Electric Co. Ltd. 4,000 47,629
Aoyama Trading Co., Ltd. 3,500 86,382
Asahi Bank, Ltd. 67,000 294,942
Asahi Breweries, Ltd. 10,000 126,290
Asahi Chemical Industry Co., Ltd. 44,000 158,764
Asahi Glass Co., Ltd. 28,000 151,548
Autobacs Seven Co., Ltd. 1,000 28,650
Bank of Tokyo-Mitsubishi, Ltd. 117,000 1,240,333
Bank of Yokohama, Ltd. 30,000 73,609
Bridgestone Corporation 20,000 473,406
CSK Corporation 1,000 19,918
Canon Inc. 22,000 500,108
Casio Computer Co., Ltd. 8,000 74,417
Chiba Bank Ltd. 24,000 83,135
Chugai Pharmaceutical Co., Ltd. 19,000 124,500
Citizen Watch Co., Ltd. 14,000 115,681
Cosmo Oil Company, Ltd. 38,000 68,557
Credit Saison Co., Ltd. 3,000 59,537
Dai Nippon Printing Co., Ltd. 18,000 287,725
Daiei, Inc. (The) 16,000 37,526
Daimaru, Inc. 18,000 47,283
Dainippon Ink & Chemicals, Inc. 29,000 88,944
Dainippon Screen Manufacturing Co., Ltd. 4,000 16,396
Daiwa House Industry Co., Ltd. 15,000 132,604
Daiwa Securities Co., Ltd. 42,000 180,948
East Japan Railway Co. 110 517,572
</TABLE>
10 & 11
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
--------------------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
================================================================================================
<S> <C> <C> <C>
Japan Ebara Corporation 12,000 $ 106,863
(concluded) Eisai Co., Ltd. 8,000 109,114
Fanuc Ltd. 6,000 207,837
Fuji Bank, Ltd. 74,000 330,562
Fuji Photo Film Co., Ltd. 12,000 418,272
Fujikura Ltd. 6,000 26,759
Fujita Kanko Inc. 1,000 8,155
Fujitsu Limited 48,000 505,737
Gunma Bank, Ltd. 10,000 67,763
Hankyu Department Stores, Inc. 2,000 10,421
Hirose Electric Co., Ltd. 1,000 48,856
Hitachi Ltd. 92,000 600,851
Honda Motor Co., Ltd. 24,000 855,596
Hoya Corporation 2,000 56,722
Industrial Bank of Japan Ltd. 57,000 357,870
Isetan Company Limited 6,000 50,227
Ito Yokado Co., Ltd. 8,000 376,994
Itochu Corporation 47,000 101,754
Japan Airlines Company, Ltd. (e) 44,000 122,566
Japan Energy Corp. 57,000 60,468
Joyo Bank, Ltd. 24,000 88,677
Jusco Co., Ltd. 10,000 183,662
Kajima Corporation 62,000 170,023
Kaneka Corporation 19,000 100,094
Kansai Electric Power Co., Inc. (The) 23,600 410,449
Kao Corporation 16,000 157,032
Kawasaki Heavy Industries Ltd. 52,000 105,074
Kawasaki Steel Corporation 125,000 225,442
Keihin Electric Express Railway Co., Ltd. 40,000 116,042
Kinden Corporation 17,000 206,105
Kirin Brewery Company Ltd. 32,000 302,519
Kokuyo Co., Ltd. 4,000 67,835
Komatsu Ltd. 29,000 141,055
Konami Co., Ltd. 1,000 21,541
Kubota Corporation 45,000 103,919
Kurita Water Industries Ltd. 2,000 23,670
Kyocera Corporation 5,300 259,320
Lion Corporation 52,000 176,373
Marubeni Corporation 74,000 147,925
Marui Co., Ltd. 10,000 149,383
Matsushita Electric Industrial Co., Ltd. 54,000 869,019
Minebea Co., Ltd. 8,000 79,729
Mitsubishi Chemical Corp. 57,000 103,247
Mitsubishi Corporation 36,000 223,426
Mitsubishi Electric Corporation 77,000 177,260
Mitsubishi Estate Co., Ltd. 31,000 272,930
Mitsubishi Heavy Industries, Ltd. 93,000 351,677
Mitsubishi Logistics Corporation 3,000 26,781
Mitsubishi Materials Corporation 50,000 102,115
Mitsubishi Trust and Banking Corp. 26,000 221,217
Mitsui & Co., Ltd. 41,000 221,909
Mitsui Fudosan Co., Ltd. 15,000 118,640
Mitsui Marine & Fire Insurance Co., Ltd. 28,000 140,839
Mitsui Mining & Smelting Co., Ltd. 10,000 41,567
Mitsui O.S.K. Lines, Ltd. 42,000 71,530
Mitsui Trust & Banking Company, Ltd. 41,000 96,753
Mitsukoshi, Ltd. 9,000 25,915
Murata Manufacturing Company, Ltd. 6,000 194,848
Mycal Corporation 12,000 76,208
NEC Corporation 40,000 373,241
NKK Corporation 137,000 131,493
NSK Ltd. 19,000 77,470
Namco Limited 1,000 23,382
Nankai Electric Railway Co., Ltd. 40,000 173,198
Nichido Fire & Marine Insurance Co., Ltd. 12,000 62,785
Nikon Corporation 8,000 57,617
Nippon Comsys Corporation 4,000 46,013
Nippon Express Co., Ltd. 51,000 273,826
Nippon Fire & Marine Insurance Co., Ltd. 11,000 45,010
Nippon Light Metal Company Ltd. 38,000 43,877
Nippon Oil Co., Ltd. 35,000 113,156
Nippon Paper Industries Co., Ltd. 24,000 100,108
Nippon Steel Corp. 229,000 403,233
Nippon Telegraph & Telephone Corp. (e) 325 2,697,192
Nippon Yusen Kabushiki Kaisha Chiyoda 36,000 122,105
Nippondenso Finance NV 23,000 381,756
Nissan Food Products 3,000 53,800
Nissan Motor Co., Ltd. 66,000 208,141
Nomura Securities Co., Ltd. 50,000 582,738
Noritake Co., Ltd. 2,000 9,382
OJI Paper Co., Ltd. 33,000 143,840
Obayashi Corporation 19,000 80,624
Omron Corporation 6,000 91,795
Orix Corporation 1,600 108,191
Osaka Gas Co., Ltd. 57,000 146,438
Pioneer Electronic Corp. 4,000 76,496
Rohm Co., Ltd. 3,000 308,509
SMC Corporation 1,600 121,815
Sakura Bank Ltd. 100,000 259,796
Sankyo Company Limited 12,000 273,653
Sanyo Electric Co., Ltd. 69,000 209,136
Secom Co., Ltd. 3,000 173,414
Sega Enterprises, Ltd. 3,000 51,851
Seino Transportation Co., Ltd. 15,000 83,351
Sekisui Chemical Co., Ltd. 13,000 66,609
Sekisui House, Ltd. 19,000 147,398
Seventy-Seven Bank Ltd. 10,000 83,712
Sharp Corporation 30,000 243,342
Shimano Inc. 4,000 101,609
Shimizu Corporation 58,000 167,425
Shin-Etsu Chemical Co., Ltd. 10,000 173,198
Shiseido Company, Ltd. 11,000 125,106
Shizuoka Bank, Ltd. (The) 16,000 172,043
Sony Corporation 10,500 905,500
Sumitomo Bank, Ltd. 75,000 730,678
Sumitomo Chemical Co., Ltd. 64,000 197,676
Sumitomo Corporation 26,000 125,149
Sumitomo Electric Industries Ltd. 22,000 222,748
Sumitomo Heavy Industries, Ltd. 19,000 43,464
Sumitomo Marine & Fire Insurance Co., Ltd. 18,000 100,801
Sumitomo Metal Industries, Ltd. 66,000 106,213
Taisho Pharmaceutical Co., Ltd. 7,000 130,837
Taiyo Yuden Co., Ltd. 2,000 21,303
Takara Shuzo Co., Ltd. 2,000 8,314
Takashimaya Co. 9,000 67,937
Takeda Chemical Industries, Ltd. 21,000 559,212
Toho Co., Ltd. 1,000 105,362
Tohoku Electric Power Company, Inc. 22,700 335,004
Tokai Bank, Limited 50,000 275,674
Tokio Marine & Fire Insurance Co., Ltd. 26,000 267,562
Tokyo Broadcasting System, Inc. 4,000 44,743
Tokyo Dome Corporation 3,000 16,237
Tokyo Electric Power Co., Inc. (The) 42,400 832,272
Tokyo Electron Limited 3,000 92,011
Tokyo Gas Co., Ltd. 103,000 229,683
Tokyu Corporation 25,000 75,954
Toppan Printing Co., Ltd. 18,000 192,769
Toray Industries, Inc. 40,000 207,838
Tostem Corporation 7,000 90,828
Toto Ltd. 8,000 48,669
Toyo Seikan Kaisha, Ltd. 6,000 73,609
Toyoda Automatic Loom Works, Ltd. 8,000 141,445
Toyota Motor Corporation 95,000 2,461,210
UNI-CHARM Corporation 2,200 81,605
UNY Co., Ltd. 5,000 81,186
Wacoal Corp. 12,000 122,104
Yamaguchi Bank Ltd. 6,000 77,074
Yamaha Corporation 6,000 58,454
Yamanouchi Pharmaceutical Co., Ltd. 12,000 250,271
Yamato Transport Co., Ltd. 12,000 134,661
Yamazaki Baking Co., Ltd. 8,000 71,011
Yasuda Trust & Banking Co., Ltd. (e) 29,000 27,206
Yokogawa Electric Corporation 11,000 58,743
--------------------------------------------------------------------------------
Total Investments in Japan (Cost--$43,146,143)--27.7% 35,577,462
================================================================================================
Malaysia Rashid Hassain BHD 99,000 40,389
Resorts World BHD 43,000 47,334
Telekom Malaysia BHD 34,000 57,453
--------------------------------------------------------------------------------
Total Investments in Malaysia (Cost--$513,263)--0.1% 145,176
================================================================================================
Netherlands ABN AMRO Holding N.V. 11,200 262,621
Akzo Nobel N.V. 800 178,207
Elsevier N.V. 6,800 102,837
Heineken N.V. (e) 3,750 147,599
Internationale Nederlanden Groep N.V. 7,100 465,872
Koninklijke Ahold N.V. 4,800 154,404
Philips Electronics N.V. 2,900 244,286
Royal Dutch Petroleum N.V. 14,700 816,828
Royal PTT Nederland N.V. 4,800 185,143
TNT Post Group N.V. (e) 4,800 122,956
Unilever N.V. 5,000 397,537
Wolters Kluwer N.V. 700 96,276
--------------------------------------------------------------------------------
Total Investments in the Netherlands (Cost--$2,278,446)--2.5% 3,174,566
================================================================================================
New Zealand Brierley Investments Limited 138,800 69,076
Fletcher Challenge Building 34,900 43,421
Fletcher Challenge Paper 50,300 55,802
Telecom Corporation of New Zealand 32,800 135,008
--------------------------------------------------------------------------------
Total Investments in New Zealand (Cost--$494,112)--0.2% 303,307
================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
--------------------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
================================================================================================
<S> <C> <C> <C>
Norway Aker RGI ASA (Class A) 3,700 $ 58,178
Aker RGI ASA (Class B) 1,900 27,148
Christiania Bank og Kreditkasse 23,800 99,691
Dyno Industriere ASA 5,400 96,536
Elkem ASA 4,200 50,421
Kvaerner ASA 2,000 67,854
Norsk Hydro ASA 5,900 259,836
Orkla ASA (Class A) 5,200 121,120
Petroleum GEO-Services ASA 2,800 87,323
Storebrand ASA (e) 11,400 101,155
--------------------------------------------------------------------------------
Total Investments in Norway (Cost--$1,079,900)--0.8% 969,262
================================================================================================
Portugal Banco Comercial Portugues SA (BCP) 4,400 124,996
Banco Espirito Santo e Comercial de Lisboa SA 3,600 108,158
Cimpor-Cimentos de Portugal, SGPS SA 2,900 101,936
EDP-Electricidade de Portugal SA 8,600 200,013
Jeronimo Martins, SGPS SA 1,700 81,708
Portugal Telecom SA 4,200 222,708
--------------------------------------------------------------------------------
Total Investments in Portugal (Cost--$842,242)--0.6% 839,519
================================================================================================
Singapore City Development Ltd. 11,000 30,749
Creative Technology Ltd. (e) 1,000 12,141
DBS Land Ltd. 58,000 48,090
Keppel Corporation Ltd. 59,000 88,753
--------------------------------------------------------------------------------
Total Investments in Singapore (Cost--$566,574)--0.1% 179,733
================================================================================================
Spain Acerinox, SA 500 66,636
Autopista Concesionaria Espanola, SA (ACESA) 9,800 152,055
Autopista Concesionaria Espanola, SA (Rights) (d) 9,800 7,427
Banco Bilbao Vizcaya, SA 16,300 838,054
Banco Central Hispanoamericano, SA 8,600 270,804
Banco Santander, SA 23,800 610,276
Corporacion Bancaria de Espana, SA (Argentaria) 13,200 296,649
Corporacion Financiera Alba, SA 700 74,541
Endesa SA 25,300 554,527
Fomento de Construcciones y Contratas, SA 2,400 124,022
Gas Natural SDG, SA 4,000 289,541
Iberdrola, SA 22,800 370,889
Repsol, SA 8,400 462,612
Tabacalera, SA (e) 6,000 123,081
Telefonica de Espana, SA 23,600 1,093,121
Union Electrica-Fenosa, SA 9,700 125,155
--------------------------------------------------------------------------------
Total Investments in Spain (Cost--$3,353,082)--4.2% 5,459,390
================================================================================================
Sweden ABB AB (A Shares) 9,800 138,868
Astra AB 'A' Fria 15,000 306,602
Electrolux AB 6,000 103,079
H & M Hennes & Mauritz AB 2,600 165,954
Skandia Forsakrings AB 7,500 107,217
Skandinaviska Enskilda Banken AB 6,900 118,108
Skanska Banken AB (B Shares) 2,200 98,765
Svenska Cellulosa AB (SCA) (B Shares) 3,900 100,991
Svenska Handelsbanken AB 2,800 129,914
Telefonaktiebolaget LM Ericsson (B Shares) 20,400 596,050
Volvo AB 4,300 128,064
--------------------------------------------------------------------------------
Total Investments in Sweden (Cost--$1,399,192)--1.6% 1,993,612
================================================================================================
Switzerland ABB AG (Bearer) 80 118,221
Credit Suisse Group AG (Registered Shares) 1,350 300,584
Nestle SA 185 396,167
Novartis AG 280 466,236
Roche Holding AG 34 334,101
Schweizerische Rueckversicherungs- Gesellschaft AG 80 202,454
UBS AG (e) 1,006 374,228
Zuerich Versicherungs-Gesellschaft 300 191,582
--------------------------------------------------------------------------------
Total Investments in Switzerland (Cost--$1,561,235)--1.9% 2,383,573
================================================================================================
United Kingdom Abbey National PLC 11,000 195,465
B.A.T. Industries PLC 24,900 249,274
BG PLC 32,100 185,581
BTR PLC (e) 33,069 93,798
Barclays PLC 11,300 325,798
Bass PLC 9,196 172,308
Boots Company PLC (The) 10,500 173,966
British Aerospace PLC 14,400 110,281
British Airways PLC 11,700 126,597
British Petroleum Co. PLC (The) 40,800 594,974
British Sky Broadcasting Group PLC 15,500 111,335
British Telecommunications PLC 47,400 585,243
Burmah Castrol PLC 9,600 171,388
Cable & Wireless PLC 19,900 241,719
Cadbury Schweppes PLC 12,100 187,252
Carlton Communications PLC 15,500 138,360
Diageo PLC 19,837 234,996
EMI Group PLC 11,800 103,167
General Electric Company PLC 26,200 225,786
Glaxo Wellcome PLC 25,400 762,414
Granada Group PLC 9,100 167,321
Great Universal Stores PLC 10,300 135,766
HSBC Holdings PLC 6,700 170,032
HSBC Holdings PLC 13,100 317,368
Imperial Chemical Industries PLC 8,000 128,407
Kingfisher PLC 7,300 117,538
Lloyds/TSB PLC 38,000 531,634
LucasVarity PLC 20,700 82,200
Marks and Spencer PLC 23,500 213,889
National Grid Group PLC 19,125 128,917
National Power PLC 11,700 110,101
Pearson PLC 7,000 128,241
Peninsular & Oriental Steam Navigation Co. (The) 10,700 154,071
Prudential Corporation PLC 15,700 206,813
Railtrack Group PLC (e) 6,100 149,513
Rank Group PLC 17,600 96,613
Reed International PLC 11,500 103,998
Reuters Group PLC 14,906 170,364
Rio Tinto PLC 10,200 114,876
Royal & Sun Alliance Insurance Group PLC 13,900 143,675
Royal Bank of Scotland Group PLC 8,100 140,554
Sainsbury (J.) PLC 17,100 152,357
Scottish & Newcastle PLC 10,400 147,148
Scottish Power PLC 13,900 121,759
SmithKline Beecham PLC 40,000 488,203
Tesco PLC 19,372 189,085
Unilever PLC 26,100 277,835
Vodafone Group PLC 25,400 322,299
Zeneca Group PLC 7,500 321,854
--------------------------------------------------------------------------------
Total Investments in the United Kingdom (Cost--$8,226,892)--8.2% 10,522,133
<CAPTION>
================================================================================================
SHORT-TERM Face
SECURITIES Amount Issue
================================================================================================
<S> <C> <C> <C>
Commercial $2,350,000 General Motors Acceptance Corp., 6.50% due 7/01/1998 2,350,000
Paper* 3,000,000 Lexington Parker Capital Co., LLC, 5.53% due 7/09/1998 2,996,313
4,000,000 Park Avenue Receivables Corp., 5.54% due 8/13/1998 3,973,531
4,000,000 Three Rivers Funding Corp., 5.57% due 7/20/1998 3,987,004
4,000,000 Variable Funding Capital Corp., 5.57% due 7/20/1998 3,988,241
--------------------------------------------------------------------------------
Total Investments in Commercial Paper (Cost--$17,295,089)--13.5% 17,295,089
================================================================================================
</TABLE>
14 & 15
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (concluded)
===================================================================================================================
SHORT-TERM
SECURITIES Face Value
(concluded) Amount Issue (Note 1a)
===================================================================================================================
<S> <C> <C> <C>
US Government $1,000,000 Federal Home Loan Mortgage Corp., 5.39% due 7/01/1998 (a) $ 1,000,000
Agency 200,000 Federal National Mortgage Association, 5.40% due 9/08/1998 (a) 197,910
Obligations* ---------------------------------------------------------------------------------------------------
Total Investments in US Government Agency Obligations (Cost--$1,197,930)--0.9% 1,197,910
===================================================================================================================
Total Investments in Short-Term Investments (Cost--$18,493,019)--14.4% 18,492,999
===================================================================================================================
Total Investments (Cost--$125,047,062)--109.3% 140,316,422
Unrealized Appreciation on Forward Foreign Exchange Contracts**--0.0% 2,020
Variation Margin on Financial Futures Contracts***--(0.2%) (204,779)
Liabilities in Excess of Other Assets--(9.1%) (11,711,223)
------------
Net Assets--100.0% $128,402,440
============
===================================================================================================================
</TABLE>
(a) Security held as collateral in connection with open financial futures
contracts.
(b) The rights may be exercised until July 6, 1998.
(c) The rights may be exercised until July 13, 1998.
(d) The rights may be exercised until July 10, 1998.
(e) Non-income producing security.
* Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Series.
** Forward foreign exchange contracts as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
- --------------------------------------------------------------------------------
A$ 735,294 July 1998 $ 10,022
HK$ 2,336,100 July 1998 132
(pound) 1,251,877 July 1998 200
Skr 7,937,500 July 1998 (8,334)
- --------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts -- Net
(US$ Commitment -- $3,836,925) $ 2,020
=======
- --------------------------------------------------------------------------------
*** Financial futures contracts purchased as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
13 All Ordinaries SFE September 1998 $ 542,403
23 FTSE LIFFE September 1998 2,260,701
4 Hang Seng HKFE July 1998 222,506
150 Nikkei 300 OSAKA September 1998 2,632,604
124 OMX OMLX July 1998 1,204,897
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$6,811,870) $ 6,863,111
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES As of June 30, 1998
==============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$125,047,062) (Note 1a) ................ $140,316,422
Unrealized appreciation on forward foreign exchange contracts (Note 1b) ........ 2,020
Cash ........................................................................... 5,516
Foreign cash (Note 1c) ......................................................... 479,762
Receivables:
Contributions ................................................................ $ 693,622
Dividends .................................................................... 564,737
Securities sold .............................................................. 356,708 1,615,067
------------
Deferred organization expenses (Note 1f) ....................................... 11,163
------------
Total assets ................................................................... 142,429,950
------------
==============================================================================================================================
Liabilities: Payables:
Securities purchased ......................................................... 12,404,093
Withdrawals .................................................................. 1,351,987
Variation margin (Note 1b) ................................................... 204,779
Forward foreign exchange contracts (Note 1b) ................................. 22,507
Investment adviser (Note 2) .................................................. 12,223 13,995,589
------------
Accrued expenses and other liabilities ......................................... 31,921
------------
Total liabilities .............................................................. 14,027,510
------------
==============================================================================================================================
Net Assets: Net assets ..................................................................... $128,402,440
============
==============================================================================================================================
Net Assets Partners' capital .............................................................. $113,091,311
Consist of: Unrealized appreciation on investments and foreign currency transactions--net .. 15,311,129
------------
Net assets ..................................................................... $128,402,440
============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES For the Six Months Ended June 30, 1998
==============================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $196,357 foreign withholding tax) ............................ $ 1,601,533
Income Interest and discount earned ................................................... 345,670
(Notes 1d Other .......................................................................... 882
& 1e): ------------
Total income ................................................................... 1,948,085
------------
==============================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................................. $ 69,050
Custodian fees ................................................................. 54,734
Accounting services (Note 2) ................................................... 25,250
Professional fees .............................................................. 9,347
Amortization of organization expenses (Note 1f) ................................ 1,044
Trustees' fees and expenses .................................................... 721
Other .......................................................................... 7
-----------
Total expenses ................................................................. 160,153
------------
Investment income--net ......................................................... 1,787,932
------------
==============================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Investments--net ............................................................. 9,443,751
Gain (Loss) Foreign currency transactions--net ........................................... (38,964) 9,404,787
on Investments -----------
& Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net ............................................................. 14,786,172
Transactions-- Foreign currency transactions--net ........................................... 108,350 14,894,522
Net (Notes 1b, ----------- ------------
1c, 1e &3) Net realized and unrealized gain on investments and foreign currency
transactions .................................................................. 24,299,309
------------
Net Increase in Net Assets Resulting from Operations ........................... $ 26,087,241
============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
MERRILL LYNCH For the Six April 9,
INTERNATIONAL Months Ended 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 1998 Dec. 31, 1997
===============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 1,787,932 $ 1,808,888
Realized gain on investments and foreign currency transactions--net ............ 9,404,787 1,690,155
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ............................................ 14,894,522 416,607
------------ ------------
Net increase in net assets resulting from operations ........................... 26,087,241 3,915,650
------------ ------------
===============================================================================================================================
Net Capital Increase (decrease) in net assets derived from net capital contributions ....... (41,102,601) 139,502,150
Contributions: ------------ ------------
===============================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................................ (15,015,360) 143,417,800
Beginning of period ............................................................ 143,417,800 --
------------ ------------
End of period .................................................................. $128,402,440 $143,417,800
============ ============
===============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
MERRILL LYNCH For the Six April 9,
INTERNATIONAL The following ratios have been derived from Months Ended 1997+ to
INDEX SERIES information provided in the financial statements. June 30, 1998 Dec. 31, 1997
================================================================================================================================
<S> <C> <C> <C>
Ratios to Expenses, net of reimbursement ................................................. .26%* .33%*
Average Net ========== ==========
Assets: Expenses ....................................................................... .26%* .36%*
========== ==========
Investment income--net ......................................................... 2.85%* 1.99%*
========== ==========
================================================================================================================================
Supplemental Net assets, end of period (in thousands) ....................................... $ 128,402 $ 143,418
Data: ========== ==========
Portfolio turnover ............................................................. 13.14% 14.79%
========== ==========
================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH INTERNATIONAL INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch International Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. 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.
Short-term securities are valued at amortized cost, which approximates market
value. 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 Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell financial futures
contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Series is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Series' records. However, the effect on operations is recorded from the date the
Series enters into such contracts. Premium or discount is amortized over the
life of the contracts.
o Foreign currency options and futures--The Series may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Series, sold by the Series but not yet delivered, or committed or anticipated to
be purchased by the Series.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding
20 & 21
<PAGE>
Merrill Lynch International Index Fund, June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH INTERNATIONAL INDEX SERIES
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 period not exceeding five years.
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.
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 six
months ended June 30, 1998 were $15,502,709 and $44,648,964, respectively.
Net realized gains (losses) for the six months ended June 30, 1998 and net
unrealized gains (losses) as of June 30, 1998 were as follows:
- -------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- -------------------------------------------------------------------------------
Investments:
Long-term ................................. $ 6,737,219 $ 15,269,380
Short-term ................................ 98 (20)
Financial futures contracts ............... 2,706,434 51,241
----------- ------------
Total investments ........................... 9,443,751 15,320,601
----------- ------------
Currency transactions:
Foreign currency transactions ............. 115,922 (11,492)
Forward foreign exchange contracts ........ (154,886) 2,020
----------- ------------
Total currency transactions ................. (38,964) (9,472)
----------- ------------
Total ....................................... $ 9,404,787 $ 15,311,129
=========== ============
- -------------------------------------------------------------------------------
As of June 30, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $15,269,360, of which $25,888,350 related to appreciated securities
and $10,618,990 related to depreciated securities. At June 30, 1998, the
aggregate cost of investments for Federal income tax purposes was $125,047,062.
22
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011 Index 2--6/98
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