MERRILL LYNCH
S&P 500
INDEX FUND
Merrill Lynch
Index Funds, Inc.
[Graphic Omitted]
STRATEGIC
Performance
Annual Report
December 31, 1997
<PAGE>
Merrill Lynch S&P 500 Index Fund
Officers and
Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Norman R. Harvey, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Jay C. Harbeck, Vice President
Gregory Mark Maunz, Vice President
Eric S. Mitofsky, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, NJ 08536
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Important Tax
Information
Of the ordinary income distribution paid by the Merrill Lynch S&P 500 Index Fund
to shareholders of record on December 8, 1997, 20.14% qualifies for the
dividends received deduction for corporations.
Additionally, the Fund paid a long-term capital gain distribution of $0.048095
to shareholders of record on December 8, 1997. Of this amount, 1.90% is subject
to the 28% tax rate and 98.10% is subject to the 20% tax rate.
Please retain this information for your records.
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
DEAR INVESTOR
Fiscal Year in Review
High levels of volatility within the US equity market have, to some extent,
overshadowed the remarkable performance turned in by the Standard & Poor's 500
Index (S&P 500) during 1997. The Index continued its trend of extraordinary
returns that has turned the last 16 years into a bull market of historic
proportions. The year ended December 31, 1997 became the third straight year in
which the unmanaged S&P 500 produced a total return in excess of 20%. It also
became the seventh straight year of positive total returns for the S&P 500,
which last produced a negative total return in 1990, and prior to that in 1982.
For the three-year period ended December 31, 1997, the S&P 500 had a total
return of +125.56%.
The third quarter of 1997 began on a strong note for the S&P 500 as it gained
7.98% in July, easily the best month of the year. Having ended June at a level
of 885.14, the S&P 500 finished July at an all-time high of 954.29. Concerns
over stronger-than-expected economic growth and rising inflationary pressures
led to the market's decline in August, with that month becoming only the second
month of 1997 in which the S&P 500 posted a loss. These concerns were alleviated
as lower interest rates fueled a powerful rebound in September and resulted in
an overall third quarter total return of +7.49% for the Index. By October 7,
1997, the S&P 500 had posted a new all-time high of 983.12.
However, during October, turmoil in the financial and currency markets of the
Far East led to a significant and rapid decline in most markets of the world,
with the S&P 500 and Dow Jones Industrial Average suffering their biggest
one-day point declines in history on October 27, 1997. Although the S&P 500 lost
nearly 65 points that day, the rebound on the following day saw it regain much
of that loss, as the S&P 500 climbed by nearly 45 points, and posted a loss of
3.30% for the month of October. Inflationary concerns and worries about the
situation in Asia appeared to be muted during November, with the S&P 500
rebounding strongly with a total return of +4.59%. This momentum continued into
December as long-term interest rates continued their descent toward, and finally
through, the 6% level. With the background of a strong bond market rally and
continuing inflows into equity mutual funds, the S&P 500 reached a new all-time
high of 983.79 on December 5, 1997, which it did not exceed by the end of the
year. For the December quarter, the unmanaged S&P 500 earned a +2.88% total
return.
Although small-capitalization stocks did show signs of strength during certain
periods of 1997, the rally late in the year was heavily concentrated in the
larger-capitalization stocks which have powered the S&P 500 advance during most
of the last three years. While the total return produced by the Index during the
second half of the year was a sizeable +10.59%, much of this six-month period
had the S&P 500 fluctuating, sometimes rapidly, in a range between 925 and 965.
The gains produced during the first half of 1997 were far stronger at +20.59%.
Having ended 1996 at 740.74, the S&P 500 closed 1997 at 970.43, a gain of nearly
230 points for the year. This advance resulted in a total return for 1997 of
+33.36%.
Financial stocks contributed most to the extraordinary gains displayed by the
S&P 500 during 1997, followed by the consumer staples and capital goods sectors.
Unlike the results of the last two years, the technology sector suffered a sharp
correction during the fourth quarter of 1997, and badly lagged the overall
market for the year. The basic industries sector performed the most poorly
during the year ended December 31, 1997, with double-digit declines in metals,
chemicals and paper stocks. While smaller-capitalization stocks had periods of
outperformance during 1997, the pattern of capitalization-based performance that
persisted during the market's extraordinary run in 1995 and 1996 continued last
year. The largest 100 stocks strongly outperformed the remaining issues in the
S&P 500, and returns got progressively worse as the stocks got smaller in
capitalization. For instance, the smallest 100 stocks in the S&P 500 (by market
capitalization) underperformed the overall Index by 31.17 percentage points for
the year.
The Fund invests all of its assets in Merrill Lynch S&P 500 Index Series (the
Series) of the Merrill Lynch Index Trust, which has the same investment
objective as the Fund. There are two principal investments made by the Series in
its attempt to replicate the returns of the S&P 500. First, the Series holds a
fully replicating portfolio of all 500 stocks which comprise the S&P 500. In
addition, the Series holds a long position in S&P 500 futures contracts to
equitize daily cash flows into the Fund. At December 31, 1997, the Series'
equity portfolio was valued at $583,872,599. The Series also held 78 long S&P
500 March 1998 futures contracts. When appropriate opportunities arise, the
Series sells these futures contracts and simultaneously purchases a perfectly
replicating basket of all 500 stocks in the underlying index. It is the Fund's
goal to be 100% invested in the S&P 500 at all times.
Several new equity positions were added to the Series during the second half of
1997, as Standard & Poor's Corp. revised the composition of the Index in
response to merger and acquisition activity affecting many of its constituents.
Among the new equity positions initiated in the second half of 1997 were:
SunAmerica, Inc. on July 16; Apache Corporation, Anadarko Petroleum Corporation
and NextLevel Systems, Inc. on July 25; Owens-Illinois, Inc. and Progressive
Corporation on August 1; Huntington Bancshares Inc. and Mirage Resorts, Inc. on
August 5 and 6, respectively; State Street Corporation on August 15; Clear
Channel Communications, Inc. on August 29; KLA-Tencor Corporation on September
12; HBO & Company on October 22; Synovus Financial Corp. on November 26; BB&T
Corporation on December 3; Cincinnati Financial Corporation on December 17; and
Omnicom Group, Inc. on December 23.
On December 31, 1997, net asset values per share for the Fund's Class A and
Class D Shares were $12.55 and $12.54, respectively. Since inception (April 3,
1997) through December 31, 1997, the Fund's Class A Shares had a total return of
+30.80%, based on a change in per share net asset value from $10.00 to $12.55,
and assuming reinvestment of $0.485 per share income dividends and $0.048 per
share capital gains distributions. Since inception (April 3, 1997) through
December 31, 1997, the Fund's Class D Shares had a total return of +30.53%,
based on a change in per share net asset value from $10.00 to $12.54, and
assuming reinvestment of $0.468 per share income dividends and $0.048 per share
capital gains distributions. This compares to the total return of +33.36% for
the unmanaged S&P 500 for the same period. (For complete performance
information, including aggregate total returns, see pages 4 and 5 of this report
to shareholders.)
Cash flow into Merrill Lynch S&P 500 Index Fund continued at a strong pace since
the Fund's inception. Combined with the continuing advance in the market, the
Fund's net assets exceeded $600 million for the first time at the close of the
fiscal year ended December 31, 1997. The Fund's net assets increased by more
than ten times the level at the Fund's inception on April 3, 1997, and increased
nearly 19% in the fourth quarter alone.
In Conclusion
We appreciate your investment in Merrill Lynch S&P 500 Index Fund, and we look
forward to sharing our investment outlook with you in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Eric S. Mitofsky
Eric S. Mitofsky
Vice President and Portfolio Manager
February 17, 1998
2 & 3
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
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 "Aggregate 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 fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
Recent
Performance
Results
<TABLE>
<CAPTION>
Since Inception+ 3 Month
12/31/97 9/30/97 4/03/97+ % Change % Change
============================================================================================================
<S> <C> <C> <C> <C> <C>
ML S&P 500 Index Fund Class A Shares $12.55 $12.72 $10.00 +25.98%(1) -0.96%(1)
- ------------------------------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class D Shares 12.54 12.70 10.00 +25.88(1) -0.88(1)
- ------------------------------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class A Shares--Total Return +30.80(2) +2.83(2)
- ------------------------------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class D Shares--Total Return +30.53(3) +2.78(3)
============================================================================================================
</TABLE>
+ The Fund commenced operations on April 3, 1997.
(1) Percent change includes reinvestments of $0.048 per share capital gains
distributions.
(2) Percent change includes reinvestments of $0.485 per share ordinary income
dividends and $0.048 per share capital gains distributions.
(3) Percent change includes reinvestments of $0.468 per share ordinary income
dividends and $0.048 per share capital gains distributions.
Total Return
Based on a $10,000
Investment
Class A & Class D Shares
[A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class D Shares compared to growth of an investment in the Standard & Poor's
500 Index. Beginning and ending values are:]
4/03/97** 12/97
ML S&P 500 Index Fund+--Class A Shares* $10,000 $13,080
ML S&P 500 Index Fund+--Class D Shares* $10,000 $13,053
Standard & Poor's 500++ $10,000 $12,990
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Merrill Lynch S&P 500 Index Series
of Merrill Lynch Index Trust. The Trust's investments are allocated among
common stocks in approximately the same weighting as the S&P 500.
++ This unmanaged broad-based Index is comprised of common stocks.
Performance data is from March 31, 1997.
Aggregate
Total Return
% Return
=============================================================
Class A Shares
=============================================================
Inception (4/03/97) through 12/31/97 +30.80%
- -------------------------------------------------------------
% Return
=============================================================
Class D Shares
=============================================================
Inception (4/03/97) through 12/31/97 +30.53%
- -------------------------------------------------------------
4 & 5
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX FUND As of December 31, 1997
===================================================================================================================================
<S> <C>
Assets: Investment in Merrill Lynch S&P 500 Index Series, at value
(identified cost--$556,749,518) (Note 1a)........................................... $602,800,370
Receivable from administrator (Note 2)............................................... 22,452
Deferred organization expenses (Note 1d)............................................. 18,553
Prepaid registration fees and other assets (Note 1d)................................. 55,387
------------
Total assets......................................................................... 602,896,762
------------
===================================================================================================================================
Liabilities: Payable to distributor (Note 2)...................................................... 34,316
Accrued expenses..................................................................... 279,760
------------
Total liabilities ................................................................... 314,076
------------
===================================================================================================================================
Net Assets: Net assets........................................................................... $602,582,686
============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized..... $ 3,547
Consist of: Class D Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized..... 1,257
Paid-in capital in excess of par..................................................... 554,487,126
Undistributed investment income--net................................................. 19,451
Undistributed realized capital gains on investments from the Series--net............. 2,020,453
Unrealized appreciation on investments from the Series--net.......................... 46,050,852
------------
Net assets........................................................................... $602,582,686
============
===================================================================================================================================
Net Asset Class A--Based on net assets of $445,015,646 and 35,473,242 shares outstanding....... $ 12.55
Value: ============
Class D--Based on net assets of $157,567,040 and 12,565,103 shares outstanding....... $ 12.54
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX FUND For the Period April 3, 1997+ to December 31, 1997
===================================================================================================================================
<S> <C> <C>
Investment Income Investment income allocated from the Series.......................................... $ 6,268,736
(Note 1b): Expenses allocated from the Series................................................... (345,174)
------------
Net investment income from the Series................................................ 5,923,562
------------
===================================================================================================================================
Expenses: Administration fee (Note 2).......................................................... $ 594,524
Registration fees (Note 1d).......................................................... 346,960
Account maintenance fee--Class D (Note 2)............................................ 202,649
Transfer agent fees (Note 2)......................................................... 171,551
Printing and shareholder reports..................................................... 47,114
Professional fees.................................................................... 20,000
Amortization of organization expenses (Note 1d)...................................... 15,063
Accounting services (Note 2)......................................................... 1,500
Directors' fees and expenses......................................................... 200
Other................................................................................ 1,117
----------
Total expenses before reimbursement.................................................. 1,400,678
Reimbursement of expenses (Note 2)................................................... (355,750)
----------
Total expenses after reimbursement................................................... 1,044,928
------------
Investment income--net............................................................... 4,878,634
------------
===================================================================================================================================
Realized & Realized gain on investments from the Series--net.................................... 20,857,038
Unrealized Unrealized appreciation on investments from the Series--net.......................... 46,050,852
Gain from the ------------
Series--Net: Net Increase in Net Assets Resulting from Operations................................. $ 71,786,524
============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
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: December 31, 1997
===================================================================================================================================
<S> <C>
Operations: Investment income--net.......................................................................... $ 4,878,634
Realized gain on investments from the Series--net............................................... 20,857,038
Unrealized appreciation on investments from the Series--net..................................... 46,050,852
------------
Net increase in net assets resulting from operations............................................ 71,786,524
------------
===================================================================================================================================
Dividends & Investment income--net
Distributions to Class A....................................................................................... (3,734,820)
Shareholders Class D....................................................................................... (1,124,363)
(Note 1e): Realized gain on investments from the Series--net
Class A....................................................................................... (13,898,161)
Class D....................................................................................... (4,938,424)
------------
Net decrease in net assets resulting from dividends and distributions to shareholders........... (23,695,768)
------------
===================================================================================================================================
Capital Share Net increase in net assets derived from capital share transactions.............................. 554,466,930
Transactions ------------
(Note 4):
===================================================================================================================================
Net Assets: Total increase in net assets.................................................................... 602,557,686
Beginning of period............................................................................. 25,000
------------
End of period*.................................................................................. $602,582,686
============
===================================================================================================================================
*Undistributed investment income--net............................................................ $ 19,451
============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 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
S&P 500 December 31, 1997
INDEX FUND Increase (Decrease) in Net Asset Value: Class A Class D
==================================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ........................... $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net ......................................... .11 .11
Realized and unrealized gain on investments from the Series--net 2.97 2.95
-------- --------
Total from investment operations ............................... 3.08 3.06
-------- --------
Less dividends and distributions:
Investment income--net ....................................... (.11) (.10)
Realized gain on investments from the Series--net ............ (.42) (.42)
-------- --------
Total dividends and distributions .............................. (.53) (.52)
-------- --------
Net asset value, end of period ................................. $ 12.55 $ 12.54
======== ========
==================================================================================================================
Total Investment Based on net asset value per share ............................. 30.80%++ 30.53%++
Return: ======== ========
==================================================================================================================
Ratios to Average Expenses, net of reimbursement++ ............................... .40%* .65%*
Net Assets: ======== ========
Expenses++ ..................................................... .57%* .82%*
======== ========
Investment income--net ......................................... 1.71%* 1.47%*
======== ========
==================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ....................... $445,016 $157,567
======== ========
==================================================================================================================
</TABLE>
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated expenses.
* Annualized.
++ Aggregate total investment return.
See Notes to Financial Statements.
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 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.
(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 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 December 31, 1997, MLAM earned fees
of $594,524, of which $338,405 was voluntarily waived. MLAM also reimbursed the
Fund for additional expenses of $17,345.
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 December 31, 1997 were $541,453,952 and $11,485,034,
respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$554,466,930 for the period April 3, 1997 to December 31, 1997.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Period Dollar
April 3, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 37,854,298 $438,112,086
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................... 1,361,172 17,164,377
---------- ------------
Total issued ................................ 39,215,470 455,276,463
Shares redeemed ............................. (3,743,478) (45,298,859)
---------- ------------
Net increase ................................ 35,471,992 $409,977,604
========== ============
- --------------------------------------------------------------------------------
+ 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 December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 16,128,798 $187,590,003
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................... 366,327 4,615,723
---------- ------------
Total issued ................................ 16,495,125 192,205,726
Shares redeemed ............................. (3,931,272) (47,716,400)
---------- ------------
Net increase ................................ 12,563,853 $144,489,326
========== ============
- --------------------------------------------------------------------------------
+ Prior to April 3, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
8 & 9
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Merrill Lynch Index Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch S&P 500 Index Fund (one of the series constituting Merrill Lynch Index
Funds, Inc.)as of December 31, 1997, the related statements of operations and
changes in net assets, and the financial highlights for the period April 3, 1997
(commencement of operations) to December 31, 1997. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch S&P
500 Index Fund of the Merrill Lynch Index Funds, Inc. as of December 31, 1997,
the results of its operations, the changes in its net assets, and the financial
highlights for the period April 3, 1997 to December 31, 1997 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
SCHEDULE OF INVESTMENTS
Common
Stocks
Merrill Lynch S&P 500 Index Series
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
+ 3Com Corporation.............................. 26,738 $ 934,159
ALLTEL Corporation............................ 14,325 588,220
+ ALZA Corporation.............................. 6,600 209,963
AMP Inc....................................... 17,005 714,210
+ AMR Corporation............................... 7,046 905,411
ASARCO Inc.................................... 3,119 69,983
AT&T Corp..................................... 125,542 7,689,448
Abbott Laboratories........................... 59,119 3,875,989
Adobe Systems Inc............................. 5,629 231,493
+ Advanced Micro Devices, Inc................... 10,958 196,559
Aeroquip-Vickers Inc.......................... 2,161 106,024
Aetna, Inc.................................... 11,485 810,410
Ahmanson (H.F.) & Company..................... 7,297 488,443
Air Products and Chemicals, Inc............... 8,475 697,069
+ AirTouch Communications, Inc.................. 39,014 1,621,519
Alberto-Culver Company (Class B).............. 4,321 138,542
Albertson's, Inc.............................. 18,979 899,130
Alcan Aluminium Ltd........................... 17,539 484,515
Allegheny Teledyne, Inc....................... 13,469 348,510
Allergan, Inc................................. 5,044 169,289
AlliedSignal, Inc............................. 43,601 1,697,714
Allstate Corporation.......................... 33,143 3,011,870
Aluminum Company of America................... 13,330 938,099
Amerada Hess Corporation...................... 7,085 388,789
American Electric Power Company, Inc.......... 14,655 756,564
American Express Company...................... 35,923 3,206,128
American General Corporation.................. 18,826 1,017,781
American Greetings Corporation
(Class A)................................... 5,691 222,660
American Home Products Corp................... 50,213 3,841,295
American International Group, Inc............. 54,220 5,896,425
American Stores Company....................... 21,102 433,910
Ameritech Corporation......................... 42,298 3,404,989
Amgen Inc..................................... 20,343 1,101,065
Amoco Corporation............................. 37,636 3,203,765
Anadarko Petroleum Corporation................ 4,604 279,405
+ Andrew Corporation............................ 7,008 168,192
Anheuser-Busch Companies, Inc................. 37,869 1,666,236
Aon Corporation............................... 12,962 759,897
Apache Corporation............................ 6,969 244,351
+ Apple Computer, Inc........................... 9,834 129,071
+ Applied Materials, Inc........................ 28,158 848,260
Archer-Daniels-Midland Company................ 43,093 934,579
+ Armco Inc..................................... 8,345 $ 41,203
Armstrong World Industries, Inc............... 3,162 236,360
Ashland Inc................................... 5,798 311,280
Atlantic Richfield Company.................... 24,776 1,985,177
Autodesk, Inc................................. 3,736 138,232
Automatic Data Processing, Inc................ 22,628 1,388,794
+ AutoZone, Inc................................. 11,663 338,227
Avery Dennison Corporation.................... 7,932 354,957
Avon Products, Inc............................ 10,222 627,375
BB&T Corporation.............................. 10,590 678,422
Baker Hughes, Inc............................. 13,032 568,521
Ball Corporation.............................. 2,344 82,773
Baltimore Gas and Electric Company............ 11,388 387,904
Banc One Corporation.......................... 45,367 2,463,995
Bank of New York Co., Inc. (The).............. 29,113 1,683,095
BankAmerica Corporation....................... 53,599 3,912,727
BankBoston Corporation........................ 11,251 1,056,891
Bankers Trust NY Corporation.................. 7,571 851,264
Bard (C.R.), Inc.............................. 4,405 137,932
Barnett Banks, Inc............................ 14,907 1,071,441
Barrick Gold Corporation...................... 28,803 536,456
Battle Mountain Gold Company.................. 17,749 104,275
Bausch & Lomb Inc............................. 4,279 169,555
Baxter International, Inc..................... 21,645 1,091,720
+ Bay Networks, Inc............................. 16,354 418,049
Becton, Dickinson & Company................... 9,453 472,650
Bell Atlantic Corporation..................... 60,028 5,462,548
BellSouth Corporation......................... 76,643 4,315,959
Bemis Company, Inc............................ 4,066 179,158
Beneficial Corporation........................ 4,101 340,896
+ Bethlehem Steel Corporation................... 8,696 75,003
Biomet, Inc................................... 8,598 220,324
Black & Decker Corporation (The).............. 7,328 286,250
Block (H & R), Inc............................ 8,023 359,531
Boeing Company (The).......................... 77,261 3,780,960
Boise Cascade Corporation..................... 4,345 131,436
+ Boston Scientific Corporation................. 15,042 690,052
Briggs & Stratton Corporation................. 1,953 94,843
Bristol-Myers Squibb Co....................... 76,850 7,271,931
Brown-Forman Corporation (Class B)............ 5,321 293,985
Browning-Ferris Industries, Inc............... 15,263 564,731
Brunswick Corporation......................... 7,670 232,497
Burlington Northern Santa Fe Corp............. 12,072 1,121,942
10 & 11
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Common
Stocks
(continued)
Merrill Lynch S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
Burlington Resources Inc...................... 13,645 $ 611,467
CBS Corporation............................... 54,414 1,601,812
CIGNA Corporation............................. 5,752 995,456
CINergy Corporation........................... 12,165 466,072
CPC International Inc......................... 11,080 1,193,870
CSX Corporation............................... 16,864 910,656
CVS Corporation............................... 13,283 850,942
+ Cabletron Systems, Inc........................ 12,177 182,655
Caliber System, Inc........................... 3,013 146,695
Campbell Soup Company......................... 35,363 2,055,474
Cardinal Health, Inc.......................... 8,451 634,881
Carolina Power & Light Company................ 11,620 493,124
Case Corporation.............................. 5,804 350,779
Caterpillar, Inc.............................. 28,774 1,397,337
+ Cendant Corporation........................... 61,144 2,101,825
Centex Corporation............................ 2,291 144,190
Central and South West Corporation............ 16,403 443,906
+ Ceridian Corporation.......................... 5,867 268,782
Champion International Corp................... 7,430 336,672
+ Charming Shoppes, Inc......................... 8,190 38,391
Chase Manhattan Corp. (The)................... 32,575 3,566,963
Chevron Corporation........................... 50,761 3,908,597
Chrysler Corporation.......................... 51,205 1,801,776
Chubb Corporation............................. 13,152 994,620
Cincinnati Financial Corporation.............. 4,213 592,980
Cincinnati Milacron Inc....................... 3,072 79,680
Circuit City Stores--Circuit City Group....... 7,629 271,306
+ Cisco Systems, Inc............................ 77,770 4,335,650
Citicorp...................................... 35,310 4,464,508
+ Clear Channel Communications, Inc............. 7,573 601,580
Clorox Company................................ 7,981 630,998
Coastal Corporation (The)..................... 8,186 507,020
Coca-Cola Company............................. 191,161 12,736,102
Cognizant Corporation......................... 12,533 558,502
Colgate-Palmolive Company..................... 22,863 1,680,431
Columbia Gas System, Inc. (The)............... 4,266 335,148
Columbia/HCA Healthcare Corp.................. 50,051 1,482,761
Comcast Corporation (Class A)................. 26,942 850,357
Comerica, Inc................................. 8,120 732,830
Compaq Computer Corporation................... 58,510 3,302,158
Computer Associates International, Inc........ 42,254 2,234,180
+ Computer Sciences Corporation................. 6,001 501,084
ConAgra, Inc.................................. 36,480 1,197,000
Conseco, Inc.................................. 14,562 661,661
Consolidated Edison Company of
New York, Inc................................ 18,130 743,330
Consolidated Natural Gas Company.............. 7,379 446,430
Cooper Industries, Inc........................ 9,353 458,297
Cooper Tire & Rubber Company.................. 6,092 148,493
Coors (Adolph) Company (Class B).............. 2,898 96,359
CoreStates Financial Corp..................... 15,289 1,224,076
Corning, Inc.................................. 17,867 663,312
+ Costco Companies, Inc......................... 16,413 732,430
Countrywide Credit Industries, Inc............ 8,342 357,663
Crane Co...................................... 3,538 153,461
Crown Cork & Seal Company, Inc................ 9,906 496,538
Cummins Engine Co., Inc....................... 2,952 174,353
Cyprus Amax Minerals Co....................... 7,203 110,746
+ DSC Communications Corporation................ 9,116 218,784
DTE Energy Company............................ 11,195 388,327
Dana Corporation.............................. 8,117 385,558
Darden Restaurants, Inc....................... 11,820 147,750
+ Data General Corporation...................... 3,695 64,432
Dayton Hudson Corp............................ 16,854 1,137,645
Deere & Company............................... 19,470 1,135,344
+ Dell Computer Corporation..................... 25,230 2,119,320
Delta Air Lines, Inc.......................... 5,720 680,680
Deluxe Corporation............................ 6,287 216,902
+ Digital Equipment Corporation................. 11,423 422,651
Dillard's Inc. (Class A)...................... 8,549 301,352
Disney (Walt) Company (The)................... 52,169 5,167,992
Dominion Resources, Inc....................... 14,448 614,943
Donnelley (R.R.) & Sons Co.................... 11,308 421,223
Dover Corporation............................. 17,175 620,447
Dow Chemical Company (The).................... 17,526 1,778,889
Dow Jones & Company, Inc...................... 7,419 398,308
Dresser Industries, Inc....................... 13,565 568,882
Duke Energy Corporation....................... 27,776 1,538,096
Dun & Bradstreet Corp. (The).................. 13,159 407,107
duPont (E.I.) de Nemours & Company............ 87,462 5,253,186
EG & G, Inc................................... 3,532 73,510
+ EMC Corporation............................... 38,332 1,051,734
Eastern Enterprises........................... 1,567 70,515
Eastman Chemical Company...................... 6,060 360,949
Eastman Kodak Company......................... 25,112 1,527,124
Eaton Corporation............................. 5,954 531,395
Echlin Inc.................................... 4,868 176,161
+ Echo Bay Mines Ltd............................ 10,750 26,203
Ecolab Inc.................................... 4,991 276,689
Edison International.......................... 29,483 801,569
Emerson Electric Co........................... 34,248 1,932,872
Engelhard Corporation......................... 11,166 $ 194,009
Enron Corp.................................... 24,579 1,021,565
Entergy Corporation........................... 18,853 564,412
Equifax Inc................................... 11,607 411,323
Exxon Corporation++........................... 190,596 11,662,093
+ FMC Corporation............................... 2,870 193,187
FPL Group, Inc................................ 14,090 833,952
+ Federal Express Corporation................... 8,881 542,296
Federal Home Loan Mortgage
Corporation.................................. 53,708 2,252,379
Federal National Mortgage Association......... 81,986 4,678,326
+ Federated Department Stores, Inc.............. 16,196 697,440
Fifth Third BanCorp........................... 11,901 972,907
First Chicago NBD Corporation................. 22,486 1,877,581
First Data Corporation........................ 33,084 967,707
First Union Corporation....................... 48,495 2,485,369
+ FirstEnergy Corp.............................. 17,762 515,098
Fleet Financial Group, Inc.................... 19,308 1,446,893
Fleetwood Enterprises, Inc.................... 2,748 116,618
Fluor Corporation............................. 6,479 242,153
Ford Motor Company............................ 92,750 4,515,766
Fort James Corporation........................ 16,139 617,317
Fortune Brands Inc............................ 13,277 492,079
Foster Wheeler Corporation.................... 3,134 84,814
Freeport-McMoRan Copper &
Gold Co., Inc. (Class B)..................... 14,948 235,431
Frontier Corporation.......................... 12,688 305,305
+ Fruit of the Loom, Inc. (Class A)............. 5,658 144,986
GPU, Inc...................................... 9,299 391,720
GTE Corporation............................... 74,011 3,867,075
Gannett Co., Inc.............................. 21,891 1,353,137
Gap, Inc. (The)............................... 31,060 1,100,706
General Dynamics Corporation.................. 4,840 418,358
General Electric Company...................... 252,957 18,560,720
General Mills, Inc............................ 12,230 875,974
General Motors Corporation.................... 54,666 3,314,126
General Re Corporation........................ 6,062 1,285,144
General Signal Corporation.................... 3,861 162,886
Genuine Parts Company......................... 13,811 468,711
Georgia-Pacific Corporation................... 7,158 434,849
Giant Food Inc. (Class A)..................... 4,647 156,546
Gillette Company (The)........................ 43,289 4,347,839
Golden West Financial Corporation............. 4,415 431,842
Goodrich (B.F.) Company (The)................. 5,551 230,020
Goodyear Tire & Rubber Co. (The).............. 12,087 769,035
Grace (W.R.) & Co............................. 5,738 461,550
Grainger (W.W.), Inc.......................... 3,840 373,200
Great Atlantic & Pacific Tea Co., Inc......... 2,949 87,548
Great Lakes Chemical Corporation.............. 4,625 207,547
Green Tree Financial Corporation.............. 10,539 275,990
Guidant Corporation........................... 11,437 711,953
HBO & Company................................. 15,445 741,360
+ HEALTHSOUTH Corporation....................... 30,425 844,294
Halliburton Company........................... 20,248 1,051,631
Harcourt General, Inc......................... 5,471 299,537
Harland (John H.) Company (The)............... 2,382 50,022
Harnischfeger Industries, Inc................. 3,801 134,223
+ Harrah's Entertainment, Inc................... 7,795 147,131
Harris Corporation............................ 6,169 283,003
Hartford Financial Services
Group, Inc. (The)............................ 9,124 853,664
Hasbro, Inc................................... 9,805 308,858
Heinz (H.J.) Company.......................... 28,380 1,442,059
Helmerich & Payne, Inc........................ 1,925 130,659
Hercules Inc.................................. 7,466 373,767
Hershey Foods Corporation..................... 11,051 684,471
Hewlett-Packard Company....................... 80,398 5,024,875
Hilton Hotels Corporation..................... 19,347 575,573
Home Depot, Inc. (The)........................ 56,543 3,328,969
Homestake Mining Company...................... 11,323 100,492
Honeywell Inc................................. 9,847 674,520
Household International Inc................... 8,270 1,054,942
Houston Industries Inc........................ 22,030 587,926
+ Humana, Inc................................... 12,643 262,342
Huntington Bancshares Inc..................... 14,781 532,116
+ ITT Corporation............................... 8,981 744,300
ITT Industries, Inc........................... 9,127 286,360
Ikon Office Solutions, Inc.................... 10,242 288,056
Illinois Tool Works, Inc...................... 19,262 1,158,128
Inco Limited.................................. 12,917 219,589
Ingersoll-Rand Company........................ 12,814 518,967
Inland Steel Industries, Inc.................. 3,773 64,613
Intel Corporation............................. 126,450 8,883,113
International Business Machines Corp.......... 75,141 7,856,931
International Flavors & Fragrances Inc........ 8,464 435,896
International Paper Company................... 23,356 1,007,228
Interpublic Group of Companies, Inc........... 9,735 484,925
Jefferson-Pilot Corporation................... 5,458 425,042
Johnson & Johnson............................. 103,947 6,847,509
Johnson Controls, Inc......................... 6,439 307,462
Jostens, Inc.................................. 2,994 69,049
12 & 13
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Common
Stocks
(continued)
Merrill Lynch S&P 500 Index Series (continued)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
+ KLA-Tencor Corporation........................ 6,540 $ 252,607
Kaufman and Broad Home Corporation............ 2,997 67,245
Kellogg Company............................... 31,759 1,576,040
Kerr-McGee Corporation........................ 3,714 235,143
KeyCorp Limited............................... 16,980 1,202,396
Kimberly-Clark Corporation.................... 42,309 2,086,363
King World Productions, Inc................... 2,834 163,664
+ Kmart Corporation............................. 37,699 435,895
Knight-Ridder, Inc............................ 6,527 339,404
Kroger Co. (The).............................. 19,699 727,632
+ LSI Logic Corporation......................... 10,941 216,085
Laidlaw, Inc. (Class B)....................... 25,383 345,843
Lilly (Eli) & Company......................... 85,741 5,969,717
Limited, Inc. (The)........................... 21,016 535,908
Lincoln National Corporation.................. 7,873 615,078
Liz Claiborne, Inc............................ 5,165 215,962
Lockheed Martin Corporation................... 14,985 1,476,022
Loews Corporation............................. 8,874 941,753
Longs Drug Stores Corporation................. 3,009 96,664
Louisiana-Pacific Corporation................. 8,466 160,854
Lowe's Companies, Inc......................... 13,490 643,304
Lucent Technologies, Inc...................... 49,560 3,958,605
MBIA, Inc..................................... 6,892 460,472
MBNA Corporation.............................. 38,738 1,058,032
MCI Communications Corporation................ 53,833 2,304,725
MGIC Investment Corp.......................... 8,814 586,131
Mallinckrodt Inc.............................. 5,637 214,206
Manor Care, Inc............................... 4,913 171,955
Marriott International, Inc................... 9,828 680,589
Marsh & McLennan Companies, Inc............... 13,128 978,856
Masco Corporation............................. 12,741 648,198
Mattel, Inc................................... 22,432 835,592
May Department Stores Company (The)........... 17,876 941,842
Maytag Corporation............................ 7,340 273,874
McDermott International, Inc.................. 4,329 158,550
McDonald's Corporation........................ 53,179 2,539,297
McGraw-Hill Companies, Inc.................... 7,680 568,320
Mead Corporation (The)........................ 8,105 226,940
Medtronic, Inc................................ 36,251 1,896,380
Mellon Bank Corporation....................... 19,676 1,192,857
Mercantile Stores Company, Inc................ 2,838 172,763
Merck & Co., Inc.............................. 92,616 9,840,450
Meredith Corporation.......................... 4,127 147,282
Merrill Lynch & Co., Inc...................... 25,750 1,878,141
+ Micron Technology, Inc........................ 16,335 424,710
+ Microsoft Corporation++....................... 93,267 12,054,760
Millipore Corporation......................... 3,349 113,657
Minnesota Mining &
Manufacturing Company........................ 31,586 2,592,026
+ Mirage Resorts, Inc........................... 13,866 315,451
Mobil Corporation............................. 60,629 4,376,656
Monsanto Company.............................. 45,833 1,924,986
Moore Corporation Limited
(NY Registered Shares)....................... 6,852 103,636
Morgan (J.P.) & Co., Inc...................... 13,730 1,549,774
Morgan Stanley, Dean Witter,
Discover and Co. Inc......................... 45,789 2,707,275
Morton International, Inc..................... 10,285 353,547
Motorola, Inc................................. 46,140 2,632,864
NACCO Industries Inc. (Class A)............... 631 67,635
NICOR Inc..................................... 3,750 158,203
Nalco Chemical Company........................ 5,172 204,617
National City Corporation..................... 16,515 1,085,861
+ National Semiconductor Corporation............ 12,615 327,202
National Service Industries, Inc.............. 3,339 165,489
NationsBank Corporation....................... 54,984 3,343,714
+ Navistar International Corporation............ 5,817 144,334
New York Times Company
(Class A) (The).............................. 7,423 490,846
Newell Co..................................... 12,265 521,262
Newmont Mining Corporation.................... 12,094 355,261
+ NextLevel Systems, Inc........................ 11,432 204,347
+ Niagara Mohawk Power Corp..................... 11,138 116,949
Nike Inc. (Class B)........................... 22,448 881,084
Nordstrom, Inc................................ 5,963 360,016
Norfolk & Southern Corporation................ 29,143 897,969
Northern States Power Company................. 5,754 335,170
Northern Telecom Limited...................... 20,248 1,802,072
Northrop Grumman Corporation.................. 5,125 589,375
Norwest Corporation........................... 58,380 2,254,927
+ Novell, Inc................................... 27,019 202,642
Nucor Corporation............................. 6,773 327,221
ONEOK, Inc.................................... 2,373 95,810
Occidental Petroleum Corporation.............. 26,183 767,489
Omnicom Group, Inc............................ 12,520 530,535
+ Oracle Corporation............................ 75,785 1,690,953
+ Oryx Energy Company........................... 8,171 208,360
Owens-Corning Fiberglass Corp................. 4,116 140,458
+ Owens-Illinois, Inc........................... 10,838 411,167
PACAAR, Inc................................... 6,000 315,000
PECO Energy Company........................... 17,170 416,372
PG & E Corporation............................ 33,867 $ 1,030,827
PNC Bank Corp................................. 23,576 1,345,305
PP&L Resources, Inc........................... 12,821 306,903
PPG Industries, Inc........................... 13,767 786,440
PacifiCorp.................................... 22,921 626,030
Pacific Enterprises, Inc...................... 6,438 242,230
Pall Corporation.............................. 9,826 203,275
+ Parametric Technology Corporation............. 9,836 465,980
Parker-Hannifin Corporation................... 8,614 395,167
Penney (J.C.) Company, Inc.................... 19,318 1,165,117
Pennzoil Co................................... 3,670 245,202
Peoples Energy Corporation.................... 2,699 106,273
Pep Boys-Manny, Moe & Jack (The).............. 4,881 116,534
PepsiCo, Inc.................................. 117,259 4,272,625
Perkin-Elmer Corporation (The)................ 3,372 239,623
Pfizer Inc.................................... 99,959 7,453,193
Pharmacia & Upjohn Inc........................ 39,219 1,436,396
Phelps Dodge Corporation...................... 4,542 282,739
Philip Morris Companies, Inc.................. 187,387 8,490,973
Phillips Petroleum Company.................... 20,319 988,011
Pioneer Hi-Bred International, Inc............ 5,081 544,937
Pitney Bowes Inc.............................. 11,193 1,006,670
Placer Dome, Inc.............................. 18,474 234,389
Polaroid Corporation.......................... 3,492 170,017
Potlatch Corporation.......................... 2,229 95,847
Praxair, Inc.................................. 12,190 548,550
Procter & Gamble Company (The)................ 103,880 8,290,922
Progressive Corporation....................... 5,568 667,464
Providian Financial Corporation............... 7,353 332,264
Public Service Enterprise Group, Inc.......... 17,924 567,967
Pulte Corporation............................. 1,638 68,489
Quaker Oats Company (The)..................... 10,703 564,583
Ralston Purina Company........................ 8,207 762,738
Raychem Corporation........................... 6,645 286,150
Raytheon Company (Class A).................... 12,913 636,772
Raytheon Company (Class B).................... 13,288 671,044
+ Reebok International Ltd...................... 4,314 124,297
Republic of New York Corp..................... 4,234 483,470
Reynolds Metals Company....................... 5,693 341,580
Rite Aid Corporation.......................... 9,639 565,689
Rockwell International Corporation............ 16,127 842,636
Rohm & Haas Company........................... 4,731 452,993
+ Rowan Companies, Inc.......................... 6,682 203,801
Royal Dutch Petroleum Co.
(NY Registered Shares)....................... 165,738 8,980,928
Rubbermaid Inc................................ 11,558 288,950
Russell Corporation........................... 2,816 74,800
Ryder System, Inc............................. 5,913 193,651
SAFECO Corporation............................ 10,909 530,450
SBC Communications Inc........................ 70,844 5,189,323
Safety-Kleen Corp............................. 4,494 123,304
Sara Lee Corporation.......................... 37,083 2,088,236
Schering-Plough Corporation................... 56,554 3,513,417
Schlumberger Ltd.............................. 38,233 3,077,756
Schwab (Charles) Corporation (The)............ 20,527 860,851
Scientific-Atlanta, Inc....................... 6,097 102,125
+ Seagate Technology, Inc....................... 18,887 363,575
Seagram Company Ltd. (The).................... 27,551 890,242
Sears, Roebuck and Co......................... 30,284 1,370,351
Service Corporation International............. 19,440 718,065
Shared Medical Systems Corporation............ 1,928 127,248
Sherwin-Williams Company (The)................ 13,334 370,018
Sigma-Aldrich Corporation..................... 7,724 307,029
+ Silicon Graphics, Inc......................... 14,471 179,983
Snap-on, Inc.................................. 4,701 205,081
Sonat Inc..................................... 6,641 303,826
Southern Company (The)........................ 53,341 1,380,198
Southwest Airlines Co......................... 16,914 416,507
Spring Industries, Inc........................ 1,555 80,860
Sprint Corporation............................ 33,220 1,947,522
+ St. Jude Medical, Inc......................... 7,101 216,580
St. Paul Companies, Inc....................... 6,476 531,437
Stanley Works (The)........................... 6,864 323,895
State Street Corporation...................... 12,403 721,700
+ Stone Container Corporation................... 7,656 79,909
Sun Company, Inc.............................. 5,529 232,564
+ Sun Microsystems, Inc......................... 28,956 1,154,620
SunAmerica, Inc............................... 15,064 643,986
SunTrust Banks, Inc........................... 16,298 1,163,270
SuperValu Stores Inc.......................... 4,679 195,933
Synovus Financial Corp........................ 13,492 441,863
Sysco Corporation............................. 13,219 602,291
TJX Companies, Inc............................ 12,609 433,434
TRW, Inc...................................... 9,518 508,023
Tandy Corporation............................. 7,990 308,114
Tektronix, Inc................................ 3,914 155,337
+ Tele-Communications, Inc. (Class A)........... 39,202 1,095,206
+ Tellabs, Inc.................................. 14,026 741,625
Temple-Inland Inc............................. 4,397 230,018
+ Tenet Healthcare Corporation.................. 23,592 781,485
Tenneco, Inc.................................. 13,181 520,649
14 & 15
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
Common
Stocks
(concluded)
Merrill Lynch S&P 500 Index Series (concluded)
------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
Texaco Inc.................................... 42,359 $ 2,303,271
Texas Instruments Inc......................... 30,163 1,357,335
Texas Utilities Company....................... 19,048 791,682
Textron Inc................................... 12,738 796,125
+ Thermo Electron Corporation................... 11,696 520,472
Thomas & Betts Corporation.................... 4,245 200,576
Time Warner Inc............................... 43,269 2,682,678
Times Mirror Company (The) (Class A).......... 7,392 454,608
Timken Company (The).......................... 4,868 167,337
Torchmark Corporation......................... 10,822 455,200
+ Toys `R' Us, Inc.............................. 22,074 693,951
Transamerica Corporation...................... 4,886 520,359
Travelers Group, Inc.......................... 88,633 4,775,103
Tribune Company............................... 9,484 590,379
+ Tricon Global Restaurants, Inc................ 11,730 340,903
Tupperware Corporation........................ 4,715 131,431
Tyco International Ltd........................ 41,155 1,854,547
U S West Communications Group, Inc............ 37,342 1,685,058
+ U S West Media Group Inc...................... 46,920 1,354,815
UNUM Corporation.............................. 10,724 583,117
US Bancorp.................................... 18,936 2,119,648
+ USAirways Group, Inc.......................... 7,055 440,937
USF & G Corporation........................... 8,708 192,120
UST Inc....................................... 14,242 526,064
USX-Marathon Group, Inc....................... 22,292 752,355
USX-US Steel Group, Inc....................... 6,619 206,844
Unicom Corp................................... 16,714 513,955
Unilever N.V. (NY Registered Shares).......... 49,479 3,089,345
Union Camp Corporation........................ 5,358 287,658
Union Carbide Corporation..................... 9,522 408,851
Union Electric Company........................ 10,588 $ 457,931
Union Pacific Corporation..................... 19,082 1,191,432
Union Pacific Resources Group Inc............. 19,611 475,567
+ Unisys Corporation............................ 13,588 188,533
United Healthcare Corporation................. 14,556 723,251
United States Surgical Corporation............ 5,851 171,507
United Technologies Corporation............... 18,007 1,311,135
Unocal Corp................................... 19,075 740,348
V.F. Corporation.............................. 9,442 433,742
+ Viacom, Inc. (Class B)........................ 27,300 1,131,244
Wachovia Corporation.......................... 15,774 1,279,666
Wal-Mart Stores, Inc.......................... 174,175 6,869,027
Walgreen Co................................... 38,021 1,192,909
Warner-Lambert Company........................ 21,047 2,609,828
Washington Mutual Savings Bank................ 19,889 1,269,167
Waste Management Inc.......................... 35,169 967,147
Wells Fargo & Company......................... 6,701 2,274,571
Wendy's International, Inc.................... 10,215 245,798
+ Western Atlas Inc............................. 4,212 311,688
Westvaco Corporation.......................... 7,865 247,256
Weyerhaeuser Company.......................... 15,399 755,513
Whirlpool Corporation......................... 5,797 318,835
Whitman Corporation........................... 7,848 204,538
Willamette Industries, Inc.................... 8,594 276,619
Williams Companies, Inc. (The)................ 24,704 700,976
Winn-Dixie Stores, Inc........................ 11,538 504,066
+ Woolworth Corporation......................... 10,420 212,307
+ WorldCom, Inc................................. 69,824 2,112,176
Worthington Industries, Inc................... 7,453 122,043
Wrigley (Wm.) Jr. Company (Class B)........... 8,961 712,960
Xerox Corporation............................. 25,188 1,859,189
- --------------------------------------------------------------------------------
Total Common Stocks (Cost - $537,951,365) - 96.9% 583,872,599
================================================================================
Commercial
Paper*
================================================================================
Face
Amount Short-Term Obligations
================================================================================
$16,349,000 General Motors Acceptance Corp., 6.75% due
1/02/1998 16,345,935
================================================================================
Total Short-Term Obligations (Cost--$16,345,935)--2.7% 16,345,935
================================================================================
Total Investments (Cost--$554,297,300)--99.6% 600,218,534
Variation Margin on Financial Futures Contracts**--0.0% (806)
Other Assets Less Liabilities--0.4% 2,582,773
------------
Net Assets--100.0% $602,800,501
============
================================================================================
+ Non-income producing security.
++ Portion of securities held as collateral for open financial futures
contracts.
* Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Fund.
** Financial futures contracts purchased as of December 31, 1997 were
as follows:
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
78 S&P 500 Stock Index March 1998 $19,092,450
- --------------------------------------------------------------------------------
Total Financial Futures Contracts
Purchased (Total Contract Price-- $18,962,809) $19,092,450
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES As of December 31, 1997
=================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$554,297,300) (Note 1a).......................... $600,218,534
Cash..................................................................................... 50,750
Receivables:
Contributions.......................................................................... $2,639,531
Dividends.............................................................................. 844,810
Securities sold........................................................................ 174,405 3,658,746
----------
Deferred organization expenses (Note 1e)................................................. 13,247
------------
Total assets............................................................................. 603,941,277
------------
=================================================================================================================================
Liabilities: Payables:
Withdrawals............................................................................ 809,352
Securities purchased................................................................... 148,701
Variation margin (Note 1b)............................................................. 806 958,859
----------
Accrued expenses and other liabilities................................................... 181,917
------------
Total liabilities ....................................................................... 1,140,776
------------
=================================================================================================================================
Net Assets: Net assets............................................................................... $602,800,501
============
=================================================================================================================================
Net Assets Partners' capital........................................................................ $556,749,626
Consist of: Unrealized appreciation on investments--net.............................................. 46,050,875
------------
Net assets............................................................................... $602,800,501
============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES For the Period April 3, 1997+ to December 31, 1997
=========================================================================================================================
<S> <C> <C>
Investment Income Dividends (net of $32,040 foreign withholding tax)......................... $ 4,811,633
(Notes 1c & 1d): Interest and discount earned............................................... 1,457,105
-----------
Total income............................................................... 6,268,738
-----------
=========================================================================================================================
Expenses: Accounting services (Note 2)............................................... $ 192,752
Investment advisory fees (Note 2).......................................... 148,645
Custodian fees............................................................. 101,973
Professional fees.......................................................... 30,104
Pricing fees............................................................... 9,450
Trustees' fees and expenses................................................ 5,797
Amortization of organization expenses (Note 1e)............................ 2,338
Other...................................................................... 2,760
----------
Total expenses before reimbursement........................................ 493,819
Reimbursement of expenses (Note 2)......................................... (148,645)
----------
Total expenses after reimbursement......................................... 345,174
-----------
Investment income--net..................................................... 5,923,564
-----------
=========================================================================================================================
Realized & Realized gain from investments--net........................................ 20,857,044
Unrealized Gain on Unrealized appreciation on investments--net................................ 46,050,875
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations....................... $72,831,483
===========
=========================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
S&P 500 April 3, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
=============================================================================================================================
<S> <C>
Operations: Investment income--net................................................................. $ 5,923,564
Realized gain on investments--net...................................................... 20,857,044
Unrealized appreciation on investments--net............................................ 46,050,875
------------
Net increase in net assets resulting from operations................................... 72,831,483
------------
=============================================================================================================================
Net Capital Increase in net assets derived from net capital contributions.......................... 529,969,018
Contributions: ------------
=============================================================================================================================
Net Assets: Total increase in net assets........................................................... 602,800,501
Beginning of period.................................................................... --
------------
End of period.......................................................................... $602,800,501
============
=============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<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. December 31, 1997
=================================================================================================================================
<S> <C>
Ratios to Average Expenses, net of reimbursement............................................................ .12%*
Net Assets: ========
Expenses.................................................................................. .17%*
========
Investment income--net.................................................................... 1.99%*
========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands).................................................. $602,801
Data: ========
Portfolio turnover........................................................................ 24.31%
========
Average commission rate paid.............................................................. $ .0166
========
=================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Series (the "Series") is part of Merrill Lynch Index
Trust (the "Trust"). The Trust is registered under the Investment Company Act of
1940 and is organized as a Delaware business trust. The following is a summary
of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Other investments, including futures contracts and related options, are stated
at market value. Short-term securities are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair market value, as determined in good
faith by or under the direction of the Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell stock index
futures contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes - The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Series pays a monthly fee
at an annual rate of 0.05% of the average daily value of the Series' net assets.
For the period ended December 31, 1997, MLAM earned fees of $148,645, all of
which was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 3, 1997 to December 31, 1997 were $605,389,191 and $82,632,635,
respectively.
Net realized and unrealized gains as of December 31, 1997 were as follows:
- -----------------------------------------------------------------------
Realized Unrealized
Gains Gains
- -----------------------------------------------------------------------
Long-term investments ............... $15,194,809 $45,921,234
Financial futures contracts ......... 5,662,235 129,641
----------- -----------
Total ............................... $20,857,044 $46,050,875
=========== ===========
- -----------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $45,650,104, of which $59,621,968 related to appreciated
securities and $13,971,864 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$554,568,430.
20 & 21
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch S&P 500 Index Series (one of the
series constituting Merrill Lynch Index Trust)as of December 31, 1997, the
related statements of operations and changes in net assets, and the financial
highlights for the period April 3, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch S&P
500 Index Series of the Merrill Lynch Index Trust as of December 31, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the period April 3, 1997 to December 31, 1997 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
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 4--12/97
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