MERRILL LYNCH
INTERNATIONAL
INDEX FUND
[GRAPHIC OMITTED]
Merrill Lynch
Index Funds, Inc.
STRATEGIC
Performance
Annual Report
December 31, 1997
<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
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
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
Important Tax Information
The following information summarizes all per share distributions paid by the
Merrill Lynch International Index Fund during the taxable year ended December
31, 1997:
<TABLE>
<CAPTION>
===================================================================================================
Non-Qualifying Foreign
Domestic Foreign Total Taxes
Record Payable Ordinary Source Ordinary Paid or
Date Date Income Income Income Withheld
===================================================================================================
<S> <C> <C> <C> <C> <C>
Class A:
- ---------------------------------------------------------------------------------------------------
12/08/97 12/16/97 $0.197035 $0.089676 $0.286711 $0.016183
===================================================================================================
Class D:
- ---------------------------------------------------------------------------------------------------
12/08/97 12/16/97 $0.181449 $0.082582 $0.264031 $0.016183
===================================================================================================
</TABLE>
The foreign taxes paid or withheld represent taxes incurred by the Fund on
dividends received by the Fund from foreign sources. Foreign taxes paid or
withheld should be included as foreign source income with an offsetting
deduction from gross income or as a credit for taxes paid to foreign
governments. You should consult your tax adviser regarding the appropriate
treatment of foreign taxes paid.
Please retain this information for your records.
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
DEAR SHAREHOLDER
Fiscal Year in Review
Merrill Lynch International Index Fund commenced operations on April 9, 1997 and
displayed rapid growth during the remainder of 1997, closing the fiscal year
ended December 31, 1997 with net assets of $143,417,800. Since inception (April
9, 1997) through December 31, 1997, the Fund's Class A Shares had a total return
of +8.45%, based on a change in per share net asset value from $10.00 to $10.56,
and assuming reinvestment of $0.287 per share income dividends. Since inception
(April 9, 1997) through December 31, 1997, the Fund's Class D Shares had a total
return of +8.22%, based on a change in per share net asset value from $10.00 to
$10.56, and assuming reinvestment of $0.264 per share income dividends. For the
period from April 30, 1997 through December 31, 1997, the Fund's Class A Shares
had a total return of +5.09%. This compares to the total return of +5.31% for
the unmanaged Morgan Stanley Capital International EAFE(R) GDP Weighted Index
(MSCI EAFE Index) for the same period. (For complete performance information,
see pages 3 and 4 of this report to shareholders.)
The Fund invests all of its assets in Merrill Lynch International Index Series,
which has the same investment objective of the Fund. There are two principal
investments made by the Series in its attempt to replicate the returns of the
MSCI EAFE Index. First, the Series holds a basket of 490 stocks statistically
selected to match, as closely as possible, the performance of the Index. The
Series makes use of this sampling technique in order to defray some of the
extensive execution costs in many of the local markets incorporated in the EAFE
Index. In addition, the Series holds futures contracts in several of the local
markets in the Index as a means of investing daily cash inflows. These futures
contracts are also an extremely efficient method of keeping a pool of liquidity
available to meet potential portfolio redemptions. As of the end of December,
the equity portfolio of the Series was valued at $129.4 million, and the Series
held futures contracts with an underlying value of $14.6 million. It is the
Series' goal to be 100% invested at all times.
The Fund's performance during the second half of 1997 was subject to
considerable volatility, stemming mostly from currency and financial crises in
Southeast Asia. Exacerbating the problems of the region, Japan's financial
system exposed its weaknesses at just the time its strength was needed most. The
currency devaluations that occurred in the region sent the equity markets
tumbling in the second half of 1997. The MSCI Japan Index declined 30.0%; the
MSCI Malaysia Index fell 64.0%; the MSCI Singapore Index fell 24.4%; and the
MSCI Hong Kong Index was down 30.1%. The problems in Asia segmented the returns
of Merrill Lynch International Index Fund, as well as the underlying Index
components, along geographical lines. The MSCI Europe Index was up by 8.4% in
the last six months of the year, while the MSCI Pacific Index was down 30.5% in
the same period. The largest positive contributor to portfolio performance for
the six months ended December 31, 1997 was Italy, where the MSCI Italy Index was
up 21.8%. Other contributors were the United Kingdom (+12.3%), Germany (+6.7%),
France (+2.5%) and Denmark (+18.4%), based upon returns for the MSCI Indexes for
each of these regions.
In Conclusion
We appreciate your investment in Merrill Lynch International 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
<PAGE>
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 4/09/97+ % Change % Change
====================================================================================================================
<S> <C> <C> <C> <C> <C>
ML International Index Fund Class A Shares $10.56 $11.65 $10.00 +5.60% -9.36%
- --------------------------------------------------------------------------------------------------------------------
ML International Index Fund Class D Shares 10.56 11.64 10.00 +5.60 -9.28
- --------------------------------------------------------------------------------------------------------------------
ML International Index Fund Class A Shares--Total Return +8.45(1) -6.91(1)
- --------------------------------------------------------------------------------------------------------------------
ML International Index Fund Class D Shares--Total Return +8.22(2) -7.02(2)
====================================================================================================================
</TABLE>
+ The Fund commenced operations on April 9, 1997.
(1) Percent change includes reinvestment of $0.287 per share ordinary income
dividends.
(2) Percent change includes reinvestment of $0.264 per share ordinary income
dividends.
2 & 3
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
PERFORMANCE DATA (concluded)
================================================================================
Total Return Based on a $10,000 Investment
Class A & Class D Shares
[GRAPHIC OMITTED]
[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 MSCI EAFE GDP
Weighted Index.]
Beginning and ending values are:
4/30/97** 12/97
================================================================================
ML International Index Fund+--
Class A Shares* $10,000 $10,509
- --------------------------------------------------------------------------------
ML International Index Fund+--
Class D Shares* $10,000 $10,487
- --------------------------------------------------------------------------------
MSCI EAFE GDP Weighted Index+++ $10,000 $10,531
================================================================================
* Assuming transaction costs and other operating expenses, including
advisory fees.
** The Fund commenced operations on April 9, 1997. For purposes of fair
comparison of the Fund's performance relative to the Index, the line graph
begins on April 30, 1997.
+ The Fund invests all of its assets in Merrill Lynch International Index
Series of the Merrill Lynch Index Trust. The Trust may invest in a
statistically selected sample of the equity securities included in the
Europe, Australia and Far East Index and other types of financial
instruments.
+++ 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. Past performance is not predictive of future performance.
================================================================================
Aggregate Total Return
% Return
=======================================================
Class A Shares
=======================================================
Inception (4/09/97) through 12/31/97 +8.45%
- -------------------------------------------------------
% Return
=======================================================
Class D Shares
=======================================================
Inception (4/09/97) through 12/31/97 +8.22%
- -------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND As of December 31, 1997
===========================================================================================================================
<C> <S> <C>
Assets: Investment in Merrill Lynch International Index Series, at value
(identified cost--$135,337,487) (Note 1a)....................................... $135,710,532
Receivable from administrator (Note 2)........................................... 70,561
Deferred organization expenses (Note 1d)......................................... 17,590
Prepaid registration fees and other assets (Note 1d)............................. 38,718
------------
Total assets..................................................................... 135,837,401
------------
===========================================================================================================================
Liabilities: Payable to distributor (Note 2).................................................. 4,653
Accrued expenses and other liabilities........................................... 107,093
------------
Total liabilities ............................................................... 111,746
------------
===========================================================================================================================
Net Assets: Net assets....................................................................... $135,725,655
============
===========================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized. $ 1,091
Consist of: Class D Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized. 194
Paid-in capital in excess of par................................................. 135,436,587
Accumulated distributions in excess of investment income--net..................... (210,669)
Undistributed realized capital gains on investments and foreign currency
transactions from the Series--net............................................... 125,407
Unrealized appreciation on investments and foreign currency transactions from
the Series--net................................................................. 373,045
------------
Net assets....................................................................... $135,725,655
============
===========================================================================================================================
Net Asset Class A--Based on net assets of $115,190,077 and 10,913,229 shares outstanding.... $ 10.56
Value: ============
Class D--Based on net assets of $20,535,578 and 1,944,655 shares outstanding...... $ 10.56
============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND For the Period April 9, 1997+ to December 31, 1997
================================================================================================================================
<C> <S> <C> <C>
Investment Income Investment income allocated from the Series................................ $ 2,268,537
(Notes 1b & 1c): Expenses allocated from the Series......................................... (489,674)
-----------
Net investment income from the Series...................................... 1,778,863
-----------
================================================================================================================================
Expenses: Administration fee (Note 2)................................................ $ 211,373
Registration fees (Note 1d)................................................ 104,689
Transfer agent fees(Note 2)................................................ 60,383
Printing and shareholder reports........................................... 52,065
Account maintenance fee--Class D (Note 2)................................... 43,713
Professional fees.......................................................... 19,484
Amortization of organization expenses (Note 1d)............................ 9,202
Accounting services (Note 2)............................................... 3,832
Directors' fees and expenses............................................... 381
Other...................................................................... 3,097
----------
Total expenses before reimbursement........................................ 508,219
Reimbursement of expenses (Note 2)......................................... (175,510)
----------
Total expenses after reimbursement......................................... 332,709
-----------
Investment income--net...................................................... 1,446,154
-----------
================================================================================================================================
Realized & Realized gain (loss) from the Series on:
Unrealized Investments--net.......................................................... 2,221,644
Gain (Loss) from Foreign currency transactions--net........................................ (162,656) 2,058,988
the Series--Net: ----------
Unrealized appreciation on investments and foreign currency transactions
from the Series--net...................................................... 373,045
-----------
Net realized and unrealized gain on investments and foreign currency
transactions from the Series............................................. 2,432,033
-----------
Net Increase in Net Assets Resulting from Operations....................... $ 3,878,187
===========
================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL April 9, 1997+ to
INDEX FUND Increase (Decrease) in Net Assets: December 31, 1997
================================================================================================================================
<C> <S> <C>
Operations: Investment income--net.......................................................... $ 1,446,154
Realized gain on investments and foreign currency transactions from the
Series--net................................................................... 2,058,988
Unrealized appreciation on investments and foreign currency transactions
from the Series--net.......................................................... 373,045
------------
Net increase in net assets resulting from operations........................... 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 in net assets derived from capital share transactions............. 135,412,872
Transactions ------------
(Note 4):
================================================================================================================================
Net Assets: Total increase in net assets................................................... 135,700,655
Beginning of period............................................................ 25,000
------------
End of period.................................................................. $135,725,655
============
================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
The following per share data and ratios have been derived April 9, 1997+ to
MERRILL LYNCH from information provided in the financial statements. December 31, 1997
INTERNATIONAL -----------------------
INDEX FUND Increase (Decrease) in Net Asset Value: Class A Class D
============================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period....................................... $ 10.00 $ 10.00
Operating -------- --------
Performance: Investment income--net...................................................... .10 .15
Realized and unrealized gain on investments and foreign currency
transactions from the Series--net......................................... .75 .67
-------- --------
Total from investment operations........................................... .85 .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............................................. $ 10.56 $ 10.56
======== ========
============================================================================================================================
Total Investment Based on net asset value per share......................................... 8.45%+++ 8.22%+++
Return: ======== ========
============================================================================================================================
Ratios to Average Expenses, net of reimbursement++........................................... .86%* 1.11%*
Net Assets: ======== ========
Expenses++................................................................. 1.10%* 1.35%*
======== ========
Investment income--net...................................................... 1.64%* 1.67%*
======== ========
============================================================================================================================
Supplemental Net assets, end of period (in thousands)................................... $115,190 $ 20,536
Data: ======== ========
============================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH INTERNATIONAL INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch International Index Fund (the "Fund") is part of Merrill Lynch
Index Funds, Inc. The Fund is registered under the Investment Company Act of
1940 as a non-diversified mutual fund. The Fund seeks to achieve its investment
objective by investing all of its assets in the Merrill Lynch International
Index Series (the "Series") of the Merrill Lynch Index Trust, which has the same
investment objective as the Fund. The value of the Fund's investment in the
Series reflects the Fund's proportionate interest in the net assets of the
Series. The performance of the Fund is directly affected by the performance of
the Series. The financial statements of the Series, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. 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. Distributions in excess of net investment
income 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, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. Pursuant to a distribution plan (the
"Distribution Plan") adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor ongoing account
maintenance fees. The fees are accrued daily and paid monthly at the annual rate
of 0.25% based upon the average daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
also provides account maintenance services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class D shareholders.
The Fund has also entered into an Administrative Services Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM").
The general partner of MLAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund pays a monthly
fee at an annual rate of 0.24% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. For the period
April 9, 1997 to December 31, 1997, MLAM earned fees of $211,373, of which
$175,510 was voluntarily waived.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), an indirect wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLAM, PSI, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for the period
April 9, 1997 to December 31, 1997 were $148,665,451 and $17,165,815,
respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$135,412,872 for the period April 9, 1997 to December 31, 1997.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
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 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.
8 & 9
<PAGE>
Merrill Lynch International 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 International 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 9,
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
International 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 9, 1997 to December 31, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
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) 28,500 $ 198,522
Boral Limited 36,500 92,195
Broken Hill Proprietary Company Ltd. 32,500 301,494
CSR Limited 37,800 127,961
Coca-Cola Amatil, Ltd. 18,700 139,584
Coles Myer Ltd. 18,200 87,321
Foster's Brewing Group Ltd. 54,000 102,650
ICI Australia Ltd. 13,300 93,077
National Australia Bank Limited 26,500 369,700
The News Corporation Ltd. 49,600 273,493
The News Corporation Ltd. (Preferred) 42,500 210,107
Normandy Mining Ltd. 68,300 66,250
North Ltd. 37,800 99,465
Pacific Dunlop Ltd. 45,500 96,267
Pioneer International Ltd. 46,100 125,746
Rio Tinto Ltd. 12,000 139,858
Santos Ltd. 19,400 79,818
Schroders Property Fund 117,800 181,903
Smith (Howard) Ltd. 9,000 74,644
Sons of Gwalia Ltd. 20,800 47,393
Tabcorp Holdings Limited 30,400 142,491
WMC Limited 30,200 105,182
Westpac Banking Corporation 36,600 233,882
-----------------------------------------------------------------------
Total Investments in Australia
(Cost--$3,754,697)--2.4% 3,389,003
==============================================================================================
Austria Austria Mikro Systeme International AG 700 35,474
Bank Austria AG 4,467 221,052
Bank Austria AG (Class A) 5,600 283,791
Bank Austria AG (Preferred) 2,866 127,539
EA--Generali AG 800 210,246
Flughafen Wien AG 2,550 101,362
Mayr-Melnhof Karton AG 1,900 102,319
OMV AG (Class A) 2,500 346,425
Oesterreichische Elektrizitaetswirtschafts
AG (Verbund) 3,750 397,894
VA--Technologie AG (VA TECH) 1,500 227,809
Wienerberger Baustoffindustrie AG 1,150 220,821
-----------------------------------------------------------------------
Total Investments in Austria
(Cost--$2,240,917)--1.6% 2,274,732
==============================================================================================
Belgium Barco NV (Belgian American Radio Corp.) 800 146,924
Bekaert NV 200 119,105
Cimenteries CBR
Cementbedrijven SA 2,400 215,848
Electrabel SA 2,200 509,210
Etablissements Delhaize
Freres & Cie 'Le Lion' SA 2,600 132,015
Fortis AG 900 187,895
Generale de Banque SA 500 217,752
Glaverbel SA 500 78,323
Groupe Bruxelles Lambert SA 700 101,334
Petrofina SA 700 258,535
Royale Belge SA 600 170,961
Solvay SA 2,000 125,857
Union Miniere SA (b) 900 62,470
-----------------------------------------------------------------------
Total Investments in Belgium
(Cost--$2,212,407)--1.6% 2,326,229
==============================================================================================
Denmark D/S Norden A/S 9 415,146
D/S Svendborg A/S 6 394,126
Danisco A/S 2,400 133,127
Den Danske Bank A/S 1,500 199,909
FLS Industries A/S 3,000 71,556
Novo Nordisk A/S (Class B) 2,300 329,022
Tele Danmark A/S (Class B) 4,600 285,376
Unidanmark A/S 1,800 132,164
-----------------------------------------------------------------------
Total Investments in Denmark
(Cost--$1,460,487)--1.4% 1,960,426
==============================================================================================
Finland Kesko OY 9,700 150,464
Merita OY (Class A) 30,800 168,488
Nokia OY AB (Series A) 5,300 376,521
Nokia OY AB (Series K) 3,000 214,777
Outokumpu OY 6,750 79,922
Rauma OY 3,800 59,293
Sampro Insurance Company Ltd. 3,000 96,650
UPM-Kymmene OY 8,750 174,438
-----------------------------------------------------------------------
Total Investments in Finland
(Cost--$1,230,227)--0.9% 1,320,553
==============================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
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 1,150 $ 213,798
Alcatel Alsthom Cie Generale
d'Electricite SA 5,450 692,682
Axa SA 10,800 835,614
Banque Nationale de Paris SA (BNP) 7,400 393,298
Bouygues SA 1,150 130,304
+Canal+ 1,150 213,798
Carrefour Supermarche SA 1,250 652,102
Compagnie de Saint-Gobain SA 3,250 461,663
Compagnie Financiere de Paribas SA 6,100 530,038
Compagnie Generale des Eaux SA 4,400 614,055
Compagnie Generale des Etablissements
Michelin SA (Class B) 4,800 241,635
Comptoirs Modernes SA 400 204,685
Elf Aquitaine SA 9,050 1,052,500
Eridania Beghin-Say SA 1,300 203,240
+France Telecom SA 26,315 954,405
Generale des Eaux SA (Warrants)(a) 1,500 1,019
Groupe Casino Guichard Perachon SA 2,600 144,708
Groupe Danone SA 2,650 473,293
Havas SA 3,150 226,607
Imetal SA 1,200 149,128
L'Air Liquide SA 2,150 336,484
L'Oreal SA 2,250 880,337
LVMH Moet-Hennessy Louis Vuitton SA 2,950 489,625
Lafarge SA 3,900 255,875
Lagardere SCA 4,700 155,391
Legrand SA 1,050 209,163
Lyonnaise des Eaux SA 4,100 453,663
Pathe SA 550 106,729
Pernod Ricard SA 3,100 182,323
Peugeot SA 2,150 271,116
Pinault-Printemps-Redoute SA (b) 750 400,108
Promodes SA 650 269,654
Rhone-Poulenc SA (Class A) 11,500 515,102
SAGEM SA 350 155,840
Sanofi SA 3,750 417,428
Schneider SA 4,950 268,759
Sidel SA 1,300 86,177
Societe Bic SA 2,200 160,568
Societe Generale de France SA 3,250 442,765
Societe Nationale d'Exploitation Industrielle
des Tabacs et Allumettes SA 3,400 122,014
Sodexho Alliance SA 300 160,641
Thomson-CSF SA 4,000 126,067
Total SA (Class B) 8,200 892,341
Usinor-Sacilor SA 9,450 136,435
Valeo SA 2,650 179,719
-----------------------------------------------------------------------
Total Investments in France
(Cost--$15,089,984)--11.2% 16,062,896
==============================================================================================
Germany AMB Aachener und Muenchener
Beteiligungs AG 2,000 218,479
Adidas AG 2,000 263,064
Allianz AG 9,250 2,396,320
BASF AG 27,150 962,204
Bayer AG 30,850 1,152,502
Bayerische Hypotheken-und
Wechsel-Bank AG 12,200 595,486
Bayerische Vereinsbank AG 12,100 791,733
Beiersdorf AG 4,450 192,962
Bugerus AG 250 112,019
CKAG Colonia Konzern AG 1,150 109,962
Continental AG 5,650 124,697
Daimler-Benz AG 21,900 1,536,458
Degussa AG 4,400 220,147
Deutsche Bank AG 20,050 1,415,583
Deutsche Telekom AG 95,000 1,787,720
Dresdner Bank AG 19,550 902,074
Friedrich Grohe AG (Preferred) 500 121,192
Heidelberger Zement AG 2,700 192,128
Hochtief AG 3,400 134,201
Karstadt AG 700 238,976
Linde AG 400 244,163
Lufthansa AG 16,450 315,502
MAN AG 550 159,301
METRO AG 9,520 341,361
Mannesmann AG 1,550 783,272
Merck KGaA 8,100 263,426
Muenchener Rueckversicherungs-
Gesellschaft AG 3,000 1,130,754
Preussag AG 700 213,642
RWE AG 14,150 759,103
RWE AG (Preferred) 9,000 380,253
SAP AG 2,650 805,106
SAP AG (Preferred) 1,850 605,251
SGL CARBON AG 1,050 135,424
Schering AG 3,050 294,182
Siemens AG 23,850 1,412,066
Thyssen AG 1,450 310,346
VEBA AG 21,400 1,457,360
Viag AG 1,150 619,496
Volkswagen AG 1,200 675,117
Volkswagen AG (Preferred) 400 171,670
-----------------------------------------------------------------------
Total Investments in Germany
(Cost--$22,402,898)--17.1% 24,544,702
==============================================================================================
Hong Kong Cheung Kong (Holdings) Limited 33,000 216,167
China Light & Power Company, Limited 22,000 122,104
Hang Seng Bank Limited 13,000 125,428
Hong Kong Telecommunications Ltd. 83,000 170,874
Hutchison Whampoa Ltd. 27,000 169,371
Sun Hung Kai Properties Limited 19,000 132,430
Swire Pacific Ltd. (Class A) 18,000 98,742
-----------------------------------------------------------------------
Total Investments in Hong Kong
(Cost--$1,261,299)--0.7% 1,035,116
==============================================================================================
Ireland Allied Irish Banks PLC 28,800 278,543
CRH PLC 21,300 249,025
Greencore Group PLC 41,300 193,845
Jefferson Smurfit Group PLC 46,200 130,106
-----------------------------------------------------------------------
Total Investments in Ireland
(Cost--$814,194)--0.6% 851,519
==============================================================================================
Italy Assicurazioni Generali SpA 47,100 1,156,735
Banca Commerciale Italiana SpA 115,300 400,800
Banca Popolare di Milano SpA (SCRL) 23,800 149,322
Banco Ambrosiano Veneto SpA 34,100 130,487
Benetton SpA 13,056 213,640
Bulgari SpA 18,400 93,602
Cartiere Burgo SpA 13,000 77,705
Credito Italiano SpA 138,500 427,039
Edison SpA 43,400 262,480
Ente Nazionale Idrocarburi (ENI) SpA 483,700 2,742,206
Fiat SpA 231,300 672,642
Fiat SpA (Preferred) 80,730 123,203
Fiat SpA (RNC) 67,300 111,266
Finanziario Montedison SpA 333,000 299,083
Istituto Bancario San Paolo di Torino SpA 49,400 471,886
Istituto Mobiliare Italiano SpA 37,400 443,929
Istituto Nazionale delle Assicurazioni
(INA) SpA 276,500 560,283
Italcementi SpA 13,900 96,873
Italgas SpA 50,200 207,133
Mediaset SpA 77,800 382,140
Mediobanca-Banca di Credito 29,300 230,034
+Olivetti Group SpA 181,344 109,573
Parmalat Finanziaria SpA 112,200 160,449
Pirelli SpA 94,100 251,579
Riunione Adriatica di Sicurta SpA 21,600 211,825
Sirti SpA 23,000 139,102
TIM SpA (RISP) 98,400 279,760
TIM SpA (RNC) 55,365 244,092
Telecom Italia Mobile SpA 252,000 1,163,000
Telecom Italia SpA 218,333 1,394,508
-----------------------------------------------------------------------
Total Investments in Italy
(Cost--$10,777,604)--9.2% 13,206,376
==============================================================================================
Japan Acom Co., Ltd. 5,000 276,392
Advantest Corporation 2,000 113,628
Ajinomoto Co., Inc. 12,000 117,006
Alps Electric Co. Ltd. 4,000 37,774
Aoyama Trading Co., Ltd. 2,000 35,777
Asahi Bank, Ltd. 50,000 203,455
Asahi Breweries, Ltd. 12,000 175,048
Asahi Chemical Industry Co., Ltd. 32,000 108,591
Asahi Glass Co., Ltd. 29,000 138,042
Autobacs Seven Co., Ltd. 1,000 28,791
Bank of Tokyo-Mitsubishi, Ltd. 101,000 1,395,777
Bank of Yokohama, Ltd. 30,000 79,232
Bridgestone Corporation 16,000 347,639
CSK Corporation 1,000 25,643
Canon Inc. 18,000 420,115
Casio Computer Co., Ltd. 2,000 14,372
Chiba Bank Ltd. 14,000 43,532
Chugai Pharmaceutical Co., Ltd. 40,000 205,758
Citizen Watch Co., Ltd. 2,000 13,436
Cosmo Oil Company, Ltd. 38,000 57,766
Credit Saison Co., Ltd. 3,000 74,165
Dai Nippon Printing Co., Ltd. 17,000 319,770
Daiei, Inc. (The) 21,000 87,063
Daimaru, Inc. 5,000 11,823
Dainippon Ink & Chemicals, Inc. 66,000 167,217
Dainippon Screen Manufacturing Co., Ltd. 4,000 18,426
Daito Trust Construction Co., Ltd. 1,000 6,119
Daiwa House Industry Co., Ltd. 24,000 127,140
Daiwa Securities Co., Ltd. 27,000 93,282
East Japan Railway Co. 76 343,678
==============================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
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 3,000 $ 31,785
(concluded) Eisai Co., Ltd. 3,000 45,835
Fanuc Ltd. 5,000 189,635
Fuji Bank, Ltd. 63,000 255,386
Fuji Photo Film Co., Ltd. 11,000 422,265
Fujikura Ltd. 6,000 39,800
Fujita Kanko Inc. 1,000 10,749
Fujitsu Limited 40,000 429,942
Furukawa Electric Co., Ltd. 17,000 72,960
Gunma Bank, Ltd. 8,000 52,207
Hankyu Department Stores, Inc. 2,000 11,132
Hirose Electric Co., Ltd. 1,000 51,209
Hitachi Ltd. 70,000 499,808
Honda Motor Co., Ltd. 21,000 772,284
Hoya Corporation 2,000 62,956
Industrial Bank of Japan Ltd. 55,000 392,706
Isetan Company Limited 6,000 25,106
Ito Yokado Co., Ltd. 9,000 459,501
Itochu Corporation 24,000 37,774
+Japan Airlines Company, Ltd. 38,000 103,570
Japan Energy Corp. 68,000 64,215
Joyo Bank, Ltd. 24,000 84,760
Jusco Co., Ltd. 7,000 98,887
Kajima Corporation 37,000 93,459
Kaneka Corporation 48,000 217,059
Kansai Electric Power Co., Inc. (The) 18,000 305,413
Kao Corporation 14,000 90,288
Kawasaki Heavy Industries Ltd. 19,000 29,466
Kawasaki Steel Corporation 67,000 91,562
Keihin Electric Express Railway Co., Ltd. 49,000 171,171
Kinden Corporation 8,000 85,374
Kirin Brewery Company Ltd. 20,000 145,873
Kokuyo Co., Ltd. 1,000 17,274
Komatsu Ltd. 26,000 130,749
Konami Co., Ltd. 1,000 24,645
Kubota Corporation 90,000 237,697
Kurita Water Industries Ltd. 2,000 20,422
Kyocera Corporation 4,000 181,804
Lion Corporation 111,000 328,952
Makita Electric Work Ltd. 1,000 9,597
Marubeni Corporation 18,000 31,647
Marui Co., Ltd. 9,000 140,269
Matsushita Electric Industrial Co., Ltd. 45,000 659,885
Minebea Co., Ltd. 13,000 139,731
Mitsubishi Chemical Corp. 59,000 84,706
Mitsubishi Corporation 32,000 253,052
Mitsubishi Electric Corporation 40,000 102,572
Mitsubishi Estate Co., Ltd. 28,000 305,259
Mitsubishi Heavy Industries, Ltd. 71,000 296,537
Mitsubishi Logistics Corporation 3,000 31,324
Mitsubishi Materials Corporation 8,000 12,898
Mitsubishi Oil Company, Ltd. 38,000 56,307
+Mitsubishi Trust and Banking Corp. 28,000 281,612
Mitsui & Co., Ltd. 38,000 225,228
Mitsui Chemicals Inc. 600 1,106
Mitsui Fudosan Co., Ltd. 17,000 164,453
Mitsui Marine & Fire Insurance Co., Ltd. 19,000 97,152
Mitsui Mining & Smelting Co., Ltd. 10,000 40,230
Mitsui O.S.K. Lines, Ltd. 7,000 9,727
Mitsui Trust & Banking Company, Ltd. 28,000 54,388
Mitsukoshi, Ltd. 9,000 23,977
Murata Manufacturing Company, Ltd. 5,000 125,912
Mycal Corporation 4,000 33,474
NEC Corporation 34,000 362,841
NGK Spark Plug Co., Ltd. 1,000 5,681
NKK Corporation 90,000 71,862
NSK Ltd. 4,000 9,981
NTN Corporation 57,000 132,161
Namco Limited 1,000 29,098
Nankai Electric Railway Co., Ltd. 40,000 175,048
Nichido Fire & Marine Insurance Co., Ltd. 4,000 20,883
Nikon Corporation 8,000 79,232
Nippon Comsys Corporation 1,000 12,361
Nippon Express Co., Ltd. 24,000 119,770
Nippon Fire & Marine Insurance Co., Ltd. 11,000 41,297
Nippon Light Metal Company Ltd. 5,000 7,294
Nippon Oil Co., Ltd. 43,000 111,255
Nippon Paper Industries Co., Ltd. 26,000 102,203
Nippon Steel Corp. 144,000 213,374
Nippon Telegraph & Telephone Corp. 276 2,373,282
Nippon Yusen Kabushiki Kaisha Chiyoda 18,000 49,474
Nippondenso Finance NV 18,000 324,760
Nissan Food Products 1,000 18,196
Nissan Motor Co., Ltd. 51,000 211,440
Nitto Denko Corp. 12,000 207,294
Nomura Securities Co., Ltd. 43,000 574,434
Noritake Co., Ltd. 2,000 9,551
OJI Paper Co., Ltd. 16,000 63,754
Obayashi Corporation 35,000 119,309
Omron Corporation 7,000 109,635
Orix Corporation 1,000 69,866
Osaka Gas Co., Ltd. 38,000 86,940
Pioneer Electronic Corp. 4,000 61,727
Rohm Company, Limited 2,000 204,223
SMC Corporation 2,000 176,583
Sakura Bank Ltd. 74,000 211,916
Sankyo Company Limited 9,000 203,839
Sanyo Electric Co., Ltd. 54,000 140,960
Secom Co., Ltd. 4,000 256,123
Sega Enterprises, Ltd. 3,000 54,357
Seino Transportation Co., Ltd. 22,000 109,958
Sekisui Chemical Co., Ltd. 16,000 81,443
Sekisui House, Ltd. 21,000 135,271
Seventy-Seven Bank Ltd. 4,000 28,560
Sharp Corporation 22,000 151,678
Shimano Inc. 6,000 110,557
Shimizu Corporation 24,000 55,647
Shin-Etsu Chemical Co., Ltd. 7,000 133,820
Shiseido Company, Ltd. 13,000 177,658
Shizuoka Bank, Ltd. (The) 17,000 182,726
Sony Corporation 8,000 712,476
Sumitomo Bank, Ltd. 68,000 777,889
Sumitomo Chemical Co., Ltd. 33,000 76,008
Sumitomo Corporation 24,000 134,511
Sumitomo Electric Industries Ltd. 14,000 191,324
Sumitomo Heavy Industries, Ltd. 3,000 9,190
Sumitomo Marine & Fire
Insurance Co., Ltd. 18,000 95,355
Sumitomo Metal & Mining Co., Ltd. 25,000 82,534
Sumitomo Metal Industries, Ltd. 70,000 89,750
Taisho Pharmaceutical Co., Ltd. 5,000 127,831
Taiyo Yuden Co., Ltd. 2,000 13,896
Takara Shuzo Co., Ltd. 2,000 7,447
Takashimaya Co. 9,000 54,587
Takeda Chemical Industries, Ltd. 18,000 514,088
Teikoku Oil Co., Ltd. 57,000 148,791
Toho Co., Ltd. 1,100 117,390
Tohoku Electric Power Company, Inc. 11,000 167,217
Tokai Bank, Limited 44,000 205,390
Tokio Marine & Fire Insurance Co., Ltd. 33,000 374,971
Tokyo Broadcasting System, Inc. 4,000 50,672
Tokyo Dome Corporation 3,000 19,992
Tokyo Electric Power Co., Inc. (The) 28,000 511,631
Tokyo Electron Limited 4,000 128,369
Tokyo Gas Co., Ltd. 48,000 109,083
Tokyu Corporation 27,000 104,476
Toppan Printing Co., Ltd. 20,000 261,036
Toray Industries, Inc. 23,000 103,301
Tostem Corporation 7,000 75,240
Toto Ltd. 3,000 19,209
Toyo Seikan Kaisha, Ltd. 8,000 114,242
Toyobo Co., Ltd. 118,000 143,140
Toyoda Automatic Loom Works, Ltd. 17,000 313,244
Toyota Motor Corporation 82,000 2,354,549
UNI-CHARM Corporation 1,000 35,470
UNY Co., Ltd. 5,000 68,714
Wacoal Corp. 15,000 149,712
Yamaguchi Bank Ltd. 3,000 36,852
Yamaha Corporation 6,000 68,177
Yamaichi Securities Company Ltd. 23,000 177
Yamanouchi Pharmaceutical Co., Ltd. 4,000 85,988
Yamato Transport Co., Ltd. 23,000 309,021
Yamazaki Baking Co., Ltd. 2,000 19,501
+Yasuda Trust & Banking Co., Ltd. 29,000 28,944
Yokogawa Electric Corporation 3,000 18,564
-----------------------------------------------------------------------
Total Investments in Japan
(Cost--$39,971,369)--22.2% 31,872,451
==============================================================================================
Malaysia Commerce Asset Holding BHD 59,000 28,247
Rashid Hassain BHD 99,000 47,907
Resorts World BHD 60,000 101,158
Telekom Malaysia BHD 44,000 130,245
-----------------------------------------------------------------------
Total Investments in Malaysia
(Cost--$722,564)--0.2% 307,557
==============================================================================================
Netherlands ABN AMRO Holding N.V. 17,800 346,765
Akzo N.V. 800 137,936
Elsevier N.V. 10,800 174,709
Heineken N.V. 800 139,278
Internationale Nederlanden Groep N.V. 10,312 434,329
Koninklijke Ahold N.V. 10,800 281,772
Philips Electronics N.V. 4,000 239,890
Royal Dutch Petroleum N.V. 19,600 1,075,893
Royal PTT Nederland N.V. 6,900 287,897
Unilever N.V. 8,000 493,194
Wolters Kluwer N.V. 1,200 155,001
-----------------------------------------------------------------------
Total Investments in the Netherlands
(Cost--$3,282,921)--2.6% 3,766,664
==============================================================================================
</TABLE>
14 & 15
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
-----------------------------------------------------------------------
Shares Value
COUNTRY Investments Held (Note 1a)
==============================================================================================
<S> <C> <C> <C>
New Zealand Brierley Investments Limited 193,600 $ 138,186
Fletcher Challenge Building 34,900 71,289
Fletcher Challenge Forests Division 44,900 37,259
Fletcher Challenge Paper 63,000 82,258
Telecom Corporation of New Zealand 45,100 218,532
-----------------------------------------------------------------------
Total Investments in New Zealand
(Cost--$682,894)--0.4% 547,524
==============================================================================================
Norway Aker RGI ASA (Class A) 3,700 66,870
Aker RGI ASA (Class B) 1,900 30,982
Christiania Bank og Kreditkasse 42,000 170,077
Dyno Industriere ASA 6,400 123,495
Elkem ASA 4,200 55,932
Kvaerner ASA 2,100 107,297
Norsk Hydro ASA 11,000 537,369
+Nycomed Amersham PLC 2,667 100,388
Orkla ASA (A Shares) 2,100 181,207
+Petroleum Geo-Services ASA 1,600 101,101
+Storebrand ASA 13,700 96,807
-----------------------------------------------------------------------
Total Investments in Norway
(Cost--$1,609,177)--1.1% 1,571,525
==============================================================================================
Singapore City Development Ltd. 11,000 51,011
+Creative Technology Ltd. 1,000 20,333
DBS Land Ltd. 58,000 88,966
Keppel Corporation Ltd. 62,000 178,407
Singapore Airlines Ltd. 37,000 241,974
-----------------------------------------------------------------------
Total Investments in Singapore
(Cost--$907,701)--0.4% 580,691
==============================================================================================
Spain Acerinox S.A. 600 88,461
Autopista Concesionaria Espanola S.A.
(ACESA) 11,500 154,102
Banco Bilbao Vizcaya S.A. 24,600 794,692
Banco Central Hispanoamericano S.A. 14,400 350,069
Banco Santander S.A. 18,000 600,354
Corporacion Bancaria de Espana S.A.
(Argentaria) 4,400 267,270
Corporacion Financiera Alba S.A. 1,100 115,687
Endesa S.A. 38,400 680,637
Fomento de Construcciones y
Contratas S.A. 3,200 121,617
Gas Natural SDG S.A. 6,000 310,596
Iberdrola S.A. 34,200 449,322
Repsol S.A. (ADR) (d) 11,100 472,774
Tabacalera S.A. (Class A) 1,900 153,758
Telefonica de Espana S.A. 33,700 960,586
Union Electrica-Fenosa S.A. 15,000 143,503
-----------------------------------------------------------------------
Total Investments in Spain
(Cost--$4,759,549)--4.0% 5,663,428
==============================================================================================
Sweden ABB AB (A Shares) 13,500 159,834
Astra AB 'A' Fria 23,133 400,628
Electrolux AB 1,800 124,920
H & M Hennes & Mauritz AB 3,200 141,067
Forsakrings AB Skandia 2,200 103,772
Skandinaviska Enskilda Banken AB 9,100 115,190
Skanska Banken AB (B Shares) 2,900 118,893
Svenska Cellulosa AB (SCA) (B Shares) 6,500 146,136
Svenska Handelsbanken AB 4,000 138,296
Telefonaktiebolaget LM
Ericsson (B Shares) 15,400 578,991
Volvo AB (B Shares) 6,600 177,064
-----------------------------------------------------------------------
Total Investments in Sweden
(Cost--$2,020,099)--1.5% 2,204,791
==============================================================================================
Switzerland ABB AG (Bearer) 100 125,728
Credit Suisse Group AG (Registered Shares) 1,350 209,044
Nestle SA 300 449,949
Novartis AG 400 649,538
Roche Holding AG 50 496,917
Schweizerische Bankgesellschaft AG 200 289,414
Schweizerische Rueckversicherungs-
Gesellschaft AG 100 187,187
Schweizerischer Bankverein AG 600 186,639
Zuerich Versicherungs-Gesellschaft 550 262,282
-----------------------------------------------------------------------
Total Investments in Switzerland
(Cost--$2,212,854)--2.0% 2,856,698
==============================================================================================
United Kingdom Abbey National PLC 16,300 292,091
B.A.T. Industries PLC 36,400 331,220
BG PLC 50,117 225,549
BTR PLC 53,100 160,479
Barclays PLC 15,100 401,292
Bass PLC 10,700 165,994
Boots Company PLC (The) 20,000 287,930
British Aerospace PLC 4,700 133,938
British Airways PLC 11,700 107,617
British Petroleum Co. PLC (The) 56,392 740,991
British Sky Broadcasting Group PLC 20,800 155,788
British Telecommunications PLC 67,700 532,079
Burmah Castrol PLC 15,900 276,827
Cable & Wireless PLC 26,400 231,987
Cadbury Schweppes PLC 15,800 159,212
Carlton Communications PLC 30,500 235,452
Diageo PLC 51,700 475,112
EMI Group PLC 26,300 219,445
General Electric Company PLC 41,300 267,610
Glaxo Wellcome PLC 37,800 894,046
Granada Group PLC 10,100 154,280
Great Universal Stores PLC 11,300 142,357
HSBC Holdings PLC 18,600 458,869
HSBC Holdings PLC 8,900 228,045
Imperial Chemical Industries PLC 14,800 231,179
Kingfisher PLC 15,500 215,890
Lloyds/TSB PLC 55,300 714,834
LucasVarity PLC 27,900 98,525
Marks and Spencer PLC 29,200 287,286
National Grid Group PLC 22,500 106,804
National Power PLC 15,900 156,694
Pearson PLC 9,200 119,528
Peninsular & Oriental Steam Navigation
Co. (The) 21,200 241,135
Prudential Corporation PLC 20,900 251,969
Railtrack Group PLC 6,700 106,416
Rank Group PLC 17,600 97,998
Reed International PLC 16,900 169,325
Reuters Holdings PLC 19,900 217,360
Rio Tinto PLC 13,000 159,930
Royal & Sun Alliance Insurance Group PLC 20,800 209,425
Royal Bank of Scotland Group PLC (The) 15,100 191,718
Sainsbury (J.) PLC 19,300 161,354
Scottish & Newcastle PLC 18,200 222,856
Scottish Power PLC 17,800 157,292
SmithKline Beecham PLC 50,800 519,825
Tesco PLC 21,372 173,762
Unilever PLC 36,400 311,490
Vodafone Group PLC 38,800 279,770
Zeneca Group PLC 10,000 351,002
-----------------------------------------------------------------------
Total Investments in the United Kingdom
(Cost--$11,550,770)--9.1% 13,031,577
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM Face
SECURITIES Amount Issue
==============================================================================================
<S> <C> <C> <C>
Commercial $2,000,000 Eureka Securitization, Inc., 5.80%
Paper*--7.3% due 2/09/1998 $1,987,433
3,444,000 General Motors Acceptance Corp., 6.75%
due 1/02/1998 3,443,354
5,000,000 Lexington Parker Capital Corp., 5.93%
due 1/20/1998 4,984,351
==============================================================================================
</TABLE>
16 & 17
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (concluded)
---------------------------------------------------------------------------
Face Value
Amount Issue (Note la)
==================================================================================================
<S> <C> <C> <C>
US Government $2,000,000 Federal Home Loan Banks, 5.57% due 3/04/1998 (c) $ 1,980,815
Agency Obligations*--
1.4%
---------------------------------------------------------------------------
Total Investments in Short-Term Investments
(Cost--$12,395,953)--8.7% 12,395,953
==================================================================================================
Total Investments (Cost--$141,360,565)--98.9% 141,770,411
Unrealized Depreciation on Forward Foreign Exchange
Contracts**--(0.1%) (88,722)
Variation Margin on Financial Futures Contracts***--0.0% 27,457
Other Assets Less Liabilities--1.2% 1,708,654
------------
Net Assets--100.0% $143,417,800
============
==================================================================================================
</TABLE>
(a) Warrants entitle the Series to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to
adjustments under certain conditions until the expiration date.
(b) Security may be offered and sold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933.
(c) Security held as collateral in connection with open financial futures
contracts.
(d) American Depositary Receipts (ADR).
* Commercial Paper and certain US Government Agency Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Series.
** Forward foreign exchange contracts as of December 31, 1997 were as follows:
- -------------------------------------------------------------
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
- -------------------------------------------------------------
A$ 386,342 March 1998 $ (2,861)
DM 3,085,130 March 1998 (30,540)
Frf 6,324,145 March 1998 (16,751)
HK$ 1,160,640 March 1998 140
(pound) 702,908 March 1998 (2,356)
Lit 1,270,490,000 March 1998 (13,609)
Pta 57,849,200 March 1998 (7,661)
Skr 1,921,815 March 1998 (6,922)
(yen) 238,459,200 March 1998 (8,162)
- -------------------------------------------------------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts -- Net
(US$ Commitment -- $7,608,087) $ (88,722)
==========
- -------------------------------------------------------------
*** Financial futures contracts purchased as of December 31, 1997 were
as follows:
- -----------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Note 1a)
- -----------------------------------------------------------------------
3 Hang Seng HKFE January 1998 $ 207,551
20 IBEX 35 MEFF January 1998 952,297
14 OMX OMLX January 1998 424,502
18 DTB DAX March 1998 4,281,354
21 CAC MATIF March 1998 2,111,165
11 FTSE LIFFE March 1998 2,341,096
113 Nikkei 300 OSAKA March 1998 2,058,726
13 MIB 30 MSE March 1998 1,858,591
9 All Ordinaries SFE March 1998 386,108
- -----------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$14,496,807) $14,621,390
===========
- -----------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES As of December 31, 1997
============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$141,360,565) (Note 1a)............. $141,770,411
Cash ....................................................................... 7,584
Foreign cash (Note 1c) ..................................................... 1,410,507
Receivables:
Securities sold.......................................................... $ 737,586
Dividends................................................................ 221,955
Contributions............................................................ 135,211
Variation margin (Note 1b)............................................... 27,457 1,122,209
---------
Deferred organization expenses (Note 1f)................................... 11,163
Other assets............................................................... 2,304
------------
Total assets............................................................... 144,324,178
------------
============================================================================================================================
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b).... 88,722
Payables:
Withdrawals.............................................................. 733,235
Investment adviser (Note 2).............................................. 3,142 736,377
---------
Accrued expenses and other liabilities..................................... 81,279
------------
Total liabilities ......................................................... 906,378
------------
============================================================================================================================
Net Assets: Net assets................................................................. $143,417,800
============
============================================================================================================================
Net Assets Partners' capital.......................................................... $143,001,193
Consist of: Unrealized appreciation on investments and foreign currency
transactions--net.......................................................... 416,607
------------
Net assets................................................................. $143,417,800
============
============================================================================================================================
</TABLE>
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES For the Period April 9, 1997+ to December 31, 1997
============================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends (net of $208,452 foreign withholding tax)........................ $ 1,490,569
(Notes 1d & 1e): Interest and discount earned............................................... 613,295
Other...................................................................... 1,306
-----------
Total income............................................................... 2,105,170
-----------
============================================================================================================================
Expenses: Custodian fees............................................................. $ 127,762
Investment advisory fees (Note 2).......................................... 100,102
Accounting services (Note 2)............................................... 68,823
Pricing fees............................................................... 22,330
Professional fees.......................................................... 8,155
Trustees' fees and expenses................................................ 3,361
Other...................................................................... 1,295
----------
Total expenses before reimbursement........................................ 331,828
Reimbursement of expenses (Note 2)......................................... (35,546)
----------
Total expenses after reimbursement......................................... 296,282
-----------
Investment income--net...................................................... 1,808,888
-----------
============================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net.......................................................... 1,983,095
(Loss) on Foreign currency transactions--net........................................ (292,940) 1,690,155
Investments & ----------
Foreign Currency Unrealized appreciation (depreciation) from:
Transactions - Net Investments--net.......................................................... 534,429
(Notes 1b, 1c, 1e Foreign currency transactions--net........................................ (117,822) 416,607
& 3): ---------- -----------
Net realized and unrealized gain on investments and foreign currency
transactions............................................................. 2,106,762
-----------
Net Increase in Net Assets Resulting from Operations....................... $ 3,915,650
===========
============================================================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL April 9, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
============================================================================================================================
<S> <C> <C>
Operations: Investment income--net..................................................... $ 1,808,888
Realized gain on investments and foreign currency transactions--net........ 1,690,155
Unrealized appreciation on investments and foreign currency
transactions--net.......................................................... 416,607
------------
Net increase in net assets resulting from operations....................... 3,915,650
------------
============================================================================================================================
Net Capital Increase in net assets derived from net capital contributions.............. 139,502,150
Contributions: ------------
============================================================================================================================
Net Assets: Total increase in net assets............................................... 143,417,800
Beginning of period........................................................ --
------------
End of period.............................................................. $143,417,800
============
============================================================================================================================
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
INTERNATIONAL The following ratios have been derived from April 9, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
============================================================================================================================
<S> <C> <C>
Ratios to Average Expenses, net of reimbursement............................................. .33%*
Net Assets: =========
Expenses................................................................... .36%*
=========
Investment income--net...................................................... 1.99%*
=========
============================================================================================================================
Supplemental Net assets, end of period (in thousands)................................... $ 143,418
Data: =========
Portfolio turnover......................................................... 14.79%
=========
Average commission rate paid++.............................................. $ .0118
=========
============================================================================================================================
</TABLE>
* Annualized.
++ Includes commissions paid in foreign currencies, which have been converted
into US dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the rate shown.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH INTERNATIONAL INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch International Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. The following is a
summary of significant accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Portfolio securities which are traded both on the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued at the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Short-term securities are valued at amortized cost, which approximates market
value. Other investments, including futures contracts
20 & 21
<PAGE>
Merrill Lynch International Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH INTERNATIONAL INDEX SERIES
and related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Trust's Board of
Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell stock index
futures contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Series is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Series' records. However, the effect on operations is recorded from the date the
Series enters into such contracts. Premium or discount is amortized over the
life of the contracts.
o Foreign currency options and futures--The Series may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Series, sold by the Series but not yet delivered, or committed or anticipated to
be purchased by the Series.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends from
foreign securities where the ex-dividend date may have passed are subsequently
recorded when the Series has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a five-year period.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Series has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co.") which is the limited partner.
MLAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.11% of the average daily value of the Series' net
assets. For the period April 9, 1997 to December 31, 1997, MLAM earned fees of
$100,102, of which $35,546 was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 9, 1997 to December 31, 1997 were $142,020,773 and $14,703,706,
respectively.
Net realized and unrealized gains (losses) as of December 31, 1997 were as
follows:
- ---------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- ---------------------------------------------------------------------------
Investments:
Long-term........................... $ 1,667,804 $ 409,846
Financial futures contracts......... 315,291 124,583
------------ -----------
Total investments.................... 1,983,095 534,429
------------ -----------
Currency transactions:
Foreign currency transactions....... 74,950 (29,100)
Forward foreign exchange contracts.. (367,890) (88,722)
------------ -----------
Total currency transactions.......... (292,940) (117,822)
------------ -----------
Total................................ $ 1,690,155 $ 416,607
============ ===========
- ---------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $156,303, of which $13,170,848 related to appreciated
securities and $13,014,545 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$141,614,108.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors of
Merrill Lynch Index Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch International Index Series (one of
the series constituting Merrill Lynch Index Trust)as of December 31, 1997, the
related statements of operations and changes in net assets, and the financial
highlights for the period April 9, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes assessing
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
International Index Series of the Merrill Lynch Index Trust as of December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for the period April 9, 1997 to December 31, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1998
22 & 23
<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--12/97
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