MERRILL LYNCH
SMALL CAP
INDEX FUND
Merrill Lynch
Index Funds, Inc.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Annual Report
December 31, 1997
<PAGE>
Merrill Lynch Small Cap 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 Merrill Lynch Small Cap Index Fund
to shareholders of record on December 8, 1997, 23.69% qualifies for the
dividends received deduction for corporations.
Additionally, the Fund paid a long-term capital gain distribution of $0.087535
to shareholders of record on December 8, 1997. Of this amount, 1.64% is subject
to the 28% tax rate and 98.36% is subject to the 20% tax rate.
Please retain this information for your records.
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
DEAR SHAREHOLDER
Fiscal Year in Review
Merrill Lynch Small Cap 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 $65.3 million. Since inception (April
9, 1997) through December 31, 1997, the Fund's Class A Shares had a total return
of +27.04%, based on a change in per share net asset value from $10.00 to
$12.28, and assuming reinvestment of $0.337 per share income dividends and
$0.088 per share capital gains distributions. Since inception (April 9, 1997)
through December 31, 1997, the Fund's Class D Shares had a total return of
+26.87%, based on a change in per share net asset value from $10.00 to $12.28,
and assuming reinvestment of $0.320 per share income dividends and $0.088 per
share capital gains distributions. This compares to the total return of +27.43%
for the unmanaged Russell 2000 Index. (For complete performance information, see
pages 3 and 4 of this report to shareholders.) The investment objective of the
Fund is to seek to replicate the return of the Russell 2000 Index. The Fund
seeks to achieve its objective by investing all of its assets in Merrill Lynch
Small Cap Index Series.
There are two principal investments made by the Series in its attempt to
replicate the returns of the benchmark Russell 2000 Index. The primary
investment of the Series is an underlying equity portfolio in which most of the
Series' assets are placed. In addition, the Series maintains a long position in
Russell 2000 futures contracts which are used as a mechanism to equitize daily
cash inflows. The Series utilizes these futures as a way to maintain a pool of
liquidity to meet potential redemption activity. In addition, futures are often
a more efficient way to invest in the Russell 2000 Index since there are a large
number of stocks in the benchmark, many of which are illiquid. The use of the
underlying equity portfolio plus the futures contracts enables the Series to be
as fully invested as possible. We invest in an "optimized" portfolio of
equities, which as of year-end consisted of approximately 1,300 stocks
statistically selected to provide returns which closely approximate those of the
Russell 2000 Index. As of December 31, 1997, the Series' equity portfolio was
valued at $83,317,890. In addition, the Series held a long position of 54
Russell 2000 March 1998 futures. The futures contracts represent an underlying
investment in the Russell 2000 Index with a value of approximately $11.9
million. The cash is held by the Fund as a source of liquidity in the event of
shareholder redemption activity.
The launching of Merrill Lynch Small Cap Index Fund nearly coincided with a
strong rebound in small-cap stocks following the dismal first quarter of 1997.
Between the Fund's inception on April 9, 1997 and the end of June, the Russell
2000 Index produced a total return of +14.77%. On June 30, 1997, the annual
rebalancing of the Russell 2000 Index occurred. At this time, Frank Russell
Company revises the set of constituents of both the Russell 1000 and Russell
2000 Indexes, based upon current market capitalization data. This annual event
inevitably leads to a certain degree of turnover for funds indexed to any of the
Russell Indexes, as stocks being removed from the benchmark index are sold and
some of the newly added securities are purchased. For Merrill Lynch Small Cap
Index Series, 93 stocks which had been in the equity portfolio were dropped from
the Russell 2000 Index and were sold on June 30, generating proceeds of nearly
$5.5 million. These proceeds were used to purchase a portfolio 500 newly added
securities, thereby significantly reducing the expected "tracking error" of the
equity portfolio compared with the revised Russell 2000 Index.
The Index's strong performance persisted into the third quarter of the fiscal
year, as the unmanaged Russell 2000 Index posted a total return of +14.88% for
the three-month period ended September 30, 1997. The Fund's rapid growth during
the third quarter was achieved through a combination of the market's continued
gains coupled with strong levels of cash inflows.
Financial turmoil in Asia resulted in a market correction in October, and much
greater levels of volatility in equity markets around the world during the
fourth quarter of 1997. The Russell 2000 Index posted a total return of -3.35%
for the December quarter. With the Southeast Asian currency crisis affecting
markets around the world in August and September, the Russell 2000 Index
significantly outperformed the unmanaged Standard & Poor's 500 Index (S&P 500),
which is dominated by large-capitalization issues. While the S&P 500 had a total
return of -5.61% in August, the Russell 2000 Index was up 2.29% on a total
return basis. In September, the Russell 2000 Index had a total return of +7.32%,
while the S&P 500 had a total return of +5.47%. For the year ended December 31,
1997, the Russell 2000 Index had a total return of +22.36%, a solid performance
year, but badly lagged the S&P 500's total return of +33.36%.
Powered by a strong stock market rally in December, the financial services
sector was the greatest overall contributor to the gains posted by the Russell
2000 Index for the year. Also fueling the strong advance for the year was the
consumer staples sector, while technology and healthcare stocks lagged the
overall Index for the year.
In Conclusion
We appreciate your investment in Merrill Lynch Small Cap 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
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 Small Cap Index Fund Class A Shares $12.28 $13.17 $10.00 +23.67%(1) -6.09%(1)
- --------------------------------------------------------------------------------------------------------------
ML Small Cap Index Fund Class D Shares 12.28 13.16 10.00 +23.67(1) -6.02(1)
- --------------------------------------------------------------------------------------------------------------
ML Small Cap Index Fund Class A Shares--Total Return +27.04(2) -3.54(2)
- --------------------------------------------------------------------------------------------------------------
ML Small Cap Index Fund Class D Shares--Total Return +26.87(3) -3.60(3)
- --------------------------------------------------------------------------------------------------------------
Russell 2000 Index*--Total Return +27.43 -3.35
- --------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund commenced operations on April 9, 1997.
* An unmanaged broad-based index comprised of smaller-capitalization common
stocks. Total investment returns for unmanaged indexes are based on
estimates.
(1) Percent change includes reinvestments of $0.088 per share capital gains
distributions.
(2) Percent change includes reinvestments of $0.337 per share ordinary income
dividends and $0.088 per share capital gains distributions.
(3) Percent change includes reinvestments of $0.320 per share ordinary income
dividends and $0.088 per share capital gains distributions.
2 & 3
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
PERFORMANCE DATA (concluded)
Total Return
Based on a $10,000
Investment
================================================================================
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 Russell 2000 Small
Stock Index. Beginning and ending values are:
4/09/97** 12/97
ML Small Cap Index Fund+--
Class A Shares* $10,000 $12,704
ML Small Cap Index Fund+--
Class D Shares* $10,000 $12,687
Russell 2000 Small Stock Index+++ $10,000 $12,743
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Merrill Lynch Small Cap Index Series
of the Merrill Lynch Index Trust. The Trust may invest in a statistically
selected sample of stocks included in the Russell 2000 and other types of
financial instruments.
+++ This unmanaged index is comprised of approximately 2,000
smaller-capitalization common stocks from various industrial sectors. Past
performance is not predictive of future performance.
================================================================================
Aggregate
Total Return
% Return
- -------------------------------------------------------------
Class A Shares
- -------------------------------------------------------------
Inception (4/09/97) through 12/31/97 +27.04%
- -------------------------------------------------------------
% Return
- -------------------------------------------------------------
Class D Shares
- -------------------------------------------------------------
Inception (4/09/97) through 12/31/97 +26.87%
- -------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND As of December 31, 1997
======================================================================================================================
<S> <C> <C>
Assets: Investment in Merrill Lynch Small Cap Index Series, at value (Note 1a) (identified
cost--$58,437,415) ................................................................ $ 65,219,678
Receivable from administrator (Note 2)............................................. 61,443
Deferred organization expenses (Note 1d)........................................... 13,019
Prepaid registration fees and other assets (Note 1d)............................... 17,213
------------
Total assets....................................................................... 65,311,353
------------
======================================================================================================================
Liabilities: Distributor payable (Note 2)....................................................... 8,599
Accrued expenses and other liabilities............................................. 46,476
------------
Total liabilities ................................................................. 55,075
------------
======================================================================================================================
Net Assets: Net assets......................................................................... $ 65,256,278
============
======================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized... $ 216
Consist of: Class D Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized... 316
Paid-in capital in excess of par................................................... 58,286,576
Accumulated distributions in excess of investment income--net (Note 1e)............ (832)
Undistributed realized capital gains on investments from the Series--net........... 187,739
Unrealized appreciation on investments from the Series--net........................ 6,782,263
------------
Net assets......................................................................... $ 65,256,278
============
======================================================================================================================
Net Asset Class A--Based on net assets of $26,477,750 and 2,155,745 shares outstanding....... $ 12.28
============
Value: Class D--Based on net assets of $38,778,528 and 3,158,238 shares outstanding....... $ 12.28
============
======================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND For the Period April 9, 1997+ to December 31, 1997
======================================================================================================================
<S> <C> <C> <C>
Investment Income Investment income allocated from the Series........................................ $ 695,026
(Note 1b): Expenses allocated from the Series................................................. (65,394)
------------
Net investment income from the Series.............................................. 629,632
------------
======================================================================================================================
Expenses: Registration fees (Note 1d)........................................... $ 94,105
Administration fee (Note 2)........................................... 77,969
Account maintenance fee--Class D (Note 2)............................. 52,860
Printing and shareholder reports...................................... 49,021
Transfer agent fees (Note 2).......................................... 22,309
Professional fees..................................................... 2,606
Amortization of organization expenses (Note 1d)....................... 2,297
Accounting services (Note 2).......................................... 900
Other................................................................. 1,214
Total expenses before reimbursement................................... 303,281
------------
Reimbursement of expenses (Note 2).................................... (133,130)
------------
Total expenses after reimbursement................................................. 170,151
------------
Investment income--net............................................................. 459,481
------------
======================================================================================================================
Realized & Realized gain on investments from the Series--net.................................. 1,806,858
Unrealized Unrealized appreciation on investments from the Series--net........................ 6,782,263
Gain from the ------------
Series--Net: Net Increase in Net Assets Resulting from Operations............................... $ 9,048,602
============
======================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP April 9, 1997+ to
INDEX FUND Increase (Decrease) in Net Assets: December 31, 1997
=====================================================================================================================
<S> <C> <C>
Operations: Investment income--net............................................................. $ 459,481
Realized gain on investments from the Series--net.................................. 1,806,858
Unrealized appreciation on investments from the Series--net........................ 6,782,263
------------
Net increase in net assets resulting from operations............................... 9,048,602
=====================================================================================================================
Dividends & Investment income--net:
Distributions to Class A.......................................................................... (197,459)
Shareholders Class D.......................................................................... (262,022)
(Note 1e): In excess of investment income--net:
Class A.......................................................................... (358)
Class D.......................................................................... (474)
Realized gain on investments from the Series--net:
Class A.......................................................................... (624,160)
Class D.......................................................................... (994,959)
------------
Net decrease in net assets resulting from dividends and distributions to
shareholders..................................................................... (2,079,432)
------------
=====================================================================================================================
Capital Share Net increase in net assets derived from capital share transactions................. 58,262,108
Transactions ------------
(Note 4):
=====================================================================================================================
Net Assets: Total increase in net assets....................................................... 65,231,278
Beginning of period................................................................ 25,000
------------
End of period...................................................................... $ 65,256,278
============
=====================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Period
April 9, 1997+ to
MERRILL LYNCH The following per share data and ratios have been derived December 31, 1997
SMALL CAP from information provided in the financial statements. ---------------------
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 Investment income--net.................................................... .10 .09
Performance: Realized and unrealized gain on investments from the Series--net.......... 2.60 2.60
-------- --------
Total from investment operations.......................................... 2.70 2.69
-------- --------
Less dividends and distributions:
Investment income--net.................................................. (.10) (.09)
In excess of investment income--net..................................... --** --**
Realized gain on investments from the Series--net....................... (.32) (.32)
-------- --------
Total dividends and distributions......................................... (.42) (.41)
-------- --------
Net asset value, end of period............................................ $ 12.28 $ 12.28
======== ========
=====================================================================================================================
Total Investment Based on net asset value per share........................................ 27.04%+++ 26.87%+++
Return: ======== ========
=====================================================================================================================
Ratios to Average Expenses, net of reimbursement++.......................................... .52%* .77%*
======== ========
Net Assets: Expenses++................................................................ 1.00%* 1.25%*
======== ========
Investment income--net.................................................... 1.45%* 1.20%*
======== ========
=====================================================================================================================
Supplemental Net assets, end of period (in thousands).................................. $ 26,478 $ 38,778
Data: ======== ========
=====================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated
expenses.
+++ Aggregate total investment return.
** Amount is less than $.01 per share.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
SMALL CAP
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch Small Cap Index Fund (the "Fund") is part of Merrill Lynch Index
Funds, Inc. The Fund is registered under the Investment Company Act of 1940 as a
non-diversified mutual fund. The Fund seeks to achieve its investment objective
by investing all of its assets in the Merrill Lynch Small Cap Index Series (the
"Series") of the Merrill Lynch Index Trust, which has the same investment
objective as the Fund. The value of the Fund's investment in the Series reflects
the Fund's proportionate interest in the net assets of the Series. The
performance of the Fund is directly affected by the performance of the Series.
The financial statements of the Series, including the Schedule of Investments,
are included elsewhere in this report and should be read in conjunction with the
Fund's financial statements. 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 invesment income of the Series, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
(c) Income taxes--It is the Fund's policy to comply with the 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.
6 & 7
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
SMALL CAP
INDEX FUND
(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 Plans
adopted by the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor ongoing account maintenance fees. The
fees are accrued daily and paid monthly at the annual rate of 0.25% based upon
the average daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
also provides account maintenance services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class D shareholders.
The Fund has also entered into an Administrative Services Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), a wholly-owned subsidiary of ML & Co., which is the
limited partner. The Fund pays a monthly fee at an annual rate of 0.22% of the
Fund's average daily net assets for the performance of administrative services
(other than investment advice and related portfolio activities) necessary for
the operation of the Fund. For the period April 9, 1997 to December 31, 1997,
MLAM earned fees of $77,969, all of which were voluntarily waived. MLAM also
reimbursed the Fund of additional expenses of $55,161.
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 $63,007,061 and $7,006,150,
respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$58,262,108 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 April 9, Dollar
1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................... 3,127,791 $ 34,673,781
Shares issued to shareholders in reinvest-
ment of dividends and distributions ............ 63,047 776,099
---------- ------------
Total issued ................................... 3,190,838 35,449,880
Shares redeemed ................................ (1,036,343) (12,153,441)
---------- ------------
Net increase ................................... 2,154,495 $ 23,296,439
========== ============
- --------------------------------------------------------------------------------
+ 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 April 9, Dollar
1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................... 4,135,846 $ 46,521,104
Shares issued to shareholders in reinvest-
ment of dividends and distributions ............ 85,348 1,050,621
---------- ------------
Total issued ................................... 4,221,194 47,571,725
Shares redeemed ................................ (1,064,206) (12,606,056)
---------- ------------
Net increase ................................... 3,156,988 $ 34,965,669
========== ============
- --------------------------------------------------------------------------------
+ Prior to April 9, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
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 Small Cap 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 Small
Cap 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
Merrill Lynch Small Cap Index Series
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
AAR Corporation 2,100 $ 81,375
ABM Industries, Inc. 2,900 88,631
ABR Information Services, Inc. 2,500 59,688
+ ABT Building Products Corporation 1,800 32,400
ACC Corp. 1,500 75,750
ACNielsen Corporation 5,800 141,375
ADAC Laboratories 2,300 45,425
+ ADVO, Inc. 3,800 74,100
AGL Resources, Inc. 5,800 118,538
AK Steel Holding Corporation 4,400 77,825
ALBANK Financial Corporation 1,600 82,300
AMCOL International Corp. 4,350 69,056
AMCORE Financial Inc. 3,000 75,375
AMETEK, Inc. 3,100 83,700
+ AMRESCO, Inc. 4,100 124,025
+ ANADIGICS, Inc. 1,500 45,188
+ ANTEC Corporation 2,800 43,750
+ APAC Teleservices, Inc. 1,700 22,950
ASA Holdings, Inc. 2,300 65,406
+ ATL Ultrasound, Inc. 1,600 73,600
Aames Financial Corporation 2,100 27,169
+ Abacus Direct Corporation 1,400 57,400
+ Acceptance Insurance Holdings, Inc. 1,700 41,119
+ Access Health, Inc. 1,700 49,938
+ Acme Metals, Inc. 3,700 36,538
+ Actel Corp. 2,200 27,775
+ Action Performance Companies, Inc. 1,500 56,813
+ Acuson Corporation 2,300 38,094
Acxiom Corp. 5,100 98,175
+ Ade Corporation 700 12,250
+ Adtran, Inc. 3,000 82,500
+ Advanced Tissue Sciences, Inc. 3,300 40,425
+ Affiliated Computer Services, Inc. 4,000 105,250
+ Affymetrix, Inc. 2,500 77,813
+ Aftermarket Technology Corp. 2,000 36,250
+ Agouron Pharmaceuticals, Inc. 2,600 76,375
Air Express International Corporation 3,500 106,750
Airborne Freight Corporation 2,000 124,250
+ AirTran Holdings, Inc. 2,800 11,200
+ Alaska Air Group, Inc. 1,100 42,625
Albany International Corp. (Class A) 3,000 69,000
Albemarle Corporation 2,500 59,688
+ Alexander's, Inc. 400 36,325
+ Algos Pharmaceutical Corporation 1,500 45,000
Aliant Communications, Inc. 3,800 119,225
+ Alkermes, Inc. 2,000 39,750
+ Allen Telecom Inc. 3,500 64,531
+ Alliance Pharmaceutical Corporation 5,500 39,875
+ Alliance Semiconductor Corporation 2,500 11,406
+ Alliant Techsystems, Inc. 1,900 105,925
Allied Capital Commercial Corporation 1,920 42,720
Allied Group, Inc. 3,150 90,169
+ Allied Waste Industries, Inc. 7,700 179,506
Alpharma, Inc. (Class A) 1,634 35,540
+ Alternative Resources Corp. 1,700 39,206
+ Amati Communications Corporation 2,100 41,344
+ Amerco 1,400 35,875
+ America West Holdings Corp. (Class B) 3,800 70,775
+ American Business Information, Inc. (Class A) 1,500 14,625
+ American Business Information, Inc. (Class B) 1,500 15,375
8 & 9
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
American Health Properties, Inc. 1,800 $ 49,613
+ American Management Systems, Inc. 4,300 83,850
American Mobile 1,700 11,900
+ American Oncology Resources, Inc. 4,400 70,400
+ American Pad & Paper Company 3,400 32,725
+ American Radio Systems Corp. 1,900 101,294
+ American Residential Services, Inc. 1,800 28,125
+ AmeriCredit Corp. 2,700 74,756
+ Amerin Corporation 2,500 70,000
+ AmeriSource Health Corp. (Class A) 2,500 145,625
Ames Department Stores, Inc. 3,600 63,000
+ Amphenol Corp. (Class A) 1,700 94,669
+ Amylin Pharmaceuticals, Inc. 2,000 10,875
Analysts International Corp. 2,700 93,150
Anchor Bancorp, Inc. 1,900 69,113
+ Anchor Gaming 600 33,450
+ Andrx Corporation 1,000 34,250
+ Anixter International Inc. 4,900 80,850
+ AnnTaylor Stores Corporation 2,700 36,113
Apogee Enterprises, Inc. 3,800 45,125
Apple South, Inc. 3,100 40,688
Applebee's International, Inc. 3,200 57,800
Applied Industrial Technologies, Inc. 2,850 76,238
+ Applied Magnetics Corp. 3,500 38,938
Applied Power Inc. (Class A) 1,800 124,200
+ Apria Healthcare Group, Inc. 5,100 68,531
AptarGroup, Inc. 2,200 122,100
Aquarion Company 2,400 82,950
Arbor Drugs, Inc. 5,200 96,200
+ Arbor Software Corp. 1,200 48,600
+ Arcadia Financial Ltd. 3,000 22,313
Arctic Cat, Inc. 2,400 23,250
Arden Realty Group, Inc. 7,700 236,775
Argonaut Group, Inc. 1,900 64,363
+ Armco, Inc. 10,400 51,350
Arnold Industries, Inc. 2,600 44,850
Arrow International, Inc. 1,600 59,200
+ Arterial Vascular Engineering, Inc. 3,100 201,500
Arvin Industries, Inc. 2,300 76,619
+ Ascent Entertainment Group, Inc. 3,200 33,200
Aspect Development, Inc. 900 46,800
Aspect Telecommunications Corp. 6,900 144,038
Aspen Technologies, Inc. 2,200 75,350
Birmingham Steel Corp. 2,900 45,675
+ Black Box Corporation 1,800 63,675
Black Hills Corporation 2,700 95,175
Block Drug Company, Inc. (Class A) 927 39,398
Blount International, Inc. (Class A) 2,600 69,388
Bob Evans Farms, Inc. 5,000 110,625
Boole & Babbage, Inc. 2,300 68,713
+ Borland International, Inc. 3,100 22,669
+ Boston Beer Company, Inc. (Class A) 2,000 15,625
+ Boston Technology, Inc. 2,500 62,813
Bowne & Co., Inc. 1,800 71,775
+ Boyd Gaming Corporation 3,800 25,175
Brady (W.H.) Company (Class A) 2,800 86,800
Brightpoint, Inc. 4,600 63,825
+ Brinker International, Inc. 7,500 120,000
+ Bristol Hotel Company 3,100 90,094
+ Broderbund Software, Inc. 2,500 64,063
Brush Wellman, Inc. 2,300 56,350
Buckeye Technologies Inc. 2,400 111,000
+ Budget Group, Inc. 1,600 55,300
+ Buffets, Inc. 4,700 44,063
Burlington Coat Factory Warehouse Corp. 2,040 33,533
+ Burlington Industries, Inc. 6,600 91,163
Burnham Pacific Properties, Inc. 7,200 110,250
Burr-Brown Corp. 2,500 80,313
CBL & Associates Properties, Inc. 1,900 46,906
CCB Financial Corp. 800 86,000
+ CCC Information Services Group, Inc. 2,500 49,375
+ CDI Corporation 1,500 68,625
+ CDW Computer Centers, Inc. 1,100 57,338
+ CHS Electronics, Inc. 2,250 38,531
CILCORP, Inc. 2,300 112,413
CKE Restaurants, Inc. 4,600 193,775
CMAC Investment Corp. 2,800 169,050
CNB Bancshares, Inc. 1,965 94,688
+ CNET, Inc. 800 23,600
COMSAT Corporation 4,600 111,550
+ CONMED Corporation 1,700 44,625
+ COR Therapeutics, Inc. 3,400 76,500
CORESTAFF, Inc. 3,300 87,450
+ CORT Business Services Corp. 2,400 95,550
CPI Corporation 2,000 45,250
CRIIMI MAE, Inc. 3,000 45,000
Associated Banc-Corp 4,671 257,489
Associated Estates Realty Corp. 4,000 94,750
+ Associated Group, Inc. (Class A) 2,600 77,025
Astoria Financial Corp. 1,900 105,925
+ Asyst Technologies, Inc. 900 19,575
Atlantic Energy, Inc. 5,300 112,294
+ Atlas Air, Inc. 800 19,200
Atmos Energy Corporation 3,300 99,825
+ Atwood Oceanics, Inc. 1,400 66,325
+ Auspex Systems, Inc. 3,200 32,000
Authentic Fitness Corp. 3,100 57,156
+ Avant Corporation 2,300 38,525
+ Avid Technology, Inc. 2,500 66,875
+ Aztar Corporation 4,100 25,625
BB&T Corporation 1,588 101,731
+ BE Aerospace, Inc. 2,700 72,225
B.F. Goodrich Company (The) 1,680 69,615
+ BISYS Group, Inc. 3,300 109,725
+ BJ's Wholesale Club, Inc. 3,500 109,813
BMC Industries, Inc. 3,300 53,213
BREED Technologies, Inc. 2,700 49,275
+ BT Office Products International, Inc. 2,100 16,275
+ Baan Company, N.V. 640 20,960
Baldor Electric Company 4,267 92,533
Ball Corp. 3,100 109,469
Ballard Medical Products 3,500 84,875
BancorpSouth, Inc. 2,000 94,500
+ BancTec, Inc. 2,600 69,713
Bank of Granite Corp. 1,400 43,050
Bank United Corp. (Class A) 4,500 220,219
Banknorth Group, Inc. 1,000 64,250
Banta Corporation 3,200 86,400
+ Barnett Banks, Inc. 2,200 48,400
+ Barr Laboratories, Inc. 700 23,888
+ Barrett Resources Corp. 3,300 99,825
Bassett Furniture Industries, Inc. 1,500 45,000
Bay Apartment Communities, Inc. 2,100 81,900
Bay State Gas Company 2,400 89,100
Belden, Inc. 3,700 130,425
+ Bell & Howell Co. (Series B) 1,600 38,700
+ Benchmark Electronics, Inc. 1,700 37,931
+ Benton Oil & Gas Co. 4,500 58,219
Berkley (W.R.) Corporation 1,900 83,363
Berkshire Realty Company, Inc. 2,300 27,600
Berry Petroleum Co. (Class A) 3,900 68,006
+ Best Buy Co., Inc. 3,200 118,000
+ Big Flower Press Holdings, Inc. 2,300 55,488
+ Billing Information Concepts 2,300 110,400
+ Biomatrix, Inc. 1,100 33,000
+ Bio-Rad Laboratories, Inc. (Class A) 1,400 36,575
+ Bio Technology General Corp. 7,700 82,775
+ CSG Systems International, Inc. 2,700 108,000
+ CSS Industries, Inc. 1,700 54,188
+ CUNO Incorporated 2,300 35,075
+ Cable Design Technologies 1,800 69,975
+ Cable Michigan, Inc. 300 6,825
+ Cablevision System Corp. 1,500 143,625
Cabot Oil & Gas Corp. 3,300 64,144
Calgon Carbon Corporation 5,500 59,125
+ California Microwave, Inc. 1,600 31,000
California Water Service Co. 1,000 59,063
CalMat Company 2,300 64,113
+ Calpine Corporation 2,800 41,650
Cambrex Corporation 1,600 73,600
Camden Property Trust 2,432 75,392
+ Canandaigua Brands, Inc. (Class A) 1,900 105,213
+ Canandaigua Wine Company, Inc. 1,100 62,700
Capital Bancorp/Miami, Florida 1,100 63,594
Capital Re Corporation 1,700 105,506
CapMAC Holdings Inc. 1,600 55,600
+ CapStar Hotel Company 3,600 123,525
Caraustar Industries, Inc. 3,100 106,175
+ Carbide/Graphite Group, Inc. (The) 1,300 43,875
+ Caribiner International, Inc. 1,200 53,400
Carlisle Companies, Inc. 2,600 111,150
+ Carmike Cinemas, Inc. (Class A) 2,500 71,719
Carpenter Technology Corporation 1,900 91,319
+ Carson Pirie Scott & Company 2,100 105,263
Carter-Wallace, Inc. 2,600 43,875
Casey's General Stores, Inc. 3,700 93,888
Cash America International, Inc. 5,600 72,450
Castle (A.M.) & Company 2,000 45,750
+ Castle & Cooke, Inc. 3,000 50,625
Catalina Marketing Corporation 2,900 134,125
+ C-Cube Microsystems, Inc. 3,700 60,356
+ CellNet Data Systems, Inc. 3,800 29,450
+ CellStar Corporation 1,300 25,838
+ Cellular Communications International, Inc. 1,100 50,875
+ Centennial Cellular Corporation (Class A) 1,800 36,900
CenterPoint Properties Corp. 1,200 42,150
+ Central Garden & Pet Company 1,900 49,875
Central Hudson Gas & Electric 2,600 114,075
Central Louisiana Electric 2,900 93,888
Central Maine Power Company 5,300 80,825
Central Parking Corporation 1,500 67,969
Century Aluminum Company 2,900 39,150
+ Cephalon, Inc. 3,100 35,263
+ Cerner Corporation 2,700 57,038
+ Champion Enterprises, Inc. 5,600 115,150
+ Chancellor Media Corp. 1,181 88,132
+ Charming Shoppes, Inc. 11,500 53,906
Charter One Financial, Inc. 1,051 66,344
10 & 11
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
+ CheckFree Holdings Corporation 4,500 $121,500
+ Checkpoint Systems, Inc. 3,800 66,500
+ Cheesecake Factory (The) 2,000 61,000
ChemFirst Inc. 2,700 76,275
Chesapeake Corporation 1,900 65,313
Chesapeake Energy Corp. 3,400 25,713
Chicago Miniature Lamp, Inc. 1,100 37,125
+ Chips & Technologies, Inc. 1,900 27,431
Chittenden Corporation 2,250 78,750
+ Choice Hotels International, Inc. 5,000 80,000
Church & Dwight Co., Inc. 2,200 61,738
+ Ciber, Inc. 900 52,200
+ Cidco, Inc. 1,600 31,200
Cincinnati Milacron, Inc. 3,400 88,188
+ Cirrus Logic, Inc. 5,500 58,438
CitFed Bancorp, Inc. 1,950 76,050
+ Citrix Systems, Inc. 2,800 212,800
+ Cityscape Financial Corp. 1,200 600
Claire's Stores, Inc. 4,500 87,469
Clarcor, Inc. 2,400 71,100
+ Claremont Technology Group, Inc. 1,100 20,350
+ Clarify Inc. 2,100 24,413
+ Cliffs Drilling Company 1,500 74,813
+ Closure Medical Corporation 1,100 28,463
+ Coach USA, Inc. 2,200 73,700
+ Coast Savings Financial, Inc. 2,200 150,838
+ Coeur D'Alene Mines Corporation 6,900 62,100
+ Cognex Corporation 4,100 111,725
+ Coherent, Inc. 1,300 45,663
Cohu, Inc. 1,000 30,625
+ Cole National Corporation 1,600 47,900
+ Collins & Aikman Corp. 7,600 65,550
Colonial BancGroup, Inc. 2,700 92,981
Colonial Properties Trust 2,400 72,300
+ Columbia Laboratories, Inc. 3,000 47,625
Commerce Bancorporation Inc. 2,000 102,000
Commerce Group, Inc. 2,200 71,775
Commercial Federal Corp. 3,000 106,688
Commercial Metals Co. 1,900 59,969
+ Commnet Cellular, Inc. 1,400 49,788
Commonwealth Bancorp, Inc. 2,200 43,725
+ Commonwealth Telephone Enterprises, Inc. 1,000 25,875
Community First Bankshares, Inc. 2,700 143,775
Diamond Multimedia Systems, Inc. 3,200 28,400
Digital Microwave Corp. 5,100 73,950
Dime Bancorp, Inc. 1,644 49,731
Dimon, Inc. 5,000 131,250
Dionex Corporation 1,800 90,450
+ Documentum, Inc. 1,000 42,125
+ Dominick's Supermarkets, Inc. 1,700 62,050
Donaldson Company, Inc. 2,200 99,138
Downey Financial Corp. 1,900 54,031
+ Dress Barn, Inc. (The) 2,500 70,938
Dreyers Grand Ice Cream, Inc. 2,800 67,550
Dynatech Corporation 1,700 79,688
Dynex Capital, Inc., 3,800 50,588
EG & G, Inc. 4,700 97,819
+ ENCAD, Inc. 1,300 35,750
ESS Technology, Inc. 1,600 12,150
E'Town Corporation 2,000 80,375
+ E* Trade Group, Inc. 3,200 73,600
+ EXCEL Communications, Inc. 1,063 15,414
Eagle Hardware & Garden, Inc. 3,000 58,125
Earthgrains Company (The) 2,100 98,700
Eastern Enterprises 2,200 99,000
Eastern Utilities Associates 4,100 107,625
Eaton Vance Corp. 1,700 64,175
Elcor Corp. 2,250 54,000
+ Electro Scientific Industries, Inc. 1,000 38,000
Electroglas, Inc. 3,200 49,400
Emmis Broadcasting Corp. (Class A) 1,000 45,625
Empire District Electric Company (The) 4,400 86,350
+ Encore Wire Corporation 900 27,619
Enhanced Financial Services Group, Inc. 1,700 101,150
Envoy Corporation 2,600 75,725
Enzo Biochem, Inc. 2,100 30,713
Equitable Resources, Inc. 3,700 130,888
Equity Inns Inc. 4,000 59,000
+ Essex International Inc. 1,800 53,550
Esterline Technologies Corporation 1,200 43,200
Etec Systems, Inc. 2,400 111,600
Ethan Allen Interiors, Inc. 3,200 123,400
Exabyte Corporation 2,700 17,381
Excel Realty Trust, Inc. 1,600 50,400
Executive Risk Inc. 1,800 125,663
Exide Corporation 1,900 49,163
+ Compdent Corporation 900 18,253
+ Computer Horizons Corporation 2,750 123,750
+ Computer Products, Inc. 2,500 56,563
Computer Task Group, Inc. 1,800 64,013
+ Computervision Corporation 5,200 19,825
+ Comverse Technology, Inc. (New Shares) 2,600 101,400
+ Concentra Managed Care, Inc. 2,671 90,146
+ Consolidated Freightways Corporation 2,800 38,150
+ Consolidated Graphics, Inc. 800 37,300
+ Consolidated Products, Inc. 3,250 53,219
+ Converse, Inc. 2,100 12,600
+ Cooper Companies, Inc. 1,300 53,138
Coors (Adolph) Co. (Class B) 3,600 119,700
+ CopyTele, Inc. 4,100 14,350
Cornerstone Properties, Inc. 3,500 67,156
Cousins Properties, Inc. 2,100 61,556
+ Covance, Inc. 6,200 123,225
+ Coventry Ventures, Inc. 4,400 67,100
Crawford & Company (Class B) 5,800 118,538
+ Creative BioMolecules, Inc. 3,400 25,075
+ Credence Systems Corp. 2,200 65,175
+ Credit Acceptance Corp. 1,600 12,400
+ Crescent Operating, Inc. 570 13,965
Cross Timbers Oil Company 3,800 94,763
Cullen/Frost Bankers, Inc. 2,100 127,444
+ Culligan Water Technologies, Inc. 2,694 135,374
+ Curative Health Services, Inc. 1,300 39,488
+ Cygnus, Inc. 1,900 37,763
+ Cymer, Inc. 2,600 39,000
Cytogen Corp. 4,300 6,988
+ Cytyc Corporation 1,700 42,288
DII Group, Inc. 2,200 59,950
D.R. Horton, Inc. 1,200 20,850
DSP Communications, Inc. 4,500 54,000
+ Dal-Tile International Inc. 3,800 46,550
+ Dames & Moore Group 1,900 25,175
Daniel Industries 900 17,325
+ Data Dimensions, Inc. 1,100 18,975
Data General Corporation 3,600 62,775
Data Transmission Network Corp. 1,400 39,200
+ Datascope Corp. 1,900 49,163
Dekalb Genetics Corporation (Class B) 3,000 117,750
Delmarva Power & Light Company 6,000 138,375
+ Delphi Financial Group, Inc. (Class A) 2,500 112,500
Delta & Pine Land Company 4,710 143,655
Deltic Timber Corporation 1,600 43,800
Department 56, Inc. 2,800 80,500
Devon Energy Corporation 2,800 107,800
Devry, Inc. 3,800 121,125
Dexter Corporation (The) 2,300 99,331
+ Dialogic Corporation 1,200 52,500
Expeditors International of Washington, Inc. 2,800 107,800
Express Scripts, Inc. (Class A) 1,300 78,000
F & M National Corp. 2,600 89,213
FBL Financial Group, Inc. 1,900 76,238
+ FEI Company 1,800 22,388
F.N.B. Corporation 1,700 63,963
+ FPA Medical Management, Inc. 2,100 39,113
+ FSI International, Inc. 2,500 29,375
Fabri-Centers of America, Inc. (Class A) 1,900 42,394
Fair Isaac & Company, Inc. 1,200 39,975
+ Fairchild Corporation (The) (Class A) 1,500 37,313
+ Fairfield Communities, Inc. 1,600 70,600
Fedders Corporation 6,800 42,500
Federal Mogul Corp. 3,300 133,650
FelCor Suite Hotels, Inc. 1,900 67,450
Ferro Corporation 4,050 98,466
Fidelity National Financial, Inc. 4,840 150,645
+ Figgie International, Inc. 4,400 57,750
+ FileNet Corporation 2,400 72,300
Financial Security Assurance Holdings Ltd. 3,300 159,225
Fingerhut Companies, Inc. 4,800 102,600
+ First American Financial Corporation 1,400 103,425
First Brands Corporation 4,200 113,138
First Citizens Bancshares, Inc. 600 62,419
First Commonwealth Financial Corp. 3,000 105,188
First Federal Savings Bank of Colorado 2,900 68,875
First Financial Bancorp Ohio 1,490 71,893
First Industrial Realty Trust, Inc. 2,400 86,700
First Midwest Bancorp, Inc. 1,900 83,125
+ First Plus Financial Group Inc. 2,200 84,425
First Western Bancorp, Inc. 2,400 68,400
FirstBank Puerto Rico 2,200 74,938
Firstbank of Illinois Co. 2,400 88,350
Fisher Scientific International, Inc. 2,000 95,500
Fleetwood Enterprises, Inc. 2,800 118,825
Fleming Companies, Inc. 3,800 51,063
Florida Rock Industries, Inc. 1,400 31,850
Flowserve Corporation 4,132 115,438
+ Foodmaker, Inc. 5,600 84,350
+ Footstar, Inc. 3,400 91,375
+ Forcenergy Inc. 1,400 36,663
Foremost Corporation of America 1,000 69,750
Forest Oil Corporation 3,000 49,500
Fort Wayne National Corp. 2,600 119,600
+ Forte Software, Inc. 2,200 16,775
Franchise Finance Corporation of America 4,500 121,500
+ Franklin Covey Co. 3,000 66,000
+ Fred Meyer, Inc. 1,890 68,749
+ Freeport-McMoRan Sulphur Inc. 507 5,959
Fremont General Corporation 2,700 147,825
+ Friedman's, Inc. (Class A) 1,700 23,163
12 & 13
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Frontier Insurance Group, Inc. 3,400 $ 77,775
Fuller (H.B.) Company 1,500 74,250
Fulton Financial Corporation 3,000 97,500
Fund American Enterprises Inc. 600 72,600
+ Furniture Brands International, Inc. 5,200 106,600
Furon Company 2,000 41,750
Fusion Systems Corporation
(Contingent Value Rights) (b) 600 413
G & K Services, Inc. (Class A) 2,200 92,400
+ GC Companies, Inc. 1,300 61,588
+ GT Interactive Software Corp. 2,700 17,213
+ Gadzooks Inc. Company 1,000 21,000
+ Galey & Lord, Inc. 3,000 53,625
Gallagher (Arthur J.) & Co. 2,400 82,650
+ Galoob Lewis Toys, Inc. 3,600 36,675
+ Garden Ridge Corp. 2,000 28,500
+ Gaylord Container Corp. 6,200 35,650
+ GelTex Pharmaceuticals, Inc. 1,500 39,750
GenCorp, Inc. 2,200 55,000
General Cable Corp. 1,600 57,900
General Chemical Group, Inc. (The) 1,700 45,475
+ Genesco Inc. 3,200 40,800
+ GenRad, Inc. 2,800 84,525
+ Gentex Corporation 3,800 102,125
Geon Company (The) 3,300 77,137
Georgia Gulf Corporation 3,700 113,313
+ Geotek Communications, Inc. 5,300 8,116
Gerber Scientific, Inc. 3,600 71,550
+ Getchell Gold Corp. 3,500 84,000
+ Gibson Greetings, Inc. 2,600 56,875
+ Gilead Sciences, Inc. 2,800 107,100
+ Glenayre Technologies, Inc. 5,500 54,313
Glimcher Realty Trust Inc. 2,000 45,125
+ Global DirectMail Corp. 1,500 25,969
+ Global Industrial Techologies, Inc. 2,800 47,425
+ Global Industries Ltd. 6,400 108,800
+ Golden Books Family Entertainment, Inc. 2,000 20,625
+ Graham-Field Health Products, Inc. 2,100 35,044
+ Grand Casinos, Inc. 5,000 68,125
Great Atlantic & Pacific
Tea Company, Inc. (The) 1,800 53,438
Great Financial Corp. 3,100 158,100
Greif Brothers Corporation (Class A) 2,100 70,350
Horizon Group, Inc. 5,000 54,688
Hospitality Properties Trust 1,700 55,888
Host Marriott Corporation 4,100 60,988
Houghton Mifflin Company 2,900 111,288
Huffy Corporation 3,900 52,650
Hughes Supply, Inc. 1,950 68,128
Hugoton Energy Corp. 5,000 45,938
Human Genome Sciences, Inc. 2,200 87,450
Huntington Bancshares Inc. 3,222 115,992
Hutchinson Technology, Inc. 1,900 41,563
+ Hvide Marine, Inc. (Class A) 1,400 36,050
+ Hyperion Software Corp. 2,300 82,225
+ I2 Technologies, Inc. 400 21,100
+ I-Stat Corporation 1,500 23,719
ICN Pharmaceuticals, Inc. 4,400 214,775
ICOS Corporation 3,800 69,588
+ IDEC Pharmaceuticals Corporation 1,700 58,438
IDEX Corp. 3,100 108,113
+ IDEXX Laboratories, Inc. 4,100 65,344
IES Industries, Inc. 3,100 114,119
+ IHOP Corp. 2,000 65,000
IMC Global, Inc. 2,160 70,740
IMC Global, Inc. (Warrants) (a) 800 3,100
+ IMC Mortgage Company 2,600 30,875
+ IN Focus Systems, Inc. 1,400 42,525
INMC Mortgage Holdings, Inc. 3,100 72,656
+ INTERSOLV, Inc. 2,300 46,575
IRT Property Company 7,100 83,869
+ IXC Communications, Inc. 1,600 50,200
+ Imation Corp. 4,200 67,200
Imnet Systems, Inc. 1,100 17,875
Imperial Bancorp 2,100 103,556
Imperial Credit Industries, Inc. 2,000 41,000
+ Imperial Holly Corporation 735 7,997
+ Inacom Corp. 800 22,450
Incyte Pharmaceuticals, Inc. 2,000 90,000
+ Industri-Matematik International Corp. 2,800 82,600
+ Information Management Resources, Inc. 1,200 45,000
+ Information Resources, Inc. 3,100 41,463
+ Inhale Therapeutic Systems 1,600 41,600
Innovex, Inc. 1,500 34,406
+ Input/Output, Inc. 4,300 127,656
Insignia Financial Group, Inc. (Class A) 2,400 55,200
+ Griffon Corporation 4,300 62,888
+ Grubb & Ellis Company 2,500 34,219
Guaranty Life Company 2,000 57,000
+ Guilford Pharmaceuticals, Inc. 1,700 34,213
+ Guitar Center Inc. 2,200 50,600
+ Gulf South Medical Supply, Inc. 2,200 81,950
+ Gymboree Corp. 2,700 73,913
+ HA-LO Industries, Inc. 1,500 39,000
HBO & Company 1,380 66,240
HCC Insurance Holdings, Inc. 3,000 63,750
+ HCIA Inc. 1,200 14,250
+ HEALTHSOUTH Corporation 4,132 114,663
+ HMT Technology Corporation 3,900 50,700
HNC Software Inc. 1,700 73,100
HSB Group Inc. 1,800 99,338
HUBCO, Inc. 1,957 76,568
+ Hadco Corporation 1,300 58,825
+ Haemonetics Corporation 2,700 37,800
+ Hambrecht & Quist Group 1,700 62,050
Hancock Fabrics, Inc. 8,600 124,700
Hancock Holding Co. 600 36,300
+ Handleman Company 4,300 29,831
Hanna (M.A.) Company 4,400 111,100
+ Harbinger Corp. 2,100 59,063
+ Harken Energy Corporation 6,900 48,300
+ Harland (John H.) Co. (The) 3,300 69,300
Harman International Industries, Inc. 1,800 76,388
Hartford Life, Inc. (Class A) 2,200 99,688
+ Hartmarx Corporation 1,900 14,488
Hawaiian Electric Industries, Inc. 3,000 122,625
+ Hayes Lemmerz International Inc. 3,400 95,200
Health Care Property Investors, Inc. 1,900 71,844
Healthcare Realty Trust Inc. 1,300 37,619
Healthplan Services Corporation 1,700 35,700
+ Heartport, Inc. 1,600 32,600
Hecla Mining Company 8,000 39,500
Heftel Broadcasting Corp. (Class A) 2,200 102,850
Heilig-Meyers Company 5,600 67,200
Helix Technology Corporation 2,600 50,700
Henry (Jack) & Associates 1,000 27,250
+ Henry Schein, Inc. 900 31,500
Herbalife International, Inc. (Class A) 367 7,700
+ Herbalife International, Inc. (Class B) 733 15,767
Hexcel Corporation 2,200 54,863
Highlands Insurance Group, Inc. 2,500 70,938
Highwaymaster Communications, Inc. 2,200 12,513
Highwoods Properties, Inc. 2,100 78,094
+ Hollywood Entertainment Corp. 2,800 29,750
Hologic, Inc. 1,500 31,031
+ Homebase, Inc. 3,500 27,563
+ Homeside, Inc. 2,300 63,394
Inso Corporation 1,400 16,188
+ Integrated Circuit Systems, Inc. 1,800 51,300
+ Integrated Device Technology, Inc. 7,700 72,669
Integrated Health Services, Inc. 4,119 128,461
+ Integrated Process Equipment Corp. 1,600 25,200
+ Integrated Systems Inc. 1,700 23,375
Inter-Tel Inc. 2,000 38,750
InterDigital Communications Corp. 5,100 15,619
Interface, Inc. (Class A) 2,100 60,900
Intergraph Corporation 4,100 41,000
+ Interim Services, Inc. 7,200 186,300
Intermedia Communications, Inc. 1,400 85,050
International Dairy Queen, Inc. (Class A) 2,100 56,241
International Multifoods Corporation 1,900 53,794
+ International Network Services 2,500 57,813
+ International Rectifier Corporation 5,400 63,788
Interneuron Pharmaceuticals, Inc. 2,800 26,600
Interra Financial, Inc. 1,200 82,800
+ Interstate Hotels Company 2,700 94,669
Interstate Power Company 2,800 104,825
Invacare Corporation 3,300 71,775
Investors Financial Services Corporation 700 32,200
Ionics, Incorporated (Ordinary) 2,000 78,250
Irvine Apartment Communities, Inc. 1,700 54,081
Isis Pharmaceuticals, Inc. 2,100 25,856
Itron, Inc. 2,500 45,000
J&L Specialty Steel, Inc. 2,600 26,163
+ JDA Software Group, Inc. 1,100 38,500
JLG Industries, Inc. 4,400 62,150
JP Foodservice, Inc. 5,842 215,789
+ Jabil Circuit, Inc. 600 23,850
+ Jacobs Engineering Group, Inc. 2,100 53,288
+ Jacor Communications, Inc. 3,200 170,000
Jefferies Group, Inc. 2,000 81,875
John Alden Financial Corporation 2,400 57,600
Jones Medical Industries, Inc. 2,000 76,500
Jostens, Inc. 3,800 87,638
+ Journal Register Company 5,200 109,200
Juno Lighting, Inc. 3,100 54,250
Just For Feet, Inc. 3,000 39,375
K2, Inc. 2,600 59,150
KCS Energy, Inc. 2,400 49,800
Kaman Corporation (Class A) 4,500 73,688
Kaufman and Broad Home Corporation 3,900 87,506
Kaydon Corporation 3,600 117,450
Kellwood Company 2,500 75,000
Kelly Services, Inc. 1,700 51,000
Kemet Corporation 4,700 91,063
Kennametal Inc. 2,600 134,713
Kent Electronics Corporation 4,300 108,038
Keystone Financial, Inc. 6,000 241,500
14 & 15
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Kilroy Realty Corporation 1,700 $ 48,875
Kimball International, Inc. 4,600 84,813
Kimberly-Clark Corp. 1,134 55,920
+ Kirby Corporation 3,600 69,525
+ Knoll, Inc. 1,200 38,550
Koger Equity Inc. 2,000 43,875
Kuhlman Corporation 2,100 82,163
Kulicke and Soffa Industries, Inc. 2,400 44,700
+ LCA-Vision Inc. (New Shares) 1,543 1,736
+ LHS Group Inc. 1,000 59,750
LNR Property Corp. 2,500 59,062
LTC Properties, Inc. 7,100 147,325
Laboratory Corp. of America Holdings 6,600 11,138
+ Lamar Advertising Co. 1,500 59,625
Landry's Seafood Restaurants, Inc. 3,000 72,000
Lands' End, Inc. 1,700 59,606
Landstar System, Inc. 2,200 58,025
+ Learning Company, Inc. (The) 3,500 56,219
+ Learning Tree International Inc. 1,100 31,763
Legato Systems, Inc. 1,800 79,200
Legg Mason, Inc. 4,066 227,442
Lennar Corporation 2,500 53,906
Level One Communications, Inc. 2,150 60,738
Libbey, Inc. 2,100 79,538
Liberty Property Trust 2,200 62,837
Life Re Corp. 1,000 65,187
Life Technologies, Inc. 1,100 36,575
+ Ligand Pharmaceuticals 2,900 37,337
Lilly Industries, Inc. (Class A) 4,300 88,687
Lincoln Electric Company 2,800 100,800
Lindsay Manufacturing Co. 1,500 65,062
+ Linens `N Things 1,500 65,437
Liposome Company, Inc. 3,000 13,875
+ Littelfuse, Inc. 3,000 74,625
+ Lo-jack Corp. 2,300 33,925
Lomak Petroleum, Inc. 2,300 37,375
+ Lone Star Industries, Inc. 1,700 90,312
+ Lone Star Steakhouse & Saloon, Inc. 3,400 59,500
+ Lone Star Technologies, Inc. 2,100 59,587
Long Island Bancorp, Inc. 2,500 124,062
Longs Drug Stores Corp. 3,100 99,587
Longview Fibre Company 5,200 78,975
Luby's Cafeterias, Inc. 3,300 57,956
+ Micro Warehouse Inc. 3,300 45,994
+ Microage Inc. 1,900 28,619
Micros Systems, Inc. 1,100 49,500
Microtouch Systems Inc. 1,100 17,325
Mid Am, Inc. 3,970 102,227
Mid-America Apartment Communities, Inc. 900 25,706
Mid Atlantic Medical Services, Inc. 4,300 54,825
+ Midwest Express Holdings Inc. 1,400 54,337
+ Millennium Pharmaceuticals Inc. 2,900 55,100
+ Miller Industries Inc. 3,400 36,550
Mills Corp. 1,500 36,750
Minerals Technologies, Inc. 2,500 113,594
Minnesota Power & Light Company 3,300 143,756
+ Miravant Medical Technologies 600 24,000
Mississippi Chemical Corporation 4,200 76,650
Mobile Telecommunication Technologies Corp. 4,500 99,000
Modine Manufacturing Company 2,500 85,312
+ Mohawk Industries, Inc. 3,750 82,266
+ Moneygram Payment Systems Inc. 2,000 21,500
Morgan Keegan, Inc. 4,050 102,516
+ Motivepower Industries Inc. 2,100 48,825
+ Mueller Industries, Inc. 2,000 118,000
+ Mycogen Corp. 2,800 52,500
+ Myriad Genetics, Inc. 1,100 26,675
+ NABI, Inc. 3,100 10,559
NACCO Industries, Inc. (Class A) 700 75,031
NAC Re Corp. 1,500 73,219
+ NBTY, Inc. 2,400 80,100
+ NCS Healthcare, Inc. (Class A) 2,100 55,387
+ NFO Worldwide, Inc. 2,600 54,437
+ NL Industries, Inc. (New Shares) 2,500 34,062
+ NTL Inc. 2,900 80,837
Nash-Finch Company 3,900 74,100
National Computer System, Inc. 1,900 66,975
+ National Instruments Corp. 1,800 52,200
+ National Media Corp. 2,000 6,500
+ National Oil Well Inc. 4,000 136,750
+ National Semiconductor Corporation 1,567 40,644
+ National Steel Corp. 2,000 23,125
+ National Surgery Centers, Inc. 1,700 44,625
Nationwide Health Properties, Inc. 3,700 94,350
+ Natural Microsystems Corp. 1,200 55,800
Lukens Inc. 1,500 42,844
+ Lycos Inc. 1,400 57,925
+ Lydall, Inc. 3,100 60,450
MAF Bancorp, Inc. 2,050 72,519
+ MAXXAM Group, Inc. 500 21,812
MDU Resources Group, Inc. 3,600 113,850
MMI Companies Inc. 1,600 40,200
+ MRV Communications Inc. 2,000 47,750
Mac Frugals Bargains Close-Outs, Inc. 2,700 111,037
+ MacDermid, Inc. 700 59,412
Macerich Company (The) 1,900 54,150
+ Macromedia Inc. 3,100 25,769
Madison Gas & Electric Company 3,000 69,000
Magellan Health Services, Inc. 2,900 62,350
Magna Group, Inc. 4,100 187,575
Magnetek, Inc. 2,400 46,800
+ Mail-Well Holdings Inc. 1,500 60,750
Manitowoc Company, Inc. (The) 1,750 56,875
Manufactured Home Communities, Inc. 1,600 43,200
+ Manugistics Group, Inc. 1,700 75,862
Marcus Corporation (The) 5,250 96,797
Marine Drilling Companies, Inc. 5,100 105,825
+ Mariner Health Group, Inc. 3,200 52,000
+ Marquette Medical Systems, Inc. 2,000 53,250
+ Marshall Industries 2,700 81,000
+ Martek Biosciences Corporation 1,200 9,900
Mascotech, Inc. 2,700 49,612
Mastec, Inc. 800 18,300
Material Sciences Corporation 2,500 30,469
Matthews International Corporation 1,900 83,600
+ Maverick Tube Corp. 900 22,781
+ Maxicare Health Plans, Inc. 2,200 23,925
McClatchy Newspapers, Inc. (Class A) 2,400 65,250
McDonald's & Company Investments 2,400 68,100
+ McLeodUSA Inc. 4,300 137,600
+ Medaphis Corp. 6,400 41,600
Medical Assurance, Inc. 2,200 61,875
+ Medicis Pharmaceutical Corp. 1,300 66,462
Medimmune, Inc. 2,600 111,475
+ MedPartners, Inc. 1,062 23,762
Medusa Corporation 2,100 87,806
Men's Wearhouse, Inc. (The) 1,900 66,025
Mentor Corporation 2,800 102,200
+ Mentor Graphics Corporation 6,000 58,125
+ Mercury Interactive Corp. 1,800 48,150
Merrill Corporation 1,400 32,550
Methode Electronics, Inc. (Class A) 4,100 66,625
+ Metromail Corporation 1,600 28,600
Metromedia International Group, Inc. 3,900 37,050
+ Michaels Stores, Inc. 2,200 64,350
+ Micrel Inc. 1,300 36,400
Natures Sunshine Products, Inc. 2,100 54,600
+ Nautica Enterprises, Inc. 3,800 88,350
+ NeoPath, Inc. 1,400 18,200
+ Neoprobe Corp. 2,400 14,400
+ Network Appliance, Inc. 3,000 106,500
+ Network Equipment Technologies, Inc. 3,100 45,337
+ Networks Associates, Inc. 2,083 109,748
+ Neurex Corporation 1,900 26,362
+ Neurogen Corporation 1,300 17,550
+ Neuromedical Systems, Inc. 5,000 14,062
Nevada Power Company 4,900 130,156
New England Business Service, Inc. 2,100 70,875
New York Bancorp Inc. 1,666 66,119
Newfield Exploration Co. 4,100 95,581
+ Newpark Resources, Inc. 6,200 108,500
Newport News Shipbuilding Inc. 4,000 101,750
News Corporation Limited (The) (ADR)* 4,285 85,164
+ Nexstar Pharmaceuticals, Inc. 2,600 29,575
Nordson Corporation 1,600 72,400
Norrell Corp. 1,700 33,787
+ North Face Inc. 1,500 33,000
Northrop Grumman Corporation 677 77,855
Northwestern Public Service Company 4,200 96,600
Nova Corporation 2,200 55,000
+ NovaCare, Inc. 6,100 79,681
+ Nu Skin Asia Pacific Inc. (Class A) 1,600 29,200
+ Nuevo Energy Co. 1,900 77,425
OEA, Inc. 1,900 54,981
O M Group Inc. 3,600 131,850
+ OMI Corp. 5,300 48,694
ONBANCorp Inc. 2,100 148,050
ONEOK, Inc. 2,700 109,012
+ Oak Industries, Inc. 3,200 95,000
+ Oak Technology, Inc. 3,800 24,700
Oakwood Homes Corporation 5,000 165,937
Oasis Residential, Inc. 8,000 178,500
+ Object Design Inc. 2,400 20,100
+ Ocean Energy, Inc. 1,200 59,175
+ Oceaneering International, Inc. 3,100 61,225
Ocwen Asset Investment Corp. 1,200 24,600
+ Ocwen Financial Corporation 2,800 71,225
+ Offshore Logistics, Inc. 3,600 76,950
Ogden Corporation 4,600 129,662
Old National Bancorp 2,700 130,612
Omega Healthcare Investors, Inc. 1,600 61,800
Omnipoint Corporation 2,600 60,450
Omniquip International Inc. 1,900 37,881
One Valley Bancorp, Inc. 2,450 94,937
+ Orbital Sciences Corp. 3,800 113,050
+ Oregon Metallurgical Corporation 1,700 56,737
Oregon Steel Mills, Inc. 2,900 61,806
+ Organogenesis, Inc. 2,593 68,390
16 & 17
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Oriental Financial Group Inc. 1,425 $ 42,127
Orion Capital Corporation 4,100 190,394
+ Orthodontic Center 4,800 79,800
Otter Tail Power Company 1,700 64,387
+ Outdoor Systems, Inc. 2,100 80,587
Overseas Shipholding Group, Inc. 3,600 78,525
Owens & Minor, Inc. 4,700 68,150
+ Oxigene Inc. 700 12,425
+ P-COM, Inc. 4,400 75,900
+ PFF Bancorp, Inc. 2,100 41,737
P.H. Glatfelter Company 2,400 44,700
+ PHP Healthcare Corp. 1,000 15,062
+ PMC-Sierra, Inc. 4,100 127,100
+ PMT Services, Inc. 4,200 58,275
+ PRI Automation, Inc. 1,200 34,650
+ PSINet, Inc. 2,800 14,350
+ Pacific Gateway Exchange Inc. 1,400 75,337
+ Pacific Sunwear of California 1,500 44,344
+ PageMart Wireless, Inc. (Class A) 2,900 22,837
+ Paging Network, Inc. 9,200 98,900
+ Palm Harbor Homes, Inc. 1,325 37,431
+ Panavision Inc. 2,500 64,531
+ Papa John's International, Inc. 2,100 73,237
+ Paragon Health Network, Inc. 3,048 59,626
+ Paragon Trade Brands, Inc. 2,100 27,037
+ Parexel International Corporation 2,100 77,700
Park Electrochemical Corporation 2,100 59,587
+ Parker Drilling Company 6,800 82,875
+ PathoGenesis Corp. 1,600 59,400
Patriot American Hospitality, Inc. 2,399 69,121
+ Patterson Dental Co. 2,000 90,500
+ Patterson Energy, Inc. 1,200 46,425
+ Paxar Corporation 4,625 68,508
+ Pediatrix Medical Group Inc. 1,800 76,950
Penncorp Financial Group, Inc. 2,600 92,787
Peoples Heritage Financial Group, Inc. 2,500 115,000
+ Perceptron, Inc. 900 19,462
+ Periphonics Corporation 1,900 16,625
+ Perrigo Co. 6,400 85,600
+ Personnel Group of America, Inc. 1,500 49,500
+ Petco Animal Supplies, Inc. 2,100 50,400
+ Pharmaceutical Product Development, Inc. 2,100 32,287
Quick & Reilly Group, Inc. 1,800 77,400
+ Quick Response Services, Inc. 1,000 37,000
+ RCN Corporation 1,200 41,100
+ REMEC, Inc. 1,400 31,500
RFS Hotel Investors, Inc. 2,200 43,862
+ RMI Titanium Co. 1,500 30,000
+ RadiSys Corporation 800 29,800
+ Rainforest Cafe, Inc. 1,500 49,500
+ Ralcorp Holdings Inc. 3,500 59,281
+ Rambus Inc. 1,300 59,475
+ Rational Software Corporation 7,500 85,312
Raymond James Financial, Inc. 3,400 134,937
+ Read-Rite Corp. 4,700 74,025
Realty Income, Corp. 2,300 58,506
+ Reckson Associates Realty Corp. 2,000 50,750
+ Red Roof Inns, Inc. 4,000 61,250
Redwood Trust, Inc. 1,000 20,375
Regal-Beloit Corp. 2,500 73,906
Regency Realty Corp. 1,300 35,994
+ Regeneron Pharmaceuticals, Inc. 2,100 17,981
Regis Corporation 1,900 47,737
+ Registry Resources, Inc. 900 41,287
Reinsurance Group of America 2,800 119,175
Reliance Steel & Aluminum Co. 1,450 43,137
ReliaStar Financial Corporation 1,326 54,615
+ Remedy Corp. 2,100 44,100
+ Renal Care Group, Inc. 3,200 102,400
+ Renal Treatment Centers, Inc. 3,200 115,600
+ Renters Choice, Inc. 1,800 36,900
+ Respironics, Inc. 2,500 55,937
+ Rexall Sundown, Inc. 3,000 90,562
Richfood Holdings Inc. (Class A) 5,000 141,250
Riggs National Corporation 7,000 188,125
+ Rio Hotel & Casino, Inc. 2,200 46,200
+ Risk Capital Holdings, Inc. 2,300 51,175
+ Robert Mondavi (Class A) 900 43,875
+ Roberts Pharmaceutical Corporation 4,300 41,119
+ Robotic Visions Systems, Inc. 2,100 24,150
Rochester Gas and Electric Corporation 3,900 132,600
Rock-Tenn Co. (Class A) 3,700 75,850
Rollins, Inc. 2,700 54,844
Rollins Truck Leasing Corp. 5,400 96,525
+ Romac International, Inc. 2,000 48,875
+ PharMerica, Inc. 2,000 20,750
+ Philip Services Corp. 4,004 57,557
Phillips-Van Heusen Corp. 4,200 59,850
Phoenix Duff & Phelps Corp. 6,300 50,400
Phoenix Technologies Ltd. 2,200 26,675
Photronics, Inc. 1,800 43,650
+ Physician Sales & Service 3,600 77,400
+ Physicians Resource Group, Inc. 3,400 14,875
+ Physio-Control International Corp. 2,100 33,337
+ Picturetel Corp. 4,500 29,250
Piedmont Natural Gas Company, Inc. 3,500 125,781
Pier 1 Imports, Inc. 7,700 174,212
Pioneer Group, Inc. 2,300 64,687
Pioneer Natural Resources Company 742 21,472
Pioneer Standard Electronics 3,900 59,475
Piper Jaffray Companies, Inc. 2,300 83,806
Pittston Minerals Group 3,100 81,375
+ Plantronics, Inc. 1,600 64,000
+ Platinum Technology, Inc. 6,100 172,325
+ Playboy Enterprises, Inc. (Class B) 2,600 40,787
+ Playtex Products, Inc. 3,300 33,825
+ Plexus Corporation 2,200 32,725
Polaris Industries, Inc. 2,600 79,462
+ Policy Management Systems Corporation 1,600 111,300
+ Polymer Group, Inc. 3,700 35,150
+ Pool Energy Services Co. 2,400 53,400
Post Properties, Inc. 615 24,984
+ Powertel, Inc. 1,300 21,775
+ Premier Parks Inc. 1,200 48,600
+ Premiere Technologies, Inc. 2,100 58,012
+ Premisys Communications, Inc. 2,400 62,700
+ Prepaid Legal Services, Inc. 2,400 82,050
Presidential Life Corporation 1,800 36,450
Price Enterprises, Inc. 8,000 146,000
+ PriceSmart, Inc. 275 4,709
+ Pride Petroleum Services, Inc. 4,400 111,100
+ Primark Corp. 4,000 162,750
+ Prime Hospitality Corp. 4,700 95,762
+ Proffitt Systems, Inc. 5,400 153,562
+ Progress Software Corporation 2,200 47,575
+ Protein Design Labs, Inc. 1,900 76,000
Provident Bankshares Corp. 1,130 72,179
+ Proxim, Inc. 1,200 13,575
Public Service Company of New Mexico 5,400 127,912
Pulitzer Publishing Company 1,300 81,656
Pulte Corp. 700 29,269
Quaker State Corporation 4,000 57,000
+ Quality Food Centers, Inc. 1,500 100,500
Quanex Corporation 2,000 56,250
Queens County Bancorp, Inc. 1,500 60,750
+ Quest Diagnostics Incorporated 3,100 52,312
Roper Industries Inc. 3,300 93,225
Roslyn Bancorp, Inc. 4,500 104,625
+ Ruby Tuesday, Inc. 2,600 66,950
+ Rural/Metro Corp. 2,000 66,750
+ Ryan's Family Steak House, Inc. 8,100 69,356
Ryland Group, Inc. (The) 3,700 87,412
+ S3 Inc. 6,100 30,500
S&T Bancorp Inc. 1,700 73,525
SCPIE Holdings Inc. 1,600 46,300
+ SEACOR SMIT, Inc. 1,500 90,375
SEI Corporation 1,900 79,800
SEMCO Energy, Inc. 3,055 55,372
+ SFX Broadcasting, Inc. (Class A) 1,100 88,275
+ SMART Modular Technologies, Inc. 3,400 78,200
+ SPS Technologies, Inc. 1,700 74,162
SPX Corp. 1,700 117,300
+ Sabratek Corporation 1,000 28,750
+ Sabre Group Holdings Inc. 2,700 77,962
+ Safeguard Scientifics, Inc. 2,700 84,712
+ Safeskin Corp. 1,800 102,150
Safety-Kleen Corp. 5,200 142,675
+ Samsonite Corp. 1,800 56,925
+ SanDisk Corporation 2,600 52,812
+ SangStat Medical Corp. 1,600 64,800
+ Sanmina Corp. 1,700 115,175
Saul Centers, Inc. 7,500 136,406
+ Sawtek Inc. 800 21,100
+ Scholastic Corp. 1,200 45,000
Schulman (A.), Inc. 3,900 97,987
Schweitzer-Mauduit International, Inc. 2,700 100,575
+ Scientific Games Holdings Corp. 1,100 22,275
+ Scios Inc. 4,400 44,000
+ Scopus Technology, Inc. 2,100 25,200
Scotsman Industries, Inc. 2,300 56,206
+ Scotts Co. (The) 3,300 99,825
+ Seitel, Inc. 2,600 44,525
Selective Insurance Group, Inc. 3,400 91,800
+ Sepracor, Inc. 2,800 112,175
+ Sequa Corporation (Class A) 700 45,544
+ Sequent Computer Systems, Inc. 3,900 78,000
+ Sequus Pharmaceuticals, Inc. 5,500 40,906
+ Serologicals Corporation 1,800 46,800
+ Service Merchandise Company, Inc. 8,200 17,425
+ Shiva Corporation 2,600 22,262
+ Shoney's, Inc. 4,500 14,344
+ ShopKo Stores, Inc. 2,200 47,850
+ Showbiz Pizza Time, Inc. 2,900 66,700
Showboat, Inc. 2,500 73,437
+ Siebel Systems, Inc. 2,100 87,806
+ Sierra Health Services, Inc. 2,200 73,975
Sierra Pacific Resources 3,900 146,250
Sigcorp, Inc. 3,200 94,000
18 & 19
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
Silgan Holdings, Inc. 2,000 $ 65,000
+ Silicon Valley Bancshares 1,000 56,250
+ Silicon Valley Group, Inc. 2,900 65,612
+ Siliconix Inc. 1,300 55,900
+ Sinclair Broadcast Group, Inc. (Class A) 1,000 46,625
+ Sitel Corporation 4,700 42,887
Smith (A.O.) Corp. 1,800 76,050
Smith (Charles E) Residential Realty, Inc. 1,900 67,450
+ Smithfield Foods, Inc. 2,700 89,100
Smucker J.M. Company (The) (Class A) 3,100 73,237
+ Snyder Communications, Inc. 1,900 69,350
Snyder Oil Corp. 5,900 107,675
+ Sola International, Inc. 2,900 94,250
+ Sonic Corp. 1,600 45,000
Sothebys Holdings, Inc. 4,400 81,400
+ Source Services Corporation 2,400 51,900
Southdown, Inc. 2,000 118,000
Southwestern Energy Company 5,600 72,100
Sovereign Bancorp, Inc. 10,100 209,575
+ Spacelabs Medical, Inc. 2,400 45,600
+ Spectrian Corporation 1,000 19,250
+ SpeedFam International, Inc. 1,600 42,400
+ Spine-Tech, Inc. 1,000 51,437
+ Splash Technology Holdings, Inc. 1,400 31,500
+ Sports Authority, Inc. (The) 3,900 57,525
Springs Industries, Inc. (Class A) 1,400 72,800
St. John Knits, Inc. 2,400 96,000
St. Mary Land & Exploration Company 1,900 66,500
St. Paul Bancorp Inc. 3,200 84,000
+ StaffMark, Inc. 1,700 53,762
+ Stage Stores, Inc. 2,400 89,700
Standard Pacific Corp. 2,000 31,500
Standard Products Company (The) 2,200 56,375
+ Stanford Telecommunications, Inc. 1,100 18,631
Stanhome, Inc. 2,000 51,375
+ Steel Dynamics, Inc. 2,800 44,800
Stewart & Stevenson Services, Inc. 3,100 79,050
+ Stillwater Mining Co. 2,200 36,850
Stone & Webster, Inc. 800 37,500
Storage Realty Trust Inc. 4,000 105,250
Storage USA, Inc. 2,600 103,837
+ Stratus Computer, Inc. 2,700 102,094
+ Timberland Company (Class A) 600 34,837
+ Titan Exploration, Inc. 3,100 29,450
+ Titanium Metals Corporation 1,800 51,975
+ Toll Brothers, Inc. 3,300 88,275
+ Tom Brown, Inc. 3,000 57,750
Toro Company (The) 1,900 80,987
+ Total Renal Care Holdings, Inc. 4,000 110,000
+ Tower Automotive, Inc. 1,600 67,300
+ Toy Biz, Inc. 1,500 11,625
+ Tracor, Inc. 2,000 60,750
Trans Financial, Inc. 2,100 81,637
+ Trans World Airlines, Inc. 5,200 52,650
+ Transition Systems, Inc. 2,200 48,675
+ Transkaryotic Therapies, Inc. 2,000 70,250
+ TransMontaigne Oil Company 2,900 43,500
Trenwick Group, Inc. 1,450 54,556
+ Triad Guaranty, Inc. 1,600 46,400
+ Triangle Pacific 2,500 84,687
+ Triangle Pharmaceuticals, Inc. 1,100 16,087
+ Triarc Companies, Inc. (Class A) 3,300 89,925
+ Trico Marine Services, Inc. 1,700 49,937
+ Trigon Healthcare, Inc. 4,400 114,950
+ Trimble Navigation Ltd. 2,800 61,075
Trinet Corporate Realty Trust, Inc. 1,100 42,556
+ TriQuint Semiconductor, Inc. 900 18,225
+ Triumph Group, Inc. 1,500 49,875
True North Communications, Inc. 3,100 76,725
+ Trump Hotels & Casino Resorts, Inc. 2,700 18,056
Trust Company of New Jersey (The) 2,900 72,500
TrustCo Bank Corp. N.Y. 3,680 100,280
Trustmark Corporation 3,100 143,375
+ Tuboscope Vetco International Corp. 5,700 137,156
+ Tucson Electric Power Co. 3,600 65,250
+ Twinlab Corporation 2,100 51,975
UGI Corp. (New Shares) 3,400 99,662
UMB Financial Corp. 1,365 74,392
USBancorp, Inc. 800 58,400
+ USCS International, Inc. 2,200 37,400
US Freightways Corp. 3,000 97,500
UST Corporation 2,600 72,150
+ U.S. Bioscience Inc. 2,600 23,562
+ U.S. Home Corporation 1,600 62,800
+ U.S. Office Products Co. 10,650 209,006
Stride Rite Corp. (The) 5,900 70,800
+ Structural Dynamics Research Corp. 3,300 74,250
Sturm, Ruger & Company, Inc. 2,800 51,625
+ Suiza Foods Corp. 1,400 83,387
Summit Bancorp. 1,476 78,597
Summit Properties, Inc. 1,600 33,800
+ Summit Technology, Inc. 5,400 24,469
+ Sun Healthcare Group, Inc. 4,300 83,312
+ Sunburst Hospitality Corp. 1,600 15,800
+ Sunglass Hut International, Inc. 4,200 26,512
+ Sunrise Assisted Living, Inc. 800 34,500
+ Sunrise Medical, Inc. 2,000 30,875
Superior Industries International, Inc. 2,600 69,712
+ Superior Services, Inc. 2,300 66,412
Susquenhanna Bancshares, Inc. 2,600 99,450
+ Swift Energy Company 1,870 39,387
+ Swift Transportation Co., Inc. 1,900 61,512
+ Sykes Enterprises, Inc. 1,200 23,400
+ Sylvan Learning Systems, Inc. 1,900 74,100
+ Symantec Corp. 6,100 133,819
+ Synetic, Inc. 1,900 69,350
+ Synopsys, Inc. 1,369 48,942
+ System Software Associates, Inc. 4,300 37,625
+ Systems & Computer Technology Corp. 1,700 84,362
+ TBC Corporation 4,500 43,031
TCA Cable TV, Inc. 1,400 64,400
+ TCI Satellite Entertainment, Inc. (Class A) 4,800 33,000
TETRA Tech, Inc. 2,750 55,000
TETRA Technologies, Inc. 2,000 42,125
TJ International, Inc. 2,900 70,687
TNP Enterprises, Inc. 3,000 99,750
TR Financial Corporation 2,100 69,825
Talbots, Inc. 1,300 23,562
Technitrol, Inc. 1,700 51,000
+ Technology Solutions Co. 1,950 51,431
Tejas Gas Corp. 1,800 110,250
+ Tekelec 800 24,400
Tel-Save Holdings 4,400 87,450
Telxon Corporation 2,300 54,912
Tennant Co. 1,700 61,837
Terra Industries, Inc. 4,000 52,250
Tesoro Petroleum Corporation 3,800 58,900
Texaco Inc. 2,846 154,751
Texas Industries, Inc. 2,200 99,000
Texas Regional Bancshares, Inc. (Class A) 1,550 47,275
+ Theragenics Corporation 1,100 39,600
TheraTech, Inc. 5,200 41,600
+ Thermo Cardiosystems Inc. 1,800 48,150
+ ThermoLase Corporation 1,500 15,750
Thomas Industries, Inc. 3,600 71,100
Thornburg Mortgage Asset Corp. 1,400 23,100
U.S. Trust Corporation 3,700 231,712
+ Ultratech Stepper, Inc. 1,900 37,762
Unifirst Corp. 2,700 75,769
Union Planters Corporation 723 49,119
+ Uniphase Corp. 3,400 140,675
+ United Auto Group, Inc. 2,800 50,750
United Bankshares, Inc. 1,700 81,175
United Companies Financial Corporation 2,200 34,100
United Illuminating Company (The) 2,600 119,437
+ United International Holdings Inc. (Class A) 3,700 42,550
United States Satellite Broadcasting
Company, Inc. 3,600 28,575
+ United Stationers, Inc. 1,000 48,125
+ United Video Satellite Group, Inc. (Class A) 1,300 37,375
+ Unitrode Corporation 3,000 64,500
Universal Foods Corporation 2,600 109,850
Universal Outdoor, Inc. 1,800 93,600
Urban Shopping Centers, Inc. 1,100 38,362
+ VWR Scientific Products Corporation 1,700 48,025
+ Vail Resorts, Inc. 3,100 80,406
+ Valence Technology, Inc. 5,000 25,312
Valmont Industries, Inc. 3,800 74,100
+ Vanguard Cellular Systems, Inc. (Class A) 2,600 33,150
+ Vanstar Corporation 5,400 61,087
+ Vantive Corporation 1,700 42,925
+ Varco International, Inc. 3,400 72,887
Veeco Instruments Inc. 800 17,600
+ Veritas DGC Inc. 2,200 86,900
+ Veritas Software Corp. 2,250 114,750
+ Veritex Pharmaceuticals, Inc. 3,200 105,600
Vesta Insurance Group, Inc. 1,400 83,125
+ Veterinary Centers of America, Inc. 2,100 28,219
+ Viasoft, Inc. 1,900 80,275
+ Vical, Inc. 1,800 21,600
+ Vicor Corporation 3,900 105,787
+ Videoserver, Inc. 1,600 25,400
Vintage Petroleum, Inc. 3,400 64,600
+ Visio Corp. 2,500 95,937
+ Vitalink Pharmacy Services, Inc. 1,500 36,187
+ Vivus, Inc. 3,200 34,000
+ Volt Information Sciences, Inc. 900 48,487
WD-40 Company 2,500 72,500
+ WMS Industries, Inc. 2,400 50,700
WPL Holdings, Inc. 3,300 109,312
WPS Resources Corporation 2,800 94,675
Wabash National Corporation 3,000 85,312
Wachovia Corporation 875 70,984
Wackenhut Corporation (Class A) 1,300 30,144
+ Wackenhut Corrections Corporation 1,200 32,250
Walden Residential Properties, Inc. 6,700 170,850
+ Wall Data Inc. 2,300 31,337
+ Walter Industries, Inc. 2,900 59,812
20 & 21
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- ------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
==============================================================================
COMMON STOCKS
(continued)
+ Wang Laboratories, Inc. 3,800 $ 84,075
Warnaco Group, Inc. (The) (Class A) 1,069 33,546
Washington Gas Light Company 4,500 139,219
Washington Real Estate Investment Trust 2,700 45,225
Washington Water Power Company (The) 5,600 136,150
+ Waters Corp. 2,800 105,350
Watsco, Inc. 1,800 44,437
Watts Industries Inc. (Class A) 2,400 67,950
Wausau-Mosinee Paper Corporation 3,200 64,400
Webb (Del E.) Corporation 1,600 41,600
Webster Financial Corporation 1,400 93,100
Weeks Corp. 2,300 73,600
Wellman, Inc. 2,800 54,600
Werner Enterprises, Inc. 3,200 65,600
Wesbanco, Inc. 2,200 66,000
West America Bancorp. 1,400 143,150
+ West Marine, Inc. 1,200 26,850
+ Westell Technologies, Inc. (Class A) 1,500 19,125
Western Investment Real Estate Trust 7,200 99,000
+ Western Wireless Corporation 8,700 151,162
Westinghouse Air Brake Company 2,100 53,812
+ Westwood One, Inc. 2,900 107,662
+ Wet Seal, Inc. (The) (Class A) 1,200 35,400
Whitney Holding Corp. 2,200 125,400
+ Whittman-Hart, Inc. 800 27,400
+ Whole Foods Market, Inc. 2,600 132,925
Wicor, Inc. 2,100 97,519
Wiley (John) & Sons, Inc. (Class A) 1,700 92,225
+ Williams-Sonoma, Inc. 2,200 92,125
+ Wilmar Industries Inc. 1,300 31,037
+ Wind River Systems, Inc. 2,200 87,312
Windmere-Durable Holdings Inc. 2,800 63,175
+ Winstar Communications, Inc. 2,800 69,825
+ Wolverine Tube, Inc. 2,200 68,200
+ Wonderware Corporation 1,600 22,600
+ World Access, Inc. 1,900 45,362
+ World Color Press, Inc. 4,500 119,531
+ Wyman-Gordon Company 2,100 41,212
Wynn's International, Inc. 2,600 82,875
X-Rite, Inc. 3,000 54,750
+ Xircom, Inc. 4,200 42,262
Xtra Corporation 1,700 99,662
+ Xylan Corp. 3,200 48,400
+ Yahoo! Inc. 1,650 114,262
+ Yellow Corporation 2,900 72,681
+ Young Broadcasting Inc. (Class A) 1,100 42,625
+ Zale Corporation 3,500 80,500
+ Zebra Technologies Corporation (Class A) 2,200 65,450
+ Zenith Electronics Corporation 2,700 14,681
Zenith National Insurance Corp. 1,600 41,200
Zila, Inc. 3,000 17,812
+ Zilog, Inc. 2,200 41,937
+ Zitel Corporation 1,700 16,150
+ Zoltek Companies, Inc. 1,100 30,662
Zurn Industries, Inc. 1,900 59,731
Zygo Corp. 1,200 22,500
---------------------------------------------------------------------------
Total Common Stocks (Cost--$75,752,189) -- 87.0% 83,317,890
================================================================================
SHORT-TERM Face
OBLIGATIONS Amount Issue
================================================================================
COMMERCIAL $4,500,000 CIT Group Holdings, Inc. (The),
PAPER** 6.75% due 1/02/1998 4,499,156
2,386,000 General Electric Capital Corp.,
6.75% due 1/02/1998 2,385,553
4,500,000 General Motors Acceptance Corp.,
6.75% due 1/02/1998 4,499,156
================================================================================
Total Short-Term Obligations (Cost--$11,383,865)
-- 11.9% 11,383,865
================================================================================
Total Investments (Cost--$87,136,054)
-- 98.9% 94,701,755
Variation Margin on Financial Futures Contracts++
-- 0.1% 70,200
Other Assets Less Liabilities -- 1.0% 973,154
Net Assets -- 100.0% $95,745,109
================================================================================
* American Depositary Receipts (ADR).
** Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Series.
(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
adjustment under certain conditions until the expiration date.
(b) The rights may be exercised until 3/31/1999.
+ Non-income producing security.
++ Financial futures contracts purchased as of December 31, 1997 were as
follows:
-----------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
-----------------------------------------------------------------
54 Russell 2000 March 1998 $11,916,450
-----------------------------------------------------------------
(Total Contract Price -- $11,717,292) $11,916,450
===========
-----------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES As of December 31, 1997
==================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$87,136,054) (Note 1a).. $ 94,701,755
Cash on deposit for financial futures contracts (Note 1b)....... 351,000
Receivables:
Contributions................................................. $ 1,141,603
Securities sold............................................... 107,647
Dividends..................................................... 88,795
Variation margin (Note 1b).................................... 70,200
Investment adviser (Note 2)................................... 16,544 1,424,789
------------
Deferred organization expenses (Note 1e)........................ 5,540
------------
Total assets.................................................... 96,483,084
------------
==================================================================================================================
Liabilities: Payables:
Withdrawals................................................... 387,959
Securities purchased.......................................... 288,292 676,251
------------
Accrued expenses and other liabilities.......................... 61,724
------------
Total liabilities .............................................. 737,975
------------
==================================================================================================================
Net Assets: Net assets...................................................... $ 95,745,109
============
==================================================================================================================
Net Assets Partners' capital............................................... $ 87,980,250
Consist of: Unrealized appreciation on investments--net..................... 7,764,859
------------
Net assets...................................................... $ 95,745,109
============
==================================================================================================================
</TABLE>
See Notes to Financial Statements.
22 & 23
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES For the Period April 9, 1997+ to December 31, 1997
==================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends....................................................... $ 571,104
(Note 1d): Interest and discount earned.................................... 321,624
------------
Total income.................................................... 892,728
------------
==================================================================================================================
Expenses: Custodian fees.................................................. $ 45,748
Investment advisory fees (Note 2)............................... 36,425
Accounting services (Note 2).................................... 31,090
Pricing fees.................................................... 9,445
Professional fees............................................... 5,081
Trustees' fees and expenses..................................... 2,203
Amortization of organization expenses (Note 1e)................. 968
------------
Total expenses before reimbursement............................. 130,960
------------
Reimbursement of expenses (Note 2).............................. (47,367)
------------
Total expenses after reimbursement.............................. 83,593
------------
Investment income--net.......................................... 809,135
------------
==================================================================================================================
Realized & Realized gain from investments--net............................. 1,553,214
Unrealized Gain Unrealized appreciation on investments--net..................... 7,764,859
On Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations............ $ 10,127,208
============
==================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP April 9, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: December 31, 1997
==================================================================================================================
<S> <C> <C>
Operations: Investment income--net.......................................... $ 809,135
Realized gain on investments--net............................... 1,553,214
Unrealized appreciation on investments--net..................... 7,764,859
------------
Net increase in net assets resulting from operations............ 10,127,208
------------
==================================================================================================================
Net Capital Increase in net assets derived from net capital contributions... 85,617,901
Contributions: ------------
==================================================================================================================
Net Assets: Total increase in net assets.................................... 95,745,109
Beginning of period............................................. --
------------
End of period*.................................................. $ 95,745,109
============
==================================================================================================================
*Undistributed investment income--net............................ $ 809,135
============
==================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Period
SMALL CAP The following ratios have been derived from April 9, 1997+ to
INDEX SERIES information provided in the financial statements. December 31, 1997
==================================================================================================================
<S> <C> <C>
Ratios to Average Expenses, net of reimbursement.................................. .18%*
=========
Net Assets: Expenses........................................................ .29%*
=========
Investment income--net.......................................... 1.78%*
=========
==================================================================================================================
Supplemental Net assets, end of period (in thousands)........................ $ 95,745
Data: =========
Portfolio turnover.............................................. 16.45%
=========
Average commission rate paid.................................... $ .0237
=========
==================================================================================================================
</TABLE>
*Annualized.
+Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
SMALL CAP
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Small Cap Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. 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
24 & 25
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
SMALL CAP
INDEX SERIES
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.
(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 Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.08% of the average daily value of the Series' net
assets. For the period April 9, 1997 to December 31, 1997, MLAM earned fees of
$36,425, all of which were voluntarily waived. MLAM also reimbursed the Series
for additional expenses of $10,942.
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 $83,077,981 and $8,333,748,
respectively. Net realized and unrealized gains (losses) as of December 31, 1997
were as follows:
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments.................. $ 1,005,756 $ 7,565,701
Options purchased...................... (6,669,500) --
Options written........................ 6,684,215 --
Financial futures contracts............ 532,743 199,158
------------- ------------
Total.................................. $ 1,553,214 $ 7,764,859
============= ============
- --------------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $7,561,637, of which $12,291,868 related to appreciated
securities and $4,730,231 related to depreciated securities. At December 31,
1997, the aggregate cost of investments for Federal income tax purposes was
$87,140,118.
Transactions in options written for the period ended December 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Nominal Value
Call Options Covered by Call Premiums
Written Options Written Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period.................... -- --
Options written........................ 100,000 $ 4,949,585
Options closed......................... (100,000) (4,949,585)
------------- ------------
Outstanding call options written,
end of period.......................... -- $ --
============= ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nominal Value
Put Options Covered by Call Premiums
Written Options Written Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period.................... -- --
Options written........................ 100,000 $ 3,599,630
Options expired........................ (100,000) (3,599,630)
------------- ------------
Outstanding put options written,
end of period.......................... -- $ --
============= ============
- --------------------------------------------------------------------------------
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 Small Cap 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 Small
Cap 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
26 & 27
<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 3--12/97
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