MERRILL LYNCH
AGGREGATE BOND
INDEX FUND
Merrill Lynch
Index Funds, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 1999
<PAGE>
Merrill Lynch Aggregate Bond Index Fund
Officers and Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Christopher G. Ayoub, Senior Vice President
Robert C. Doll, Senior Vice President
Gregory Mark Maunz, Senior Vice President
Eric S. Mitofsky, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Jeffrey B. Hewson, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, NJ 08536
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
DEAR SHAREHOLDER
During the quarter ended June 30, 1999, interest rates increased as investors
exhibited caution when dedicating capital to the high-quality fixed-income
markets. This caution was primarily a reaction to indications that inflation was
on the upswing in the United States as evidenced in the releases of economic
reports on producer and consumer prices. Producer prices, after declining in
1997 and rising only 0.5% in 1998, are on a pace to increase 2.5% in 1999.
Similarly, consumer prices, which increased 1.5% in 1997 and in 1998, are
estimated to rise 3% in 1999. Investors believed that the Federal Reserve Board
would not stand idle and allow this trend to continue unabated. In March, the
Federal Reserve Board announced that its bias in monetary policy had moved from
neutral to tighter. The Federal Reserve Board further put this sentiment into
action on June 30, 1999 when it implemented a 25 basis point (0.25%) increase in
the Federal Funds rate. At the same time, policymakers sent a signal that they
didn't expect the uptick in inflation to be of major concern and announced a
return to a neutral bias regarding monetary policy.
The yield on the five-year Treasury note increased 54 basis points for the June
quarter. This rising interest rate environment resulted in a negative total
return for the Fund's benchmark, as the unmanaged Lehman Brothers Aggregate Bond
Index had a total return of -0.88% for the June quarter. Within the Index, the
three major investment sectors--US Government and agency securities, US
Government agency mortgage-backed securities (MBS) and investment-grade
corporate securities--had total returns of -0.85%, -0.45% and -1.56%,
respectively, for the three months ended June 30, 1999. The Fund's Class A and
Class D Shares had total returns of -1.12% and -1.09%, respectively, for the
same period. (Complete performance information can be found below on page 3 of
this report to shareholders.)
The investment objective of Merrill Lynch Aggregate Bond Index Fund is to seek
to provide investment returns that, before expenses, replicate the total return
of the unmanaged Lehman Brothers Aggregate Bond Index (the "Index"). The Fund
seeks to achieve its objective by investing all of its assets in Merrill Lynch
Aggregate Bond Index Series. In attempting to match the return of the Index
(before expenses), the Series is constructed through a stratified sampling
approach when selecting investments. As we have explained in past reports to
shareholders, this refers to duplicating investment characteristics of the
various positions of the Series with the corresponding sector in the Index. This
approach is necessary because replicating the Index is not practical, given its
size and the illiquidity of some issues. In fact, before expenses, the
performance of the positions held in the Series has followed the performance of
the Index fairly closely. However, performance differences between the Series
and the Index (known as tracking error) are expected to occur to some extent. We
continually strive for neutral investment characteristics--using measurements
such as duration, agency and convexity--to achieve an investment portfolio in
which there is a high level of confidence for minimal tracking error.
Effective July 1, 1999, changes to the Index definition were implemented,
causing minor changes in the underlying sector allocations that comprise the
Index. The minimum threshold for a security to be included in the Index was
raised from $100 million to $150 million. In addition, ERISA-eligible commercial
MBS will be added to the Index. These changes will cause the US Government and
agency sector to increase by 0.25%, the US Government agency MBS sector to
increase by 1.38% and the investment-grade corporate bond sector to decrease by
1.63%. As of June quarter-end, US Government and agency securities accounted for
43.4% of the Index, with US Government agency MBS and investment-grade corporate
securities representing 34.6% and 22.0%, respectively. The higher threshold has
resulted in a significant decline in the number of issues qualifying for
inclusion. At June 30, 1999, there were 5,381 securities in the Index, a decline
of 2,041 from the previous quarter.
In Conclusion
We appreciate your investment in Merrill Lynch Aggregate Bond Index Fund, and we
look forward to assisting you with your investment needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Christopher G. Ayoub
Christopher G. Ayoub
Senior Vice President and
Portfolio Manager
/s/ Gregory Mark Maunz
Gregory Mark Maunz
Senior Vice President and
Portfolio Manager
/s/ Jeffrey B. Hewson
Jeffrey B. Hewson
Vice President and
Portfolio Manager
August 12, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers two pricing alternatives:
o Class A Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible investors.
o Class D Shares do not incur a maximum initial sales charge or deferred
sales charge and bear no ongoing distribution fee. In addition, Class D
Shares are subject to an ongoing account maintenance fee of 0.25%.
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. Investment return
and principal value of shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
Recent Performance Results
<TABLE>
<CAPTION>
============================================================================================================================
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 6/30/99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ML Aggregate Bond Index Fund Class A Shares* +2.66% -1.12% +16.71% 6.02%
- ----------------------------------------------------------------------------------------------------------------------------
ML Aggregate Bond Index Fund Class D Shares* +2.50 -1.09 +16.18 5.76
- ----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index** +3.15 -0.88 +17.80 --
============================================================================================================================
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's inception
date is 4/03/97.
** This unmanaged market-weighted Index is comprised of investment-grade
corporate bonds (rated BBB or better), mortgages and US Treasury and
Government agency issues with at least one year to maturity. Since
inception total return is from 4/03/97.
Average Annual Total Return
% Return
================================================================================
Class A Shares
================================================================================
Year Ended 6/30/99 +2.66%
- --------------------------------------------------------------------------------
Inception (4/03/97) through 6/30/99 +7.14
- --------------------------------------------------------------------------------
% Return
================================================================================
Class D Shares
================================================================================
Year Ended 6/30/99 +2.50%
- --------------------------------------------------------------------------------
Inception (4/03/97) through 6/30/99 +6.92
- --------------------------------------------------------------------------------
2 & 3
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND As of June 30, 1999
================================================================================================================================
<S> <C> <C> <C>
Assets: Investment in Merrill Lynch Aggregate Bond
Index Series, at value (identified cost
--$469,935,329) (Note 1a) ............................................ $462,501,605
Deferred organization expenses (Note 1d) ............................... 7,488
Prepaid registration fees (Note 1d) .................................... 8,725
------------
Total assets ........................................................... 462,517,818
================================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) .................................. $ 1,022,355
Administrative fees (Note 2) ......................................... 47,588
Distributor (Note 2).................................................. 17,804 1,087,747
------------
Accrued expenses and other liabilities ................................. 132,615
------------
Total liabilities ...................................................... 1,220,362
------------
================================================================================================================================
Net Assets: Net assets.............................................................. $461,297,456
============
================================================================================================================================
Net Assets Class A Shares of Common Stock, $.0001 par value,
Consist of: 125,000,000 shares authorized ........................................ $ 3,710
Class D Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ........................................ 846
Paid-in capital in excess of par ....................................... 468,408,968
Undistributed realized capital gains on
investments from the Series--net ..................................... 317,656
Unrealized depreciation on investments
from the Series--net ................................................. (7,433,724)
------------
Net assets $461,297,456
============
================================================================================================================================
Net Asset Class A--Based on net assets of $375,607,981 and
Value: 37,103,944 shares outstanding $ 10.12
============
Class D--Based on net assets of $85,689,475 and
8,461,354 shares outstanding $ 10.13
============
================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND For the Six Months Ended June 30, 1999
================================================================================================================================
<S> <C> <C>
Investment
Income Investment income allocated from the Series ............................ $ 13,901,963
(Note 1b): Expenses allocated from the Series ..................................... (245,415)
------------
Net investment income from the Series .................................. 13,656,548
------------
================================================================================================================================
Expenses: Administration fee (Note 2) ............................................ $ 308,888
Transfer agent fees (Note 2) ........................................... 143,849
Account maintenance fee--Class D (Note 2) .............................. 103,296
Registration fees (Note 1d) ............................................ 52,932
Printing and shareholder reports ....................................... 42,885
Professional fees ...................................................... 7,820
Amortization of organization expenses (Note 1d) ........................ 1,121
Accounting services (Note 2) ........................................... 603
Other .................................................................. 1,983
------------
Total expenses before reimbursement .................................... 663,377
Reimbursement of expenses (Note 2) ..................................... (33,472)
------------
Total expenses after reimbursement ..................................... 629,905
------------
Investment income--net ................................................. 13,026,643
------------
================================================================================================================================
Realized & Realized gain on investments from the Series--net ...................... 269,708
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) investments from the Series--net ..................................... (21,935,932)
from the ------------
Series--Net: Net Decrease in Net Assets Resulting from Operations $(8,639,581)
============
================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Six For the
AGGREGATE BOND Months Ended Year Ended
INDEX FUND Increase (Decrease) in Net Assets: June 30, 1999 Dec. 31, 1998
================================================================================================================================
<S> <C> <C>
Operations: Investment income--net .............................................. $ 13,026,643 $ 23,530,630
Realized gain on investments from the
Series--net ....................................................... 269,708 1,795,467
Change in unrealized appreciation/depreciation on
investments from the Series--net .................................. (21,935,932) 7,162,089
------------ ------------
Net increase (decrease) in net assets resulting from operations ..... (8,639,581) 32,488,186
------------ ------------
================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ........................................................... (10,671,016) (19,203,438)
Shareholders Class D ........................................................... (2,355,627) (4,327,192)
(Note 1e): Realized gain on investments from the Series--net:
Class A ........................................................... -- (1,358,966)
Class D ........................................................... -- (319,027)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ..................................... (13,026,643) (25,208,623)
------------ ------------
================================================================================================================================
Capital Share Net increase in net assets derived from capital share transactions .. 49,574,632 118,835,556
Transactions ------------ ------------
(Note 4):
================================================================================================================================
Net Assets: Total increase in net assets ........................................ 27,908,408 126,115,119
Beginning of period ................................................. 433,389,048 307,273,929
------------ ------------
End of period ....................................................... $461,297,456 $433,389,048
============ ============
================================================================================================================================
</TABLE>
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-----------------------------------------------
MERRILL LYNCH The following per share data and ratios have been derived For the Six For the For the Period
AGGREGATE BOND from information provided in the financial statements. Months Ended Year Ended April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period....................... $ 10.61 $ 10.42 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net..................................... .30 .64 .48
Realized and unrealized gain (loss) on investments from
the Series--net.......................................... (.49) .23 .45
---------- ---------- ----------
Total from investment operations........................... (.19) .87 .93
---------- ---------- ----------
Less dividends and distributions:
Investment income--net................................... (.30) (.64) (.48)
Realized gain on investments from the Series--net........ -- (.04) (.03)
In excess of realized gain on investments from the
Series--net............................................ -- -- --++
---------- ---------- ----------
Total dividends and distributions.......................... (.30) (.68) (.51)
---------- ---------- ----------
Net asset value, end of period............................. $ 10.12 $ 10.61 $ 10.42
========== ========== ==========
====================================================================================================================================
Total Investment Based on net asset value per share......................... (1.81%)** 8.56% 9.49%**
Return: ========== ========== ==========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++.......................... .35%* .35% .35%*
Net Assets: ========== ========== ==========
Expenses+++................................................ .37%* .40% .52%*
========== ========== ==========
Investment income--net..................................... 5.95%* 5.99% 6.22%*
========== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands)................... $ 375,608 $ 351,786 $ 251,140
Data: ========== ========== ==========
====================================================================================================================================
<CAPTION>
Class D
---------------------------------------------
MERRILL LYNCH The following per share data and ratios have been derived For the Six For the For the Period
AGGREGATE BOND from information provided in the financial statements. Months Ended Year Ended April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period....................... $ 10.61 $ 10.42 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net..................................... .29 .61 .46
Realized and unrealized gain (loss) on investments from
the Series--net.......................................... (.48) .23 .45
---------- ---------- ----------
Total from investment operations........................... (.19) .84 .91
---------- ---------- ----------
Less dividends and distributions:
Investment income--net................................... (.29) (.61) (.46)
Realized gain on investments from the Series--net........ -- (.04) (.03)
In excess of realized gain on investments from the
Series--net............................................ -- -- --++
---------- ---------- ----------
Total dividends and distributions.......................... (.29) (.65) (.49)
---------- ---------- ----------
Net asset value, end of period............................. $ 10.13 $ 10.61 $ 10.42
========== ========== ==========
====================================================================================================================================
Total Investment Based on net asset value per share......................... (1.83%)** 8.29% 9.29%**
Return: ========== ========== ==========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++.......................... .60%* .60% .60%*
Net Assets: ========== ========== ==========
Expenses+++................................................ .62%* .65% .77%*
========== ========== ==========
Investment income--net..................................... 5.70%* 5.75% 5.98%*
========== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands)................... $ 85,689 $ 81,603 $ 56,134
Data: ========== ========== ==========
====================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Amount is less than $.01 per share.
+++ Includes the Fund's share of the Series' allocated
expenses.
** Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Fund (the "Fund") is part of Merrill Lynch
Index Funds, Inc. (the "Corporation"). The Fund is registered under the
Investment Company Act of 1940 as a non-diversified mutual fund. The Fund seeks
to achieve its investment objective by investing all of its assets in the
Merrill Lynch Aggregate Bond Index Series (the "Series") of the Merrill Lynch
Index Trust, which has the same investment objective as the Fund. The value of
the Fund's investment in the Series reflects the Fund's proportionate interest
in the net assets of the Series. The performance of the Fund is directly
affected by the performance of the Series. The financial statements of the
Series, including the Schedule of Investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial statements.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles, which may require the use of management accruals
and estimates. These unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers two classes of shares, Class A and Class D.
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 and have exclusive voting rights with respect to matters relating to its
account maintenance expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed in Note 1a of
the Series' Notes to Financial Statements, which are included elsewhere in this
report.
(b) Income--The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Series, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially 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 period not exceeding five years.
(e) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend
6 & 7
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND
- --------------------------------------------------------------------------------
dates. Distributions in excess of realized capital gains are due primarily to
differing tax treatments for post-October losses.
(f) Investment transactions--Investment transactions are accounted for on a
trade date basis.
2. Transactions with Affiliates:
The Corporation has 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 Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund pays a monthly
fee at an annual rate of 0.14% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. For the six
months ended June 30, 1999, MLAM earned fees of $308,888, of which $33,472 was
voluntarily waived.
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with Merrill Lynch Funds Distributor ("MLFD" or the "Distributor"), a
division of Princeton Funds Distributor, Inc. ("PFD"), a wholly-owned subsidiary
of Merrill Lynch Group, Inc. Pursuant to the Distribution Plan adopted by the
Corporation in accordance with Rule 12b-1 under the Investment Company Act of
1940, the Fund pays the Distributor an ongoing account maintenance fee. The fee
is 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 Incorporated ("MLPF&S"), a subsidiary of 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.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLAM, PSI, PFD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for the six
months ended June 30, 1999 were $64,674,747 and $28,143,768, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions were
$49,574,632 and $118,835,556 for the six months ended June 30, 1999 and for the
year ended December 31, 1998, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 10,437,735 $ 108,681,316
Shares issued to shareholders
in reinvestment of dividends ........... 844,844 8,754,208
----------- -------------
Total issued ........................... 11,282,579 117,435,524
Shares redeemed ........................ (7,343,748) (75,975,345)
----------- -------------
Net increase ........................... 3,938,831 $ 41,460,179
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 18,291,863 $ 192,469,737
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 1,779,251 18,748,052
----------- -------------
Total issued ........................... 20,071,114 211,217,789
Shares redeemed ........................ (11,018,167) (116,697,778)
----------- -------------
Net increase ........................... 9,052,947 $ 94,520,011
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,441,134 $ 25,418,628
Shares issued to shareholders
in reinvestment of dividends ........... 174,628 1,810,530
----------- -------------
Total issued ........................... 2,615,762 27,229,158
Shares redeemed ........................ (1,844,813) (19,114,705)
----------- -------------
Net increase ........................... 770,949 $ 8,114,453
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,911,003 $ 51,769,208
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 370,997 3,909,217
----------- -------------
Total issued ........................... 5,282,000 55,678,425
Shares redeemed ........................ (2,979,562) (31,362,880)
----------- -------------
Net increase ........................... 2,302,438 $ 24,315,545
=========== =============
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series
- ------------------------------------------------------------------------------------------------------------------------------------
Face Interest Maturity Value
Issue Amount Rate Date Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
US Government & Agency Obligations--44.2%
====================================================================================================================================
Federal Home Loan Mortgage Corporation $ 5,800,000 5.75 % 7/15/2003 $ 5,922,632 $ 5,753,942
1,300,000 7.18 6/27/2006 1,450,719 1,362,094
====================================================================================================================================
Federal National Mortgage Association 1,200,000 5.625 3/15/2001 1,213,413 1,197,274
300,000 5.45 10/10/2003 306,938 291,869
220,000 6.85 4/05/2004 236,345 225,440
1,700,000 5.75 2/15/2008 1,747,638 1,622,458
====================================================================================================================================
Financing Corp. 700,000 9.80 11/30/2017 1,025,136 934,934
====================================================================================================================================
Tennessee Valley Authority, Series E 1,490,000 6.25 12/15/2017 1,537,882 1,422,011
====================================================================================================================================
United States Treasury Bonds 800,000 8.75 11/15/2008 913,000 883,376
27,810,000 8.75 5/15/2017 35,505,411 35,105,675
8,000,000 6.625 2/15/2027 7,982,944 8,448,720
5,800,000 6.375 8/15/2027 6,104,664 5,943,202
2,900,000 6.125 11/15/2027 3,018,273 2,880,512
====================================================================================================================================
United States Treasury Notes 11,840,000 6.00 8/15/2000 11,848,377 11,915,894
9,300,000 5.75 11/15/2000 9,378,117 9,339,246
12,800,000 5.375 2/15/2001 12,834,984 12,780,032
5,900,000 5.00 2/28/2001 5,883,937 5,853,862
5,300,000 4.875 3/31/2001 5,299,680 5,246,152
4,700,000 5.00 4/30/2001 4,689,516 4,660,332
10,400,000 5.25 5/31/2001 10,364,250 10,351,224
13,100,000 6.50 5/31/2002 13,155,487 13,396,846
1,000,000 5.75 10/31/2002 1,013,570 1,002,810
2,100,000 5.75 11/30/2002 2,102,945 2,104,263
1,800,000 5.625 12/31/2002 1,807,680 1,798,038
5,900,000 5.50 1/31/2003 5,915,541 5,864,954
</TABLE>
8 & 9
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Face Interest Maturity Value
Issue Amount Rate Date(s) Cost (Note 1a)
====================================================================================================================================
US Government & Agency Obligations (concluded)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Treasury Notes $ 500,000 5.75 % 4/30/2003 $ 518,359 $ 500,860
(concluded) 2,800,000 5.25 8/15/2003 2,892,477 2,752,316
3,500,000 5.75 8/15/2003 3,560,109 3,502,170
5,500,000 4.25 11/15/2003 5,421,359 5,193,210
7,400,000 4.75 2/15/2004 7,297,557 7,117,838
3,400,000 5.875 2/15/2004 3,475,703 3,421,794
7,200,000 5.25 5/15/2004 7,057,750 7,075,152
5,500,000 5.875 11/15/2005 5,801,445 5,500,000
4,650,000 6.25 2/15/2007 4,488,689 4,737,932
5,400,000 6.625 5/15/2007 5,530,381 5,623,614
4,900,000 6.125 8/15/2007 5,056,281 4,952,822
400,000 4.75 11/15/2008 380,813 367,312
4,100,000 5.50 5/15/2009 4,027,578 4,005,167
====================================================================================================================================
Total Investments in US Government & Agency Obligations--44.2% 206,767,580 205,135,347
====================================================================================================================================
US Government Agency Mortgage-Backed Obligations**--33.2%
====================================================================================================================================
Federal Home Loan Mortgage 1,376,887 5.50 10/01/2013--1/01/2014 1,360,106 1,304,599
Corporation Participation 1,498,567 5.50 12/01/2028--2/01/2029 1,440,665 1,368,463
Certificates--Gold Program 915,430 6.00 5/01/2013--4/01/2014 909,379 885,259
1,399,687 6.00 5/01/2029--6/01/2029 1,339,416 1,319,080
196,392 6.50 3/01/2014 199,491 193,973
6,482,547 6.50 1/01/2026--5/01/2029 6,498,622 6,277,242
4,207,743 7.00 1/01/2008--6/01/2013 4,280,096 4,232,045
11,924,904 7.00 9/01/2025--5/01/2029 12,046,758 11,825,464
1,968,951 7.50 5/01/2007--5/01/2013 2,019,513 2,002,592
6,004,195 7.50 1/01/2023--3/01/2028 6,143,398 6,081,181
811,711 8.00 6/01/2010--9/01/2012 837,018 837,279
5,062,807 8.00 6/01/2024--1/01/2028 5,231,484 5,200,725
460,535 8.50 5/01/2028 484,282 481,332
526,211 9.00 6/01/2025 561,402 560,074
650,261 9.50 2/01/2019 696,606 699,204
====================================================================================================================================
Federal National 1,255,818 5.50 6/01/2011--2/01/2014 1,230,837 1,190,173
Mortgage Association 8,663,529 6.00 2/01/2013--6/01/2014 8,602,197 8,369,466
11,702,342 6.00 1/01/2026--6/01/2029 11,246,916 11,025,591
1,700,000 6.00 TBA(1) 1,625,375 1,620,494
933,014 6.50(2) 10/01/2004 927,832 934,135
7,902,441 6.50 1/01/2013--4/01/2014 8,016,452 7,796,160
24,826,457 6.50 12/01/2025--5/01/2029 24,732,622 24,032,207
3,000,000 6.50 TBA(1) 2,880,937 2,880,937
9,312,013 7.00 4/01/2027--4/01/2029 9,273,453 9,227,858
500,000 7.00 TBA(1) 495,938 495,938
4,626,831 7.50 8/01/2027--11/01/2027 4,672,186 4,683,186
====================================================================================================================================
Government National 199,525 5.50 4/15/2029 189,548 181,422
Mortgage Association 1,482,134 6.00 3/15/2011--2/15/2012 1,438,932 1,443,012
1,794,029 6.00 6/15/2028--6/15/2029 1,757,022 1,681,776
1,000,000 6.00 TBA(1) 935,000 935,000
197,074 6.50 2/15/2014 200,862 194,655
6,432,676 6.50 4/15/2026--5/15/2029 6,379,422 6,206,295
3,100,000 6.50 TBA(1) 2,981,813 2,981,813
196,891 7.00 4/15/2013 202,428 198,534
8,086,109 7.00 12/15/2023--11/15/2028 8,204,209 7,994,350
2,500,000 7.00 TBA(1) 2,476,563 2,476,563
5,403,832 7.50 3/15/2024--7/15/2028 5,527,368 5,469,746
900,000 7.50 TBA(1) 909,141 909,141
3,789,293 8.00 12/15/2022--4/15/2028 3,894,427 3,899,041
2,540,984 8.50 11/15/2017--3/15/2028 2,659,496 2,663,019
985,300 9.00 11/15/2016--11/15/2024 1,056,287 1,048,820
98,363 9.50 9/15/2021 106,969 106,044
====================================================================================================================================
Total US Government Agency Mortgage-Backed Obligations--33.2% 156,672,468 153,913,888
====================================================================================================================================
<CAPTION>
INDUSTRIES
S&P Moody's Face Value
Ratings Ratings Amount Corporate Bonds & Notes Cost (Note 1a)
====================================================================================================================================
<C> <C> <C> <S> <C> <C>
Banking--2.8%
A Aa3 $1,000,000 BankAmerica Corporation, 6.875% due 6/01/2003 1,036,840 1,018,340
NR* A2 2,000,000 BankBoston NA, 8.375% due 12/15/2002 2,151,860 2,114,240
Chase Manhattan Corporation:
A A1 1,000,000 9.75% due 11/01/2001 1,112,050 1,074,390
A A1 500,000 6.75% due 8/15/2008 509,795 491,335
Citicorp:
A+ A1 500,000 9.50% due 2/01/2002 553,875 537,745
A+ A1 500,000 7.625% due 5/01/2005 527,890 516,335
A+ A1 1,000,000 7.20% due 6/15/2007 1,084,840 1,009,750
A A1 1,000,000 First Bank Systems, Inc., 7.55% due 6/15/2004 1,070,160 1,034,090
A- A3 1,020,000 Fleet/Norstar Financial Group, Inc., 8.125% due 7/01/2004 1,066,374 1,083,556
A Aa3 500,000 NationsBank NA, 6.50% due 8/15/2003 500,435 500,760
A+ Aa3 1,335,000 Norwest Corp., 5.75% due 2/01/2003 1,259,239 1,303,120
A- A1 1,050,000 Republic New York, 7.53% due 12/04/2026 1,047,323 1,079,757
AA Aa2 230,000 Swiss Bank Corp., NY, 7.50% due 7/15/2025 225,195 227,971
A- Aa3 1,000,000 Wells Fargo Capital, 8.125% due 12/01/2026 (a) 967,500 1,018,730
------------ ------------
13,113,376 13,010,119
====================================================================================================================================
Financial Services--1.7%
A A2 500,000 Bear Stearns Companies, Inc., 6.125% due 2/01/2003 499,620 490,210
A+ Aa3 500,000 Citigroup Capital II, 7.75% due 12/01/2036 507,205 501,467
BBB Baa1 500,000 EOP Operating LP, 6.75% due 2/15/2008 503,215 473,244
A A2 500,000 Equitable Companies Inc., 9% due 12/15/2004 569,820 546,725
A- A3 200,000 Heller Financial Inc., 7% due 5/15/2002 197,878 203,072
Lehman Brothers Holdings Inc.:
A Baa1 500,000 7.625% due 6/01/2006 536,160 513,745
A Baa1 1,000,000 7.20% due 8/15/2009 1,039,080 968,620
A+ Aa3 1,000,000 Morgan Stanley Group, Inc., 6.50% due 3/30/2001 1,016,970 1,005,160
BBB+ Baa1 1,000,000 PaineWebber Group Inc., 7.74% due 1/30/2012 1,063,050 1,002,130
A Aa3 1,000,000 Salomon Smith Barney Holdings, Inc., 7.125% due 10/01/2006 998,100 1,001,401
</TABLE>
10 & 11
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIES
S&P Moody's Face Value
Ratings Ratings Amount Corporate Bonds & Notes Cost (Note 1a)
====================================================================================================================================
<C> <C> <C> <S> <C> <C>
Financial Services (concluded)
BBB+ Baa1 $ 500,000 Simon Debartolo, 6.75% due 7/15/2004 $ 498,180 $ 487,325
BBB Baa2 500,000 Spieker Properties LP, 6.875% due 2/01/2005 502,505 484,935
------------ ------------
7,931,783 7,678,034
====================================================================================================================================
Financial Services--Consumer--1.0%
Associates Corp. NA:
AA- Aa3 500,000 7.46% due 3/28/2000 513,070 505,935
AA- Aa3 500,000 7.125% due 5/15/2000 509,825 505,410
AA- Aa3 500,000 7.23% due 5/17/2006 525,535 506,760
A+ Aa3 200,000 CIT Group Holdings, Inc., 5.875% due 10/15/2008 178,758 182,906
A- Baa1 500,000 Finova Capital Corp., 6.45% due 6/01/2000 502,715 501,415
A A2 1,000,000 Household Finance Corp., 5.875% due 2/01/2009 999,410 908,540
BBB Baa3 1,000,000 Newcourt Credit Group, 6.875% due 2/16/2005 (a) 977,850 967,399
A- A3 500,000 Washington Mutual, Inc., 7.25% due 6/15/2001 516,945 508,025
------------ ------------
4,724,108 4,586,390
====================================================================================================================================
Foreign Government Obligations--1.1%
AA+ Aa2 500,000 Canadian Government Bond, 5.25% due 11/05/2008 499,885 453,215
BBB A3 1,000,000 People's Republic of China, 7.30% due 12/15/2008 996,780 972,740
AA- Aa2 1,000,000 Province of British Columbia, 7.25% due 9/01/2036 1,019,840 1,013,920
Province of Ontario:
AA- Aa3 500,000 7.375% due 1/27/2003 524,060 514,410
AA- Aa3 500,000 7.625% due 6/22/2004 531,870 527,025
A A2 750,000 Province of Saskatchewan, 8% due 7/15/2004 825,255 803,317
AA Aa3 1,000,000 Republic of Italy, 6.875% due 9/27/2023 967,770 1,005,270
------------ ------------
5,365,460 5,289,897
====================================================================================================================================
Industrial--Consumer Goods--1.1%
A+ A1 1,000,000 Anheuser-Busch Companies, Inc., 6.75% due 11/01/2006 969,880 986,680
A+ A3 1,000,000 Coca-Cola Enterprises, 6.75% due 9/15/2028 1,011,695 927,660
AA Aa2 1,000,000 McDonald's Corp., 5.35% due 9/15/2008 1,005,310 906,810
Nabisco Inc.:
BBB Baa2 1,000,000 6% due 2/15/2001 997,450 990,660
BBB Baa2 500,000 6.375% due 2/01/2005 486,510 478,785
Philip Morris Companies, Inc.:
A A2 500,000 9% due 1/01/2001 534,935 519,195
A A2 365,000 6.95% due 6/01/2006 367,606 368,832
------------ ------------
5,373,386 5,178,622
====================================================================================================================================
Industrial--Energy--1.3%
BBB- Baa3 500,000 CMS Panhandle Holding Co., 6.50% due 7/15/2009 (a) 501,325 474,886
AA- A2 500,000 Consolidated Natural Gas Company, 6.625% due 12/01/2008 493,905 489,325
Enron Corp.:
BBB+ Baa2 500,000 6.625% due 10/15/2003 499,400 498,570
BBB Baa3 1,000,000 6.75% due 7/01/2005 1,028,410 981,450
K N Energy, Inc.:
BBB- Baa2 500,000 6.45% due 3/01/2003 500,510 491,850
BBB- Baa2 500,000 6.65% due 3/01/2005 500,495 484,635
Occidental Petroleum Corp.:
BBB Baa3 500,000 10.125% due 11/15/2001 562,455 536,360
BBB Baa3 500,000 8.45% due 2/15/2029 517,325 520,998
A- A3 1,000,000 Phillips Petroleum, 8.86% due 5/15/2022 1,088,410 1,050,950
BBB- Baa2 150,000 USX Corp., 8.125% due 7/15/2023 165,882 153,323
BBB Baa2 500,000 Ultramar Diamond Shamrock, 8% due 4/01/2023 513,270 485,250
------------ ------------
6,371,387 6,167,597
====================================================================================================================================
Industrial--Manufacturing--2.9%
A A2 500,000 Atlantic Richfield Company, 8.44% due 2/21/2012 578,335 558,005
AA- A1 500,000 Boeing Co., 6.35% due 6/15/2003 506,655 500,290
A+ A1 150,000 Chrysler Corp., 7.45% due 3/01/2027 157,252 150,934
A- Baa1 500,000 Dana Corporation, 7% due 3/01/2029 492,790 459,495
Ford Motor Credit Company:
A A1 1,000,000 7.75% due 11/15/2002 1,025,760 1,037,690
A A1 500,000 7.20% due 6/15/2007 522,220 506,810
AAA Aaa 300,000 General Electric Capital Corp., 8.375% due 3/01/2001 316,032 311,550
General Motors Acceptance Corp.:
A A2 100,000 9.375% due 4/01/2000 106,398 102,442
A A2 1,000,000 5.20% due 10/26/2000 999,950 988,023
A A2 1,400,000 9% due 10/15/2002 (b) 1,560,272 1,502,424
A A2 600,000 8.80% due 3/01/2021 737,202 689,466
BBB- Baa2 500,000 Georgia-Pacific Corp., 7.375% due 12/01/2025 512,055 476,905
A+ A1 1,000,000 International Business Machines Corp., 7.125% due 12/01/2096 948,080 971,560
Lockheed Martin Corp.:
BBB+ Baa1 500,000 7.25% due 5/15/2006 522,245 500,340
BBB+ Baa1 500,000 7.70% due 6/15/2008 557,860 512,550
A A2 900,000 Lucent Technologies Inc., 6.90% due 7/15/2001 895,563 915,192
BBB Baa1 600,000 Raytheon Co., 6.75% due 3/15/2018 599,934 565,038
BBB A3 500,000 Saga Petroleum ASA, 7.25% due 9/23/2027 503,060 467,170
BBB Ba1 500,000 Seagate Technology, Inc., 7.45% due 3/01/2037 505,315 464,410
BBB Baa1 1,500,000 TRW Inc., 6.25% due 1/15/2010 1,486,005 1,349,850
BBB+ A2 500,000 Xerox Capital Trust I, 8% due 2/01/2027 517,340 497,472
------------ ------------
14,050,323 13,527,616
====================================================================================================================================
Industrial--Other--0.8%
CSX Corp.:
BBB Baa2 500,000 7.45% due 5/01/2007 536,420 508,920
BBB Baa2 200,000 7.90% due 5/01/2017 222,970 206,190
BBB- Baa3 750,000 Delta Airlines, 10.375% due 2/01/2011 978,495 906,660
BBB+ Baa1 500,000 Norfolk Southern Corporation, 7.70% due 5/15/2017 512,720 513,415
BBB- Baa3 1,000,000 Union Pacific Corp., 9.625% due 12/15/2002 1,135,940 1,090,180
BB+ Baa3 650,000 United Airlines, 9% due 12/15/2003 721,292 694,473
------------ ------------
4,107,837 3,919,838
====================================================================================================================================
Industrial--Services--3.5%
A Baa2 1,000,000 American Stores Co., 9.125% due 4/01/2002 1,110,040 1,065,970
BBB Baa3 450,000 Comcast Cable Communications, 8.375% due 5/01/2007 491,863 480,437
A- Baa1 500,000 Computer Associates International, Inc., 6.375% due 4/15/2005 491,015 473,555
Dayton Hudson Corp.:
A- A3 500,000 6.40% due 2/15/2003 516,005 497,675
A- A3 1,000,000 10% due 1/01/2011 1,227,430 1,216,530
</TABLE>
12 & 13
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch Aggregate Bond Index Series (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIES
S&P Moody's Face Value
Ratings Ratings Amount Corporate Bonds & Notes Cost (Note 1a)
====================================================================================================================================
<C> <C> <C> <S> <C> <C>
Industrial--Services (concluded)
A- A3 $1,000,000 Hertz Corp., 7% due 1/15/2028 $ 970,760 $ 923,650
J.C. Penney Company, Inc.:
BBB+ A3 1,000,000 7.60% due 4/01/2007 1,085,130 1,015,600
BBB+ A3 200,000 7.95% due 4/01/2017 204,476 203,552
BBB- Baa3 1,000,000 J Seagrams & Sons, 7% due 4/15/2008 1,031,770 959,140
A+ A1 360,000 The May Department Stores Company, 7.60% due 6/01/2025 345,942 374,947
BBB- Baa3 1,000,000 News America Holdings, Inc., 8.50% due 2/15/2005 1,073,535 1,052,210
BBB- Baa3 2,000,000 News America Inc., 7.25% due 5/18/2018 2,011,860 1,864,792
AA Aa2 500,000 The Procter & Gamble Company, 8% due 9/01/2024 633,725 569,495
A- A2 500,000 Sears Discover Credit Corp., 9.14% due 3/13/2012 605,320 579,215
A- A2 500,000 Sears, Roebuck & Co., 6.25% due 1/15/2004 493,995 489,965
BBB Baa1 1,000,000 Service Corp. International, 6% due 12/15/2005 992,730 922,400
AA- A2 500,000 TCI Communications Inc., 6.875% due 2/15/2006 482,050 500,565
Tele-Communications Inc.:
AA- A2 1,375,000 8.25% due 1/15/2003 1,456,730 1,456,757
AA- A2 100,000 9.80% due 2/01/2012 110,548 122,182
Time Warner Entertainment Inc.:
BBB Baa3 500,000 7.95% due 2/01/2000 515,375 505,765
BBB Baa3 400,000 8.18% due 8/15/2007 410,104 422,472
A A2 500,000 Walt Disney Co., 6.75% due 3/30/2006 512,650 500,725
------------ ------------
16,773,053 16,197,599
====================================================================================================================================
Utilities--Communications--1.7%
A A2 1,000,000 360 Communications Co., 7.125% due 3/01/2003 1,019,270 1,014,490
AA- A1 1,000,000 AT&T Corporation, 6% due 3/15/2009 1,010,780 939,790
AA Aa2 1,000,000 Bell Atlantic, PA, 6% due 12/01/2028 993,000 839,240
AAA Aaa 900,000 BellSouth Telecommunications, Inc., 6.75% due 10/15/2033 796,973 797,184
A Baa1 750,000 GTE Corp., 7.83% due 5/01/2023 722,123 725,640
A- A3 150,000 MCI Communications Corp., 7.50% due 8/20/2004 155,666 154,615
A- A3 750,000 MCI WorldCom Inc., 7.75% due 4/01/2007 776,430 785,438
AA Aa3 500,000 Southwestern Bell Telecommunications, 6.625% due 7/15/2007 518,080 497,765
BBB+ Baa1 500,000 Sprint Capital Corporation, 5.875% due 5/01/2004 493,905 479,165
A- Baa1 500,000 U S West Capital Funding Inc., 6.875% due 7/15/2028 519,175 456,950
A+ A2 700,000 U S West Communications, 6.875% due 9/15/2033 667,635 629,573
A- A3 500,000 WorldCom Inc., 6.40% due 8/15/2005 498,990 489,150
------------ ------------
8,172,027 7,809,000
====================================================================================================================================
Utilities--Gas & Electric--1.5%
AA- A1 1,470,000 Baltimore Gas & Electric Co., 8.375% due 8/15/2001 1,551,364 1,534,709
BBB Baa3 500,000 Commonwealth Edison, Inc., 6.95% due 7/15/2018 497,860 471,420
BBB+ Baa3 500,000 Consumers Energy, 6.375% due 2/01/2008 488,120 470,964
Detroit Edison Company:
A- A3 100,000 5.93% due 2/01/2001 96,905 99,526
A- A3 500,000 7.22% due 8/01/2002 518,860 509,825
AA- Aa3 1,000,000 Florida Power Corp., 6.875% due 2/01/2008 1,093,190 1,004,640
A- A3 500,000 Houston Lighting and Power, 8.75% due 3/01/2022 538,705 516,670
A- A3 1,000,000 Pennsylvania Power & Light Co., 8.50% due 5/01/2022 1,056,750 1,018,910
AA+ Aa2 1,250,000 Wisconsin Electric and Power, 7.25% due 8/01/2004 1,280,138 1,283,500
------------ ------------
7,121,892 6,910,164
====================================================================================================================================
Yankee--Corporate--2.3%
AA- Aa3 425,000 Abbey National First Capital, 8.20% due 10/15/2004 450,003 449,263
A A1 500,000 BCH Ltd. (Cayman Islands), 6.50% due 2/15/2006 493,985 482,835
A- A3 500,000 BHP Finance USA Limited, 6.42% due 3/01/2026 497,170 495,115
BBB+ Baa2 528,000 Celulosa Arauco, 6.75% due 12/15/2003 520,091 486,330
BBB+ Baa3 400,000 Fairfax Financial Holdings Ltd., 8.30% due 4/15/2026 438,736 384,036
A+ A1 550,000 Grand Metropolitan Investment Corp., 9% due 8/15/2011 617,518 643,302
A+ A2 1,000,000 Hydro-Quebec, 8.875% due 3/01/2026 1,116,000 1,176,550
BBB- Baa3 1,000,000 Korea Development Bank, 6.625% due 11/21/2003 971,890 948,100
BBB- Baa3 500,000 Korea Telecom, 7.625% due 4/15/2007 481,675 471,879
BBB Baa2 1,000,000 Noranda Forest Inc., 6.875% due 11/15/2005 1,002,540 936,400
A A2 500,000 Norsk Hydro A/S, 6.70% due 1/15/2018 497,440 451,290
BBB+ A3 500,000 Phillips Electronics NV, 7.75% due 5/15/2025 512,285 495,570
A A1 1,000,000 Santander Financial Issuances Ltd., 7% due 4/01/2006 1,004,440 997,950
A+ Aa3 500,000 Sony Corporation, 6.125% due 3/04/2003 498,940 496,610
Tyco International Group SA:
A- Baa1 500,000 6.25% due 6/15/2003 501,190 491,995
A- Baa1 1,000,000 6.875% due 1/15/2029 999,720 911,880
A A2 300,000 WMC Finance USA, 7.25% due 11/15/2013 291,822 293,448
------------ ------------
10,895,445 10,612,553
====================================================================================================================================
Total Investments in Corporate Bonds & Notes--21.7% 104,000,077 100,887,429
====================================================================================================================================
Short-Term Securities
====================================================================================================================================
Repurchase Agreements***--0.5%
2,294,000 Morgan Stanley, Dean Witter, Discover & Co., purchased on 6/30/1999
to yield 4.87% to 7/01/1999 2,294,000 2,294,000
====================================================================================================================================
Total Investments in Short-Term Securities--0.5% 2,294,000 2,294,000
====================================================================================================================================
Total Investments--99.6% $469,734,125 462,230,664
============
Other Assets Less Liabilities--0.4% 2,068,088
------------
Net Assets--100.00% $464,298,752
============
====================================================================================================================================
</TABLE>
* Not Rated.
** Mortgage-Backed Obligations are subject to principal paydowns as a result
of prepayments or refinancing of the underlying mortgage instruments. As a
result, the average life may be substantially less than the original
maturity.
*** Repurchase Agreements are fully collateralized by US Government Agency
Obligations.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Represents a step bond; the interest rate shown reflects the effective
yield at the time of purchase by the Series.
(1) Represents or includes a "to-be-announced" (TBA) transaction. The Series
has committed to purchase securities for which all specific information is
not available at this time.
(2) Represents balloon mortgages that amortize on a 30-year schedule and have
7-year maturities.
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES As of June 30, 1999
====================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$469,734,125) (Note 1a).......................... $462,230,664
Receivables:
Securities sold....................................................................... $ 14,983,616
Interest.............................................................................. 5,529,231
Contributions......................................................................... 425,985
Paydowns.............................................................................. 3,644 20,942,476
------------
Deferred organization expenses (Note 1f)................................................ 5,520
Prepaid expenses........................................................................ 296
------------
Total assets............................................................................ 483,178,956
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased.................................................................. 17,947,084
Withdrawals........................................................................... 846,617
Investment adviser (Note 2)........................................................... 23,066 18,816,767
------------
Accrued expenses and other liabilities.................................................. 63,437
------------
Total liabilities....................................................................... 18,880,204
------------
====================================================================================================================================
Net Assets: Net assets.............................................................................. $464,298,752
============
====================================================================================================================================
Net Assets Partners' capital....................................................................... $471,802,213
Consist of: Unrealized depreciation on investments--net.............................................. (7,503,461)
------------
Net assets.............................................................................. $464,298,752
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES For the Six Months Ended June 30, 1999
====================================================================================================================================
<S> <C> <C>
Investment Income Interest and discount earned....................................................... $ 13,978,691
(Note 1e): Other.............................................................................. 199
------------
Total income....................................................................... 13,978,890
------------
====================================================================================================================================
Expenses: Investment advisory fees (Note 2).................................................. $ 133,178
Accounting services (Note 2)....................................................... 56,640
Custodian fees..................................................................... 30,017
Professional fees.................................................................. 18,590
Pricing fees....................................................................... 3,780
Trustees' fees and expenses........................................................ 1,659
Amortization of organization expenses (Note 1f).................................... 834
Other.............................................................................. 1,604
----------
Total expenses..................................................................... 246,302
------------
Investment income--net............................................................. 13,732,588
------------
====================================================================================================================================
Realized & Realized gain from investments--net................................................ 243,923
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net................. (22,015,900)
(Loss) On ------------
Investments--Net
(Notes 1c, 1e & 3): Net Decrease in Net Assets Resulting from Operations............................... $ (8,039,389)
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Six For the
AGGREGATE BOND Months Ended Year Ended
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 1999 Dec. 31, 1998
====================================================================================================================================
<S> <C> <C>
Operations: Investment income--net........................................................... $ 13,732,588 $ 24,615,843
Realized gain on investments--net................................................ 243,923 1,822,916
Change in unrealized appreciation/depreciation on investments--net............... (22,015,900) 7,171,047
------------ ------------
Net increase (decrease) in net assets resulting from operations.................. (8,039,389) 33,609,806
------------ ------------
====================================================================================================================================
Net Capital Increase in net assets derived from net capital contributions.................... 37,403,347 93,584,591
Contributions: ------------ ------------
====================================================================================================================================
Net Assets: Total increase in net assets..................................................... 29,363,958 127,194,397
Beginning of period.............................................................. 434,934,794 307,740,397
------------ ------------
End of period.................................................................... $464,298,752 $434,934,794
============ ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Six For the For the Period
AGGREGATE BOND The following ratios have been derived from Months Ended Year Ended April 3, 1997+ to
INDEX SERIES information provided in the financial statements. June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C>
Ratios to Average Expenses, net of reimbursement........................... .11%* .12% .15%*
Net Assets: ========== ========== ==========
Expenses................................................. .11%* .13% .18%*
========== ========== ==========
Investment income--net.................................... 6.19%* 6.20% 6.34%*
========== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands)................. $ 464,299 $ 434,935 $ 307,740
Data: ========== ========== ==========
Portfolio turnover....................................... 29.14% 27.89% 86.58%
========== ========== ==========
====================================================================================================================================
</TABLE>
+ Commencement of operations.
* Annualized.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 1999
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
AGGREGATE BOND
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Series (the "Series") is part of Merrill
Lynch Index Trust (the "Trust"). The Trust is registered under the Investment
Company Act of 1940 and is organized as a Delaware business trust. The Series'
financial statements are prepared in accordance with generally accepted
accounting principles, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal recurring
nature. The following is a summary of significant accounting policies followed
by the Series.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. 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. Securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options traded in
the over-the-counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Other investments, including futures
contracts and related options, are stated at market value. Short-term securities
are valued at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
market value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Repurchase agreements--The Series invests in securities pursuant to
repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Series
takes possession of the underlying securities, marks to market such securities
and, if necessary, receives additional securities daily to ensure that the
contract is fully collateralized.
(c) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell financial futures
contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required.
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
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.
(f) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a period not exceeding five years.
(g) Dollar rolls--The Series may sell securities for delivery in the current
month and simultaneously contract to repurchase substantially similar (same
type, coupon and maturity) securities on a specific future date.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner.
MLAM is responsible for the management of the Series' portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Series. For such services, the Series pays a monthly
fee at an annual rate of 0.06% of the average daily value of the Series' net
assets.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1999 were $180,694,645 and $128,751,819, respectively.
Net realized gains for the six months ended June 30, 1999 and net unrealized
losses as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Losses
- --------------------------------------------------------------------------------
Long-term investments................... $ 243,923 $(7,503,461)
----------- -----------
Total................................... $ 243,923 $(7,503,461)
=========== ===========
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized depreciation for Federal income tax purposes
aggregated $7,503,461, of which $2,442,907 related to appreciated securities and
$9,946,368 related to depreciated securities. At June 30, 1999, the aggregate
cost of investments for Federal income tax purposes was $469,734,125.
18 & 19
<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 1--6/99
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