MERRILL LYNCH
SMALL CAP
INDEX FUND
Merrill Lynch
Index Funds, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
December 31, 1998
<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
Jay C. Harbeck, Senior Vice President
Norman R. Harvey, Senior Vice President
Jeffrey B. Hewson, Senior Vice President
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Eric S. Mitofsky, Senior Vice President and Portfolio Manager
Donald C. Burke, 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
Important Tax Information
Of the ordinary income distribution paid by Merrill Lynch Small Cap Index Fund
to shareholders of record on December 8, 1998, 14.54% qualifies for the
dividends received deduction for corporations.
Additionally, the Fund paid a long-term capital gains distribution of $.640260
to shareholders of record on December 8, 1998. The entire long-term capital
gains distribution is subject to the 20% tax rate.
Please retain this information for your records.
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
The fiscal year ended December 31, 1998 was a tumultuous one for
small-capitalization stocks. The year began on a strong note for equity markets
in the United States and the rest of the world as concerns about Asia's
economies began to wane and there was little evidence of inflationary pressures
in the US economy at either the consumer or wholesale level. The unmanaged
Russell 2000 Index set nine new record highs during the first quarter of 1998
and produced a total return of +10.06% for this period. The Index closed the
March quarter at a record-high level of 480.68, an increase of more than 43
points over its level at year-end 1997 of 437.02. Nearly every equity market
around the globe was up for the first three months of the year as markets began
to shift focus from Asia to strong corporate earnings growth and to the
continued high levels of merger and acquisition activity.
While the Russell 2000 Index lagged behind the unmanaged Standard & Poor's 500
(S&P 500) Index (which produced a total return of +13.95%) for the first quarter
of 1998, as a whole it outperformed the S&P 500 Index during the month of
February. In that month, the Russell 2000 Index posted a total return of +7.39%,
compared with the S&P 500 Index's return of +7.21%. During the first quarter,
the Russell 2000 Index was led by double-digit gains in the transportation,
consumer discretionary and technology sectors. The energy sector was the only
sector to post a decline for the quarter, but rebounded strongly during March to
become that month's best-performing sector.
Unfortunately, the first quarter rally in small-capitalization stocks could not
be sustained during the second quarter of 1998, as concerns over the Asian
economic crisis once again hit equity markets around the world. Although
large-capitalization stocks in the United States were able to shrug off some of
these concerns, small cap stocks were unable to recover their lost momentum from
the year's first quarter. The Russell 2000 Index slid by more than 11.6% from an
all-time high of 491.14 on April 21, 1998 to its closing level of 433.86 on June
15, 1998. One of the main factors in the decline of the Russell 2000 Index was
its large weighting in technology stocks, which declined by more than 10% during
the month of May alone, and by more than 6% for the entire second quarter. The
second quarter was a difficult one in all areas, since no sector of the Russell
2000 Index produced a positive return during this period. The energy sector
alone declined by more than 13%. Between June 15, 1998 and June 30, 1998,
however, the Russell 2000 Index did manage to regain some of its lost ground,
and finished the first half of 1998 at 457.39. On a total return basis, the
Russell 2000 Index posted a decline of 4.66% during the second quarter of 1998,
but based on its strength during the first quarter, produced a total return of
+4.93% for the first half of the year.
Small-capitalization stocks continued to suffer one of their worst declines in
history on both an absolute basis and relative to larger stocks during the third
quarter of 1998. The Russell 2000 Index's total return of -4.66% for the second
quarter was followed by a third quarter return of -20.15%, as the Russell 2000
Index dropped by nearly 100 points. During the market's summer sell-off, the
Russell 2000 Index lost nearly 82 points, but recovered somewhat during the
broad-based recovery in September, which cushioned some of the impact of
August's decline. From its high of 491.14 on April 21, 1998, the Russell 2000
Index had lost more than 153 points to close at 337.95 on August 31, 1998, a
decline of 31.19% in a little over four months. Despite the strong showing of
technology and healthcare stocks during September, no sector of the Russell 2000
Index had positive returns for the third quarter as a whole.
The difficult third quarter was followed by a strong rally in the fourth quarter
of 1998, and the Russell 2000 Index rallied along with the major market indexes
during this period. Moderate gains in October and November were followed by the
Russell 2000 Index's second-best month of the year, as it produced a total
return of +6.19% in December. Whereas no sector of the Russell 2000 Index had
positive returns for the third quarter, every sector (except energy and real
estate investment trusts) posted positive returns for the fourth quarter.
Overall, the Russell 2000 Index posted a total return of +16.31% during the
fourth quarter of 1998. However, unlike the large cap benchmarks that finished
the year at near-record territory, the Russell 2000 Index was still 70 points
off the highs it had established in April, despite being at record-low valuation
levels in comparison with large-capitalization stocks.
For the year ended December 31, 1998, Merrill Lynch Small Cap Index Fund's Class
A and Class D Shares had total returns of -3.14% and -3.41%, respectively. This
compares to the total return of -2.55% by the Russell 2000 Index for the same
twelve-month period. (Complete performance information can be found on pages 3
and 4 of this report to shareholders.)
Portfolio Matters
The investment objective of the Fund is to seek to replicate the return of the
Russell 2000 Index before expenses. 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
return 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 invest daily cash inflows.
The Series utilizes these futures as a way to maintain a pool of liquidity
should the need for cash arise in the event of Fund redemptions. In addition,
futures are 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 allows the
Series to be as fully invested as possible. We invest in an "optimized"
portfolio of equities, which consists of stocks that are statistically selected
to provide returns that closely approximate those of the Russell 2000 Index.
In Conclusion
We thank you for your investment in Merrill Lynch Small Cap 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/ Eric S. Mitofsky
Eric S. Mitofsky
Senior Vice President and
Portfolio Manager
February 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 ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
Recent
Performance
Results
<TABLE>
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
=========================================================================================================================
<S> <C> <C> <C>
ML Small Cap Index Fund Class A Shares* -3.14% +16.04% +23.04%
- -------------------------------------------------------------------------------------------------------------------------
ML Small Cap Index Fund Class D Shares* -3.41 +15.94 +22.53
- -------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index** -2.55 +16.31 +24.19
=========================================================================================================================
</TABLE>
* Total investment returns are based on changes in net asset value for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund
commenced operations on 4/09/97.
** This unmanaged Index is comprised of approximately 2,000
smaller-capitalization common stocks from various industrial sectors.
Since inception total return is from 4/09/97 to 12/31/98.
2 & 3
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
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:
4/09/97** 12/98
ML Small Cap Index Fund+--
Class A Shares* $10,000 $12,304
ML Small Cap Index Fund+--
Class D Shares* $10,000 $12,253
Russell 2000 Small Stock Index++-- $10,000 $12,418
* 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 Merrill Lynch Index Trust. The Trust may invest in a statistically
selected sample of the stocks included in the Russell 2000 Index 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.
Average Annual Total Return
% Return
============================================================================
Class A Shares
============================================================================
Year Ended 12/31/98 - 3.14%
- ----------------------------------------------------------------------------
Inception (4/09/97) through 12/31/98 +12.74
- ----------------------------------------------------------------------------
% Return
============================================================================
Class D Shares
============================================================================
Year Ended 12/31/98 - 3.41%
- ----------------------------------------------------------------------------
Inception (4/09/97) through 12/31/98 +12.47
- ----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND As of December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Assets: Investment in Merrill Lynch Small Cap Index Series, at value (identified cost--
$48,109,534) (Note 1a) ........................................................... $ 49,086,846
Deferred organization expenses (Note 1d)............................................. 9,956
Prepaid registration fees and other assets (Note 1d)................................. 9,437
------------
Total assets......................................................................... 49,106,239
------------
=============================================================================================================================
Liabilities: Payables:
Administrator (Note 2)............................................................ $ 9,176
Distributor (Note 2).............................................................. 5,930 15,106
Accrued expenses and other liabilities............................................... ---------- 28,274
------------
Total liabilities ................................................................... 43,380
------------
=============================================================================================================================
Net Assets: Net assets........................................................................... $ 49,062,859
============
=============================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized..... $ 176
Consist of: Class D Shares of Common Stock, $0.0001 par value, 125,000,000 shares authorized..... 301
Paid-in capital in excess of par..................................................... 47,844,692
Undistributed realized capital gains on investments from the Series--net............. 240,378
Unrealized appreciation on investments from the Series--net.......................... 977,312
------------
Net assets........................................................................... $ 49,062,859
============
=============================================================================================================================
Net Asset Class A--Based on net assets of $18,122,030 and 1,764,068 shares outstanding......... $ 10.27
Value: ============
Class D--Based on net assets of $30,940,829 and 3,012,784 shares outstanding......... $ 10.27
============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX FUND For the Year Ended December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Investment Investment income allocated from the Series.......................................... $ 740,575
Income Expenses allocated from the Series................................................... (77,130)
(Note 1b): ------------
Net investment income from the Series................................................ 663,445
------------
=============================================================================================================================
Expenses: Administration fee (Note 2).......................................................... $ 99,667
Account maintenance fee--Class D (Note 2)............................................ 72,545
Transfer agent fees--Class D (Note 2)................................................ 55,487
Registration fees (Note 1d).......................................................... 46,057
Printing and shareholder reports..................................................... 34,729
Professional fees.................................................................... 12,002
Amortization of organization expenses (Note 1d)...................................... 3,063
Accounting services (Note 2)......................................................... 1,200
Other ............................................................................... 1,326
----------
Total expenses before reimbursement.................................................. 326,076
Reimbursement of expenses (Note 2)................................................... (104,100)
----------
Total expenses after reimbursement................................................... 221,976
------------
Investment income--net............................................................... 441,469
------------
=============================================================================================================================
Realized & Realized gain on investments from the Series--net.................................... 5,424,578
Unrealized Change in unrealized appreciation on investments from the Series--net................ (5,804,951)
Gain (Loss) ------------
from the Net Increase in Net Assets Resulting from Operations................................. $ 61,096
Series--Net: ============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the For the Period
SMALL CAP Year Ended April 9, 1997+ to
INDEX FUND Increase (Decrease) in Net Assets: Dec. 31, 1998 Dec. 31, 1997
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net.......................................................... $ 441,469 $ 459,481
Realized gain on investments from the Series--net............................... 5,424,578 1,806,858
Change in unrealized appreciation on investments from the Series--net........... (5,804,951) 6,782,263
------------ ------------
Net increase in net assets resulting from operations............................ 61,096 9,048,602
------------ ------------
===================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A...................................................................... (202,428) (197,459)
Shareholders Class D...................................................................... (238,209) (262,022)
(Note 1e): In excess of investment income--net:
Class A...................................................................... (8,064) (358)
Class D...................................................................... (9,489) (474)
Realized gain on investments from the Series--net:
Class A...................................................................... (2,123,929) (624,160)
Class D...................................................................... (3,230,457) (994,959)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (5,812,576) (2,079,432)
------------ ------------
===================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital share transactions... (10,441,939) 58,262,108
Transactions ------------ ------------
(Note 4):
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets......................................... (16,193,419) 65,231,278
Beginning of period............................................................. 65,256,278 25,000
------------ ------------
End of period................................................................... $ 49,062,859 $ 65,256,278
============ ============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been derived --------------------------------
MERRILL LYNCH from information provided in the financial statements. For the For the Period
SMALL CAP Year Ended April 9, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: Dec. 31, 1998 Dec. 31, 1997
===================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period........................... $ 12.28 $ 10.00
Operating -------- --------
Performance: Investment income--net......................................... .13 .10
Realized and unrealized gain (loss) on investments from
the Series--net ............................................ (.59) 2.60
-------- --------
Total from investment operations............................... (.46) 2.70
-------- --------
Less dividends and distributions:
Investment income--net...................................... (.13) (.10)
In excess of investment income--net......................... (.01) --**
Realized gain on investments from the Series--net........... (1.41) (.32)
-------- --------
Total dividends and distributions.............................. (1.55) (.42)
-------- --------
Net asset value, end of period................................. $10.27 $ 12.28
======== ========
===================================================================================================================
Total Investment Based on net asset value per share............................. (3.14%) 27.04%+++
Return: ======== ========
===================================================================================================================
Ratios to Average Expenses, net of reimbursement++............................... .50% .52%*
Net Assets: ======== ========
Expenses++..................................................... .84% 1.00%*
======== ========
Investment income--net......................................... 1.14% 1.45%*
======== ========
===================================================================================================================
Supplemental Net assets, end of period (in thousands)....................... $ 18,122 $ 26,478
Data: ======== ========
===================================================================================================================
<CAPTION>
Class D
The following per share data and ratios have been derived --------------------------------
MERRILL LYNCH from information provided in the financial statements. For the For the Period
SMALL CAP Year Ended April 9, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: Dec. 31, 1998 Dec. 31, 1997
===================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period........................... $ 12.28 $ 10.00
Operating -------- --------
Performance: Investment income--net......................................... .11 .09
Realized and unrealized gain (loss) on investments from
the Series--net ............................................ (.60) 2.60
-------- --------
Total from investment operations............................... (.49) 2.69
-------- --------
Less dividends and distributions:
Investment income--net...................................... (.11) (.09)
In excess of investment income--net......................... --** --**
Realized gain on investments from the Series--net........... (1.41) (.32)
-------- --------
Total dividends and distributions.............................. (1.52) (.41)
-------- --------
Net asset value, end of period................................. $ 10.27 $ 12.28
======== ========
===================================================================================================================
Total Investment Based on net asset value per share............................. (3.41%) 26.87%+++
Return: ======== ========
===================================================================================================================
Ratios to Average Expenses, net of reimbursement++............................... .75% .77%*
Net Assets: ======== ========
Expenses++..................................................... 1.09% 1.25%*
======== ========
Investment income--net......................................... .88% 1.20%*
======== ========
===================================================================================================================
Supplemental Net assets, end of period (in thousands)....................... $ 30,941 $ 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 "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 Merrill Lynch Small
Cap Index Series (the "Series") of 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. 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 and have extensive 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 is included elsewhere in this
report.
(b) Income--The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Series, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no Federal income tax provision is required. Under
6 & 7
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH SMALL CAP INDEX FUND
the applicable foreign tax law, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
(d) Prepaid registration fees and deferred organization expenses --Prepaid
registration fees are charged to expense as the related shares are issued.
Deferred organization expenses are charged to expense on a straight-line basis
over a period not exceeding five years.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates. Distributions in excess of net investment
income are due primarily to differing tax treatments for post-October losses.
(f) Investment transactions--Investment transactions are accounted for on a
trade date basis.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $17,553 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per share.
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 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 year ended December 31, 1998,
MLAM earned fees of $99,667, all of which were voluntarily waived. MLAM also
reimbursed the Fund of additional expenses of $4,433.
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with Merrill Lynch Funds Distributor ("MLFD" or "Distributor"), a division
of Princeton Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary
of Merrill Lynch Group, Inc. Pursuant to the Dis tribution Plans 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 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 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 year
ended December 31, 1998 were $30,956,875 and $47,372,779, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
were $(10,441,939) and $58,262,108 for the year ended December 31, 1998 and the
period April 9, 1997 to December 31, 1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 1,822,073 $ 21,518,635
Shares issued to shareholders in reinvest-
ment of dividends and distributions .......... 219,531 2,153,600
---------- ------------
Total issued ................................. 2,041,604 23,672,235
Shares redeemed .............................. (2,433,281) (29,828,044)
---------- ------------
Net decrease ................................. (391,677) $ (6,155,809)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Period Dollar
April 9, 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 Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 2,397,589 $ 27,045,598
Shares issued to shareholders in reinvest-
ment of dividends and distributions .......... 302,281 2,965,374
---------- ------------
Total issued ................................. 2,699,870 30,010,972
Shares redeemed .............................. (2,845,324) (34,297,102)
---------- ------------
Net decrease ................................. (145,454) $ (4,286,130)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Period Dollar
April 9, 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,
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, 1998, the related statements of operations for
the year then ended and changes in net assets and the financial highlights for
the year then ended and 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
audits.
We conducted our audits 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 audits provide 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 Merrill Lynch Index Funds, Inc. as of December 31, 1998, the
results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1999
8 & 9
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS
Merrill Lynch Small Cap Index Series
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
+3Dfx Interactive, Inc. 1,500 $ 18,938
A. Schulman, Inc. 4,417 100,211
A.M. Castle & Company 2,000 30,000
A.O. Smith Corporation 1,500 36,844
AAR Corp. 2,174 51,904
ABM Industries, Inc. 1,933 66,930
+ABR Information Services Inc. 2,991 58,698
+ADAC Laboratories 1,959 39,119
+ADVO Systems, Inc. 2,735 72,136
AGL Resources Inc. 3,700 85,331
AK Steel Holding Corporation 5,764 135,454
+ALARIS Medical, Inc. 5,200 30,550
AMCOL International Corporation 2,750 27,156
AMCORE Financial, Inc. 3,700 84,695
AMETEK, Inc. 3,635 81,106
+ANTEC Corporation 3,661 73,678
+APAC TeleServices, Inc. 2,700 10,209
ARM Financial Group, Inc. 503 11,160
ASA Holdings, Inc. 2,414 73,627
ASARCO Incorporated 711 10,709
+ATMI, Inc. 1,900 47,975
+AXENT Technologies, Inc. 2,446 74,756
Aaron Rents, Inc. 677 10,240
+Abacus Direct Corporation 973 44,271
+Acceptance Insurance Companies Inc. 2,600 52,650
+Actel Corp. 3,471 69,420
+Action Performance Companies, Inc. 1,269 44,891
+Acuson Corporation 2,600 38,675
+Acxiom Corp. 4,258 131,998
+Adelphia Communications (Class A) 2,186 100,009
Adolph Coors Company 2,804 158,251
+Adtran, Inc. 2,262 41,423
+Advanced Tissue Sciences, Inc. 3,900 10,116
Advanta Corp. 3,065 40,611
+Affiliated Managers Group, Inc. 2,109 63,006
+Affymetrix, Inc. 2,036 49,629
+Aftermarket Technology Corp. 2,500 19,687
+Agouron Pharmaceuticals, Inc. 3,226 189,527
+AgriBioTech, Inc. 3,727 48,218
+Agribrands International, Inc. 308 9,240
Air Express International Corporation 3,983 86,630
+Airgas, Inc. 4,710 42,096
+Alaska Air Group, Inc. 1,904 84,252
Albany International Corp. (Class A) 2,002 37,918
Albemarle Corporation 1,100 26,125
Alexander & Baldwin, Inc. 774 17,995
+Algos Pharmaceutical Corporation 1,100 28,600
Aliant Communications, Inc. 2,989 122,175
+Alkermes, Inc. 2,681 59,485
+Allen Telecom Inc. 2,600 17,387
+Allied Waste Industries, Inc. 2,805 66,268
Alpharma, Inc. (Class A) 2,134 75,357
+Alternative Living Services, Inc. 1,000 34,250
+Alternative Resources Corporation 2,719 28,889
+Amerco 1,375 38,414
+AmeriCredit Corp. 6,019 83,137
+AmeriSource Health Corp. (Class A) 2,444 158,860
+America West Holdings (Class B) 4,286 72,862
+American Eagle Outfitters, Inc. 1,323 88,145
American Health Properties, Inc. 1,800 37,125
+American Italian Pasta Company (Class A) 1,885 49,717
+American Management Systems,
Incorporated 4,562 182,480
+American Oncology Resources, Inc. 3,611 52,585
+American Retirement Corporation 645 10,118
+American Tower Corporation (Class A) 1,324 39,141
+Amerin Corporation 2,298 54,290
Ameron International Corporation 354 13,098
+Ames Department Stores, Inc. 453 12,231
+Amphenol Corp. (Class A) 1,294 39,063
Analysts International Corporation 2,300 44,275
+Anchor Bancorp, Inc. 2,200 52,800
+Anchor Gaming 389 21,930
+Andrx Corporation 900 46,125
+Anixter International, Inc. 4,098 83,241
+AnnTaylor Stores Corporation 3,370 132,904
Apartment Investment & Management Co.
(Class E) (Convertible Preferred) 602 22,274
Apogee Enterprises, Inc. 4,462 50,197
Applebee's International, Inc. 3,544 73,095
Applied Industrial Technologies, Inc. 2,650 36,769
+Applied Micro Circuits Corporation 2,194 74,527
Applied Power Inc. (Class A) 2,981 112,533
+Apria Healthcare Group Inc. 5,300 47,369
AptarGroup, Inc. 4,370 122,633
Aquarion Company 4,000 164,000
Arch Coal, Inc. 2,000 34,250
Argonaut Group, Inc. 1,700 41,650
Armco, Inc. 9,886 43,251
Arnold Industries, Inc. 2,000 32,250
Arrow International, Inc. 1,000 31,375
+Artesyn Technologies, Inc. 3,512 49,168
Arthur J. Gallagher & Co. 2,529 111,592
Arvin Industries, Inc. 1,990 82,958
+Ascend Communications, Inc. 1,869 122,887
+Ascent Entertainment Group, Inc. 4,797 35,378
+Aspect Development, Inc. 1,690 74,888
+Aspect Telecommunications 6,359 109,693
+Aspen Technology, Inc. 1,800 26,100
Associated Estates Realty Corporation 4,500 53,156
+Associated Group, Inc. (Class A) 2,368 101,824
Atmos Energy Corporation 3,641 117,422
+Atwood Oceanics, Inc. 777 13,209
Authentic Fitness Corp. 2,000 36,500
Avado Brands, Inc 3,222 26,783
+Avant! Corporation 3,312 52,992
+Avid Technology, Inc. 2,599 60,752
+Aviron 1,300 33,637
+Avis Rent A Car, Inc. 3,081 74,522
+Aztar Corporation 5,400 27,337
+BA Merchant Services, Inc. (Class A) 537 10,807
+BE Aerospace, Inc. 2,936 61,656
+BEA Systems, Inc 785 9,616
BMC Industries, Inc. 3,100 19,375
+BRC Holdings, Inc. 587 11,006
BRE Properties, Inc. 918 22,720
Baldor Electric Company 3,256 65,934
Baldwin & Lyons, Inc. (Class B) 574 14,206
Ball Corporation 3,309 151,387
Ballard Medical Products 3,784 91,998
+Bally Total Fitness Holding Corporation 2,331 57,984
+BancTec, Inc. 3,885 48,805
BancorpSouth, Inc. 5,745 103,769
Bank of Granite Corp. 2,650 73,206
BankAtlantic Bancorp, Inc. (Class B) 1,680 11,970
Banknorth Group, Inc. 2,841 106,893
Banta Corporation 2,743 75,090
+Barnett Inc. 2,600 35,750
+Barrett Resources Corporation 3,426 82,224
Bassett Furniture Industries, Incorporated 2,758 65,847
Battle Mountain Gold Company 5,000 20,625
Bay State Gas Company 1,100 43,794
Bay View Capital Corporation 578 12,535
Belden Inc. 3,410 72,249
+Bell & Howell Company 1,961 74,150
+Benchmark Electronics, Inc. 2,100 76,912
+Benton Oil and Gas Company 4,097 12,291
+Beringer Wine Estates Holdings,
Inc. (Class B) 1,443 64,484
Berkley (W.R.) Corporation 1,500 51,094
Berkshire Realty Company, Inc. 1,757 16,691
Berry Petroleum Company (Class A) 3,700 52,494
+Bethlehem Steel Corporation 4,800 40,200
+Big Flower Holdings, Inc. 2,200 48,537
+Billing Information Concepts 3,023 33,253
Bindley Western Industries, Inc. 295 14,529
+Bio-Rad Laboratories, Inc. (Class A) 1,400 29,400
+Bio-Technology General Corp. 7,524 52,198
+Biomatrix, Inc. 1,323 77,065
Birmingham Steel Corp. 3,500 14,656
+The Bisys Group, Inc. 2,383 123,022
+Black Box Corporation 1,705 64,577
Black Hills Corporation 3,300 87,037
Block Drug Company, Inc. (Class A) 1,133 48,994
Blount International, Inc. (Class A) 1,945 48,503
Bob Evans Farms, Inc. 4,597 119,809
+Boole & Babbage, Inc. 2,789 82,101
Borg-Warner Automotive, Inc. 359 20,037
+Boron, LePore & Associates, Inc. 1,000 34,500
Bowne & Co., Inc. 4,640 82,940
+Boyd Gaming Corporation 5,400 17,887
Boykin Lodging Company 817 10,110
Bradley Real Estate, Inc. 734 15,047
Brandywine Realty Trust 3,557 63,581
Briggs & Stratton Corporation 362 18,055
+Brightpoint, Inc. 5,453 74,979
Bristol Hotels & Resorts, Inc. 2,150 13,169
+BroadVision, Inc. 1,700 54,400
+Brookdale Living Communities, Inc. 1,700 33,150
Brown Group, Inc. 606 10,643
Brush Wellman, Inc. 2,884 50,290
+Buckeye Technologies Inc. 3,625 54,148
+Budget Group, Inc. (Class A) 2,196 34,861
+Buffets, Inc. 5,698 68,020
+Building One Services Corporation 784 16,366
+Burlington Industries, Inc. 7,436 81,796
Burnham Pacific Properties, Inc. 6,900 83,231
+Burr-Brown Corp. 2,953 69,211
+C-Cube Microsystems Inc. 3,933 106,683
C.H. Robinson Worldwide, Inc. 4,142 107,433
CBL & Associates Properties, Inc. 3,700 95,506
+CCA Prison Realty Trust 2,550 52,275
10 & 11
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(continued)
+CCC Information Services Group Inc. 3,441 $ 59,357
+CD Radio, Inc. 1,000 34,250
+CDI Corp. 800 16,150
+CDW Computer Centers, Inc. 505 48,448
+CEC Entertainment Inc. 349 9,685
CFSB Bancorp, Inc. 2,600 63,375
CFW Communications Company 2,814 65,777
+CHS Electronics, Inc. 3,002 50,846
CILCORP, Inc. 2,300 140,731
CLARCOR Inc. 3,348 66,960
CMAC Investment Corp. 2,584 118,702
+CMG Information Services, Inc. 1,557 165,820
CMP Group Inc. 5,921 111,759
CNB Bancshares, Inc. 2,315 107,937
+CONMED Corporation 2,062 68,046
+COR Therapeutics, Inc. 3,190 42,267
+CORT Business Services Corporation 2,338 56,696
CPI Corp. 1,769 46,878
CRIIMI MAE, Inc. 5,400 18,900
+CSG Systems International, Inc. 2,181 172,299
+CSK Auto Corporation 1,872 49,959
+CSS Industries, Inc. 1,300 39,406
CTS Corporation 317 13,789
+CUNO Incorporated 2,300 37,375
+Cable Design Technology 3,049 56,406
Cabot Oil & Gas Corporation 3,729 55,935
+Cadiz Inc. 3,700 28,212
CalMat Co. 2,300 71,012
Calgon Carbon Corporation 6,000 45,000
+California Microwave, Inc. 3,600 33,750
California Water Service Group 2,520 78,907
+Calpine Corporation 3,947 99,662
Cambrex Corporation 3,503 84,072
Camden Property Trust 8,526 221,676
+Canadaigu Brands, Inc. (Class A) 1,473 85,158
Capital Re Corporation 2,138 42,894
Capitol Transamerica Corporation 593 11,082
Caraustar Industries, Inc. 2,158 61,638
+The Carbide/Graphite Group 1,849 27,273
+Caribiner International, Inc. 1,900 17,337
+Carmike Cinemas, Inc. (Class A) 1,700 34,531
Carolina First Corporation 2,952 74,722
Carpenter Technology Corporation 2,210 75,002
Carter-Wallace, Inc. 2,510 49,259
Casey's General Stores, Inc. 5,131 66,863
Cash America International, Inc. 5,653 85,855
+Castle & Cooke, Inc. 3,000 44,250
+Catalina Marketing Corporation 2,540 173,672
+Catalytica, Inc. 4,458 80,244
The Cato Corporation (Class A) 2,400 23,625
+CellNet Data Systems, Inc. 4,819 24,095
+Cellular Communications International, Inc. 1,598 108,664
+Centennial Bancorp 691 12,956
+Centennial Cellular Corp. (Class A) 2,052 84,132
Centertrust Retail Properties, Inc. 5,200 63,700
+Central Garden & Pet Company 2,965 42,622
Central Hudson Gas & Electric Corporation 1,300 58,175
Century Aluminum Company 3,700 34,919
+Century Business Services, Inc. 3,890 55,919
+Century Communications Corp. (Class A) 533 16,923
+Cephalon, Inc. 3,845 34,605
+Cerner Corporation 3,030 81,052
+Champion Enterprises, Inc. 4,682 128,170
Charles E. Smith Residential Realty, Inc. 2,500 80,313
+Charming Shoppes, Inc. 11,200 48,300
Charter Municipal Mortgage
Acceptance Company 3,000 36,375
Charter One Financial, Inc. 3,629 100,699
+Chase Industries Inc. 777 8,110
+CheckFree Holdings Corporation 4,739 110,774
+Checkpoint Systems, Inc. 3,956 48,955
+The Cheesecake Factory Incorporated 2,410 71,472
ChemFirst Inc. 4,119 81,350
Chemed Corporation 450 15,075
Chemical Financial Corporation 442 15,028
Chesapeake Corporation 1,840 67,850
Chittenden Corporation 2,250 72,000
+Choice Hotels International, Inc. 5,619 76,910
+ChoicePoint Inc. 1,255 80,947
Church & Dwight Co., Inc. 1,899 68,245
Churchill Downs Incorporated 1,300 42,737
Circle International Group, Inc. 2,100 43,050
+Cirrus Logic, Inc. 7,793 76,469
Claire's Stores, Inc. 4,847 99,363
+Clarify Inc. 3,071 75,048
Cleco Corporation 2,700 92,644
+Coach USA, Inc. 1,941 67,328
Coachmen Industries, Inc. 2,626 68,932
+Cognex Corporation 4,262 85,240
+Coherent, Inc. 2,859 35,559
Cohu, Inc. 1,300 28,600
+Coldwater Creek Inc. 1,200 16,500
+Cole National Corporation (Class A) 1,704 29,181
+Collins & Aikman Corporation 8,119 41,610
Colonial Properties Trust 2,900 77,212
+Columbia Banking System, Inc. 488 9,028
+Columbia Laboratories, Inc. 4,000 12,250
+Comfort Systems USA, Inc. 3,450 61,669
+CommNet Cellular Inc. 2,500 30,625
+CommScope, Inc. 618 10,390
Commerce Bancorp, Inc. 2,393 125,632
The Commerce Group, Inc. 2,049 72,611
Commercial Federal Corporation 5,999 139,102
Commercial Metals Company 2,812 78,033
Commercial Net Lease Realty 1,087 14,403
Commonwealth Bancorp, Inc. 2,648 41,209
Commonwealth Energy System 493 19,966
Community First Bankshares, Inc. 3,866 81,428
+Computer Horizons Corp. 2,966 78,970
Computer Task Group, Incorporated 1,613 43,753
+Concentra Managed Care, Inc. 4,697 50,199
+Concentric Network Corporation 1,812 60,249
+Concord Communications, Inc. 1,632 92,616
+Cone Mills Corporation 4,900 27,562
Conning Corporation 2,100 43,575
+Consolidated Freightways Corporation 3,400 53,975
+Consolidated Graphics, Inc. 188 12,702
+Consolidated Products, Inc. 4,281 88,301
+Cooper Companies, Inc. 900 18,619
Corn Products International, Inc. 3,404 103,396
+Corporate Express, Inc. 8,100 42,019
+Coulter Pharmaceutical, Inc. 1,561 46,830
Cousins Properties, Inc. 2,647 85,366
+Covance Inc. 6,252 182,089
+Coventry Health Care Inc. 6,479 56,691
+Cox Radio, Inc. (Class A) 1,468 62,023
Crawford & Company (Class B) 4,122 63,633
+Credence Systems Corporation 1,700 31,450
Cross Timbers Oil Company 5,383 40,372
Crown American Realty Trust 1,696 13,144
Cullen/Frost Bankers, Inc. 2,108 115,676
+Curative Health Services, Inc. 1,411 47,268
+Cylink Corporation 3,249 11,778
+Cymer, Inc. 2,916 42,646
+Cypress Semiconductor Corporation 7,467 62,069
+Cytyc Corporation 1,800 46,350
D & N Financial Corporation 2,300 54,337
D.R. Horton, Inc. 648 14,904
+The DII Group, Inc. 2,977 69,401
DIMON Incorporated 5,298 39,404
+DSP Communications, Inc. 4,000 61,250
+DST Systems, Inc. 1,757 100,259
Dain Rauscher Corporation 1,120 33,040
+Dal-Tile International Inc. 4,740 49,177
Dallas Semiconductor Corporation 1,949 79,422
Dames & Moore Group 3,732 48,049
+Data General Corporation 5,322 87,480
+Data Transmission Network Corporation 1,512 43,659
+Datascope Corp. 2,250 51,750
+Datastream Systems, Inc. 1,600 18,400
+DeVry, Inc. 4,935 151,134
+Delco Remy International, Inc. 3,475 34,098
+Delphi Financial Group, Inc. (Class A) 2,476 129,835
Deltic Timber Corporation 1,500 30,562
+Dendrite International, Inc. 2,178 54,382
+Department 56, Inc. 2,717 102,057
Developers Diversified Realty Corporation 1,070 18,992
Devon Energy Corporation 1,352 41,489
The Dexter Corporation 2,648 83,246
+Dialogic Corporation 900 17,691
+Diamond Multimedia Systems, Inc. 3,800 24,225
+Digital Microwave Corporation 4,585 31,379
Dime Community Bancshares 2,300 47,437
+Dionex Corporation 2,452 89,804
+Documentum, Inc. 1,435 76,683
+Dollar Thrifty Automotive Group, Inc. 3,133 40,337
Donaldson Company, Inc. 3,525 73,144
Doral Financial Corporation 612 13,540
+DoubleClick Inc. 1,564 71,260
Downey Financial Corp. 1,995 50,748
+The Dress Barn, Inc. 2,188 33,230
Dreyer's Grand Ice Cream, Inc. 2,450 37,056
+Duane Read Inc. 1,882 72,457
+Dura Pharmaceuticals, Inc. 4,121 62,588
+Dycom Industries, Inc. 1,450 82,831
+Dynex Capital, Inc. 6,400 29,600
+e.spire Communications, Inc. 4,989 31,805
E.W. Blanch Holdings, Inc. 1,712 81,213
+E* TRADE Group, Inc. 3,517 164,530
E'town Corporation 1,100 52,112
+EEX Corporation 2,533 17,733
+Eagle Hardware & Garden, Inc. 2,950 95,875
12 & 13
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(continued)
+EarthLink Network, Inc. 1,366 $ 77,862
The Earthgrains Company 4,233 130,958
EastGroup Properties, Inc. 764 14,086
Eastern Enterprises 2,100 91,875
+Eastern Environmental Services, Inc. 2,272 67,166
Eastern Utilities Associates 3,100 87,575
Eaton Vance Corp. 4,893 102,141
+EchoStar Communications
Corporation (Series A) 290 14,029
+El Paso Electric Company 9,530 83,387
Elan Corp. PLC (ADR)** 995 69,215
Elcor Corporation 1,713 55,351
+The Elder-Beerman Stores Corp. 1,700 19,656
+Electroglas, Inc. 2,900 34,075
+Electronics for Imaging, Inc. 4,883 196,236
+Emmis Communications Corp. (Class A) 1,555 67,448
Empire District Electric Company 4,844 119,889
Energen Corporation 4,945 96,427
Enesco Group Inc. 2,328 54,126
Enhance Financial Services Group Inc. 1,816 54,480
+EntreMed, Inc. 1,000 21,000
+Envoy Corporation 2,159 125,762
+Enzo Biochem, Inc. 2,335 24,080
Equitable Resources, Inc. 3,052 88,889
Equity Inns Inc. 7,535 72,524
+Essex International Inc. 394 13,642
+Esterline Technologies Corporation 2,895 62,966
+Etec Systems, Inc. 2,344 93,760
+Excite, Inc. 2,202 92,622
Executive Risk Inc. 1,466 80,538
Exide Corporation 1,825 29,656
+Exodus Communications, Inc. 1,334 85,709
Expeditors International of Washington, Inc. 2,952 123,984
+Express Scripts, Inc. 2,668 176,421
+Extended Stay America, Inc. 6,120 64,260
F&M Bancorp 421 13,787
F&M National Corporation 2,600 77,838
F.N.B. Corporation 1,575 44,100
+F.Y.I. Incorporated 333 10,656
FBL Financial Group, Inc. (Class A) 4,272 103,596
+FPIC Insurance Group, Inc. 357 17,069
+FSI International, Inc. 2,400 24,900
Fair, Isaac and Company, Incorporated 1,648 76,117
+Fairfield Communities, Inc. 4,389 48,553
+Family Golf Centers, Inc. 377 7,446
Federal Realty Investment Trust 868 20,506
Federal Signal Corporation 790 21,626
FelCor Lodging Trust Inc. 6,900 159,131
Ferro Corporation 4,360 113,360
Fidelity National Financial, Inc. 3,645 111,185
+FileNET Corporation 3,366 38,604
Fingerhut Companies, Inc. 5,058 78,083
The First American Financial Corporation 5,959 191,433
First Brands Corporation 3,263 128,685
First Citizens BancShares, Inc. (Class A) 800 72,000
First Commerce BancShares, Inc. (Class B) 416 11,648
First Commonwealth Financial Corporation 3,523 86,313
First Financial Bancorp 3,278 94,857
First Industrial Realty Trust, Inc. 4,661 124,973
First Merchants Corporation 623 16,276
First Midwest Bancorp, Inc. 2,331 88,724
First Sentinel Bancorp Inc. 1,194 9,701
+First Sierra Financial, Inc. 1,300 15,925
First Washington Bancorp, Inc. 3,410 81,414
First Western Bancorp, Inc. 3,502 112,064
+FirstFed Financial Corp. 624 11,154
Firstar Corporation 2,160 201,420
Firstbank Corp. 4,748 143,330
Fleming Companies, Inc. 4,646 48,202
+Florida Panthers Holdings, Inc. 3,587 33,404
Florida Rock Industries, Inc. 1,700 52,700
Flowserve Corporation 4,271 70,738
+Foodmaker, Inc. 5,339 117,792
+Footstar, Inc. 3,222 80,550
+Forcenergy Inc. 1,400 3,675
Foremost Corporation of America 1,800 37,800
+Forest Oil Corporation 4,009 34,076
Foster Wheeler Corporation 3,164 41,725
Franchise Finance Corporation of America 5,579 133,896
+Franklin Covey Co. 3,999 66,983
Freedom Securities Corporation 1,500 22,687
+Friedman, Billings, Ramsey Group, Inc.
(Class A) 3,000 19,500
+Fritz Companies, Inc. 3,600 38,925
Frontier Insurance Group, Inc. 3,102 39,938
Fund American Enterprises Holdings, Inc. 600 84,037
Furon Company 3,155 53,832
G & K Services, Inc. (Class A) 2,036 108,417
GBC Bancorp 433 11,150
+GC Companies, Inc. 900 37,462
+GTECH Holdings Corporation 3,475 89,047
+Galey & Lord, Inc. 2,300 19,837
+Garden Ridge Corporation 2,549 23,100
+Gaylord Container Corporation (Class A) 6,200 37,975
Gaylord Entertainment Company 460 13,857
+Geltex Pharmaceuticals, Inc. 2,213 50,069
GenCorp Inc. 2,766 68,977
+GenRad, Inc. 3,262 51,376
General Cable Corporation 3,188 65,354
The General Chemical Group Inc. 2,223 30,844
General Electric Company 1,016 103,695
+General Magic, Inc. 2,800 14,087
+Genesco Inc. 3,600 20,475
+Genesis Health Ventures, Inc. 3,041 26,609
+Gensia Sicor Inc. 2,103 9,529
+Gentex Corporation 7,530 150,600
+GeoTel Communications Corporation 329 12,255
The Geon Company 3,359 77,257
Georgia Gulf Corporation 3,389 54,436
Gerber Scientific, Inc. 3,524 83,915
+Getchell Gold Corporation 3,938 107,310
+Getty Images, Inc. 2,300 39,531
+Gibson Greetings, Inc. 2,500 29,687
+Gilead Sciences, Inc. 3,357 137,847
+Glenayre Technologies, Inc. 6,954 30,858
Glenborough Realty Trust Incorporated 739 15,057
Glimcher Realty Trust 4,500 70,594
+Global DirectMail Corp. 1,459 34,104
+Global Industrial Technologies, Inc. 3,900 41,681
Golf Trust of America, Inc. 515 14,291
+Grand Casinos, Inc. 4,641 37,418
Granite Construction Incorporated 321 10,774
Gray Communications Systems, Inc. 2,550 46,697
The Great Atlantic & Pacific Tea
Company, Inc. 1,755 51,992
Greater Bay Bancorp 1,795 60,581
Greif Bros. Corporation (Class A) 2,563 74,808
+Greyhound Lines, Inc. 1,364 8,099
+Griffon Corporation 6,716 71,357
+Group Maintenance America Corp. 2,700 32,737
The Guarantee Life Companies Inc. 1,953 36,130
+Guilford Pharmaceuticals Inc. 476 6,783
+Guitar Center, Inc. 2,289 56,367
+The Gymboree Corporation 1,800 11,475
H.B. Fuller Company 971 46,729
+HA-LO Industries, Inc. 2,595 97,637
HBO & Company 3,064 87,894
HCC Insurance Holdings, Inc. 4,359 76,827
+HMT Technology Corporation 4,182 53,582
+HNC Software Inc. 1,900 76,831
+HS Resources, Inc. 3,923 29,668
HSB Group, Inc. 3,056 125,487
HUBCO, Inc. 2,396 72,179
+Hadco Corporation 1,555 54,425
+Haemonetics Corporation 3,180 72,345
+The Hain Food Group, Inc. 1,300 32,500
+Hambrecht & Quist Group 2,131 48,347
Hancock Fabrics, Inc. 7,070 59,211
Hancock Holding Company 1,000 45,500
+Handleman Company 5,770 81,141
+Hanger Orthopedic Group, Inc. 463 10,417
+Hanover Compressor Company 2,626 67,455
+Harbinger Corporation 2,984 23,872
Hardinge, Inc. 554 10,214
+Harken Energy Corporation 10,200 19,762
Harleysville National Corporation 433 16,887
Harman International Industries,
Incorporated 2,135 81,397
+Hartmarx Corporation 4,800 27,000
Hawaiian Electric Industries, Inc. 2,671 107,508
+Hayes Lemmerz International, Inc. 2,692 81,265
+Headlands Mortgage Company 3,054 63,943
Health Care Property Investors, Inc. 3,038 93,418
+HealthCare Financial Partners, Inc. 1,100 43,656
Healthcare Realty Trust, Inc. 3,823 85,301
HealthPlan Services Corporation 2,400 27,600
+Hecla Mining Company 8,000 29,000
Heilig-Meyers Company 6,864 45,903
Helix Technology Corporation 2,300 29,900
Helmerich & Payne, Inc. 4,079 79,031
+Henry Schein, Inc. 1,580 70,705
+Hexcel Corporation 2,100 17,587
+Highlands Insurance Group, Inc. 2,300 30,044
+Hollywood Park, Inc. 2,500 20,781
+Hologic, Inc. 1,900 23,038
Hooper Holmes, Inc. 388 11,252
Hospitality Properties Trust 3,266 78,792
+Host Marriot Services Corporation 4,861 50,433
Houghton Mifflin Company 2,939 138,868
Hughes Supply, Inc. 2,229 65,198
+Human Genome Sciences, Inc. 2,549 90,649
Hussmann International, Inc. 5,316 102,997
14 & 15
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(continued)
+Hutchinson Technology Incorporated 2,439 $ 86,889
+Hyperion Solutions Corporation 3,922 70,596
+ICG Communications, Inc. 4,324 92,966
+ICOS Corporation 4,063 120,874
+IDEC Pharmaceuticals Corporation 1,967 92,449
IDEX Corporation 3,423 83,864
+IDEXX Laboratories, Inc. 4,321 116,262
+IDT Corporation 1,500 23,062
+IDX Systems Corporation 202 8,888
+IGEN International, Inc. 1,000 30,625
+IHOP Corp. 1,871 74,372
IMCO Recycling Inc. 685 10,575
IRT Property Company 9,913 99,130
+ITC/\ DeltaCom, Inc. 5,173 78,888
+IVAX Corp. 8,903 110,731
+IVEX Packaging Corporation 519 12,067
+IXC Communications, Inc. 2,290 77,001
Idacorp Inc. 733 26,525
+Imation Corp. 5,470 95,725
+Imclone Systems 2,600 23,563
+The Immune Response Corporation 2,400 26,100
+Imperial Bancorp 4,111 68,345
+Imperial Credit Commercial Mortgage
Investment Corp. 5,097 47,784
+Imperial Credit Industries, Inc. 2,300 19,263
+InaCom Corp. 1,575 23,428
+Incyte Pharmaceuticals, Inc. 2,373 88,691
Independence Community Bank Corp. 1,307 20,830
Independent Bank Corp. 3,100 53,863
Indiana Energy, Inc. 800 19,700
+Industri-Matematik International Corp. 2,711 13,555
+infoUSA Inc. (Class B) 3,700 19,425
+Information Resources, Inc. 4,393 44,754
+Informix Corporation 4,800 47,400
+Infoseek Corporation 2,365 116,772
+Inhale Therapeutic Systems 1,883 62,139
Inland Steel Industries, Inc. 2,109 35,589
Innkeepers USA Trust 977 11,541
+Inprise Corporation 4,800 26,100
+Input/Output, Inc. 4,685 34,259
+Insight Enterprises, Inc. 1,676 85,267
+Insignia Financial Group, Inc. 1,533 18,588
+Insituform Technologies, Inc. (Class A) 3,500 50,750
+Integrated Device Technology, Inc. 8,785 53,808
+Integrated Process Equipment 2,500 26,875
+Integrated Systems 1,945 29,053
Inter-Tel Inc. 2,441 57,058
InterWest Bancorp, Inc. 542 11,992
Interface, Inc. 5,822 54,035
+Intergraph Corp. 5,509 31,677
+Interim Services 6,049 141,395
International Multifoods 2,403 62,027
+International Network Services 2,539 168,844
+International Rectifier Corp. 6,475 63,131
International Speedway Corp. (Class A) 2,594 105,057
+International Telecommunications
Data Systems 1,200 17,700
Invacare Corp. 3,861 92,664
Investors Financial Services 1,302 77,632
+Ionics, Inc. 1,631 48,828
+Iron Mountain Incorporated 338 12,189
Irvine Apartment Communities, Inc. 1,625 51,797
+Isis Pharmaceuticals 2,900 37,519
J.B. Hunt Transport Services, Inc. 1,800 41,400
The J. M. Smucker Company (Class A) 3,615 89,471
+JDA Software Group, Inc. 1,625 15,742
JDN Realty Corporation 726 15,654
JLG Industries, Inc. 5,491 85,797
+Jabil Circuit, Inc. 1,911 142,608
Jack Henry & Associates, Inc. 2,432 120,992
+Jacobs Engineering Group Inc. 2,517 102,568
Jefferies Group, Inc. 1,823 90,466
Jefferson Savings Bancorp, Inc. 645 8,466
+Jo-Ann Stores Inc. 1,972 31,799
John H. Harland Company 4,226 66,824
John Wiley & Sons, Inc. (Class A) 3,689 178,225
+Jones Intercable, Inc. 334 11,899
Jones Pharmaceuticals, Inc. 1,863 67,883
Jostens, Inc. 4,251 111,323
+Journal Register Co. 4,088 61,320
Juno Lighting Inc. 3,000 70,125
+Just for Feet, Inc. 3,186 55,357
K2 Inc. 2,345 24,183
KCS Energy, Inc. 2,700 8,269
+K-V Pharmaceutical Company (Class B) 392 8,110
Kaman Corp. (Class A) 4,898 78,674
Kaufman and Broad Home Corporation 4,284 123,165
Kaydon Corp. 3,730 149,433
Kellwood Co. 3,244 81,100
+Kemet Corp. 5,041 56,711
+Kent Electronics Corporation 4,030 51,383
KeyCorp 2,544 81,408
Kilroy Realty Corporation 739 16,997
Kimball International, Inc. (Class B) 5,125 97,375
+Kirby 3,271 65,216
+Knoll, Inc. 777 23,019
Koger Equity, Inc. 4,906 84,322
+Kronos, Inc. 251 11,122
Kuhlman Corp. 2,194 83,098
+Kulicke and Soffa Industries 2,300 40,825
LAM Research Corp. 3,435 61,186
+LCC International, Inc. (Class A) 2,000 7,500
LNR Property Corp. 3,143 62,664
The L.S. Starrett Company (Class A) 488 16,745
+LTC Healthcare Inc. 720 1,890
LTC Properties 7,200 119,700
LTV Corp. 9,101 52,900
La-Z-Boy Inc. 4,490 79,978
+LaSalle Partners, Inc. 1,966 57,874
+Labor Ready, Inc. 1,500 29,531
Lance, Inc. 1,600 31,900
LandAmerica Financial Group, Inc. 253 14,121
+Lands' End, Inc. 1,069 28,796
Landauer, Inc. 427 13,824
+Landry's Seafood Restaurants 2,685 20,138
+Landstar System, Inc. 2,999 122,209
+Lason, Inc. 1,199 69,767
+Lattice Semiconductor Corporation 1,663 76,342
+The Learning Company, Inc. 1,858 48,192
Lee Enterprises, Incorporated 754 23,751
+Legato Systems, Inc. 3,836 252,936
+Level One, Inc. 3,471 123,221
Lexington Corporate Properties Trust 7,736 97,184
Libbey, Inc. 1,459 42,220
+Ligand Pharmaceuticals (Class B) 4,878 56,707
Lilly Industries, Inc. (Class A) 4,396 87,645
Lincoln Electric Holdings, Inc. 742 16,510
Lindsay Manufacturing Co. 3,274 48,496
+Linens 'n Things, Inc. 3,177 125,889
+Littlefuse, Inc. 3,362 64,719
+Lo-Jack Corporation 2,685 31,884
+Local Financial Corp. 5,488 49,392
Lone Star Industries, Inc. 2,994 110,217
Lone Star Steakhouse & Saloon, Inc. 4,447 40,857
+Lone Star Technology 2,525 25,566
Longs Drug Stores Corporation 3,325 124,688
Longview Fibre Company 6,002 69,398
Luby's Cafeterias Inc. 3,700 57,119
Lufkin Industries, Inc. 1,800 33,300
+Lycos, Inc. 3,216 178,689
+Lydall, Inc. 3,375 40,078
M.A. Hanna Company 4,948 60,922
MAF Bancorp, Inc. 3,746 99,269
+MAPICS, Inc. 437 7,211
MDC Holdings, Inc. 2,600 55,575
MDU Resources Group 5,848 153,876
+MMC Networks, Inc. 2,400 31,800
MMI Companies, Inc. 1,600 26,800
+MRV Communications, Inc. 1,940 12,004
MacDermid, Inc. 2,081 81,419
Macerich Company 3,300 84,563
+Macromedia, Inc. 4,468 150,516
Madison Gas & Electric Co. 4,084 92,911
+Magellan Health Services, Inc. 3,293 27,579
+Magnetek, Inc. 3,812 44,076
+Mail-Well, Inc. 3,438 39,322
Mainstreet Financial 304 14,117
The Manitowoc Co., Inc. 2,528 112,180
Manufactured Home Communities, Inc. 2,900 72,681
+Manugistics Group, Inc. 1,595 19,938
Marcus Corporation 4,595 74,669
+Marine Drilling Co., Inc. 5,700 43,819
+Mariner Post--Acute Network Inc. 8,515 38,850
Mark IV Industries, Inc. 4,205 54,665
+Marshall Industries 2,954 72,373
Masotech, Inc. 3,357 57,489
+Mastech Corporation 338 9,675
Mathews International Corp. (Class A) 3,913 123,260
+Maxim Group, Inc. 2,478 59,472
McClatchy Newspapers (Class A) 2,841 100,500
+Medaphis Corp. 7,940 26,053
Media General, Inc. (Class A) 401 21,253
+Medical Assurance, Inc. 3,081 101,869
+Medicis Pharmaceutical (Class A) 1,530 91,226
+Medimmune Inc. 2,623 260,825
+MedQuist, Inc. 371 14,655
Medtronic, Inc. 1,174 87,170
The Men's Warehouse, Inc. 2,859 90,773
Mentor Corporation 2,988 70,031
+Mentor Graphics Corporation 8,199 69,692
+Mercury Interactive Corp. 1,937 122,515
Meridian Industrial Trust, Inc. 742 17,437
MeriStar Hospitality Corporation 2,993 55,558
+MeriStar Hotels & Resorts, Inc. 2,235 5,867
16 & 17
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(continued)
Merrill Corp. 2,100 $ 40,556
+Metamor Worldwide, Inc. 3,325 82,294
Methode Electronics 4,523 70,672
Metris Companies, Inc. 1,608 80,199
+Metro Networks, Inc. 1,671 71,226
+Metromedia Fiber Network, Inc. (Class A) 400 13,400
+Metromedia International Group, Inc. 3,900 21,206
+Mettler-Toledo International 4,035 113,232
+Michael's Stores, Inc. 2,656 48,057
+Micrel, Inc. 1,083 59,565
+Micro Focus Group PLC (ADR)** 1,265 11,938
+Micro Warehouse, Inc. 3,765 127,304
+Microchip Technology 4,629 171,273
+Micromuse, Inc. 1,000 19,500
+Micron Electronics, Inc. 3,159 54,690
+Micros Systems, Inc. 2,507 82,418
+Mid Atlantic Medical Services, Inc. 6,377 62,574
Midas Group, Inc. 2,585 80,458
+Midway Games, Inc. 2,874 31,614
+Midwest Express Holdings 1,731 45,547
Milacron Inc. 3,920 75,460
+Millenium Pharmaceuticals 3,681 95,246
+Miller Industries, Inc. 4,140 18,630
The Mills Corp. 2,400 47,700
+Mindspring Enterprises, Inc. 1,537 93,853
Minerals Technologies, Inc. 2,407 98,537
Minnesota Power & Light Co. 3,617 159,148
Mississippi Chemical 4,201 58,814
Mitchell Energy & Development Corp.
(Class A) 748 8,555
Modine Manufacturing Co. 2,748 99,615
+Moog Inc. (Class A) 316 12,364
Morgan Keenan, Inc. 4,345 81,740
+Motivepower Industries, Inc. 1,370 44,097
+Mueller Industries, Inc. 4,431 90,005
+Musicland Stores Corporation 3,835 57,285
Myers Industries, Inc. 460 13,168
+N2K Inc. 1,500 19,594
NAC Re Corp. 1,235 57,968
NACCO Industries, Inc. (Class A) 778 71,576
+NBTY Inc. 6,522 46,469
+NCI Building Systems, Inc. 484 13,613
+NCS Healthcare, Inc. (Class A) 1,997 47,429
+NFO Worldwide, Inc. 2,740 31,510
NL Industries, Inc. 1,651 23,424
+NOVA Corporation 6,404 222,139
+NTL Incorporated 3,452 194,822
NUI Corporation 673 18,045
National City Bancshares, Inc. 371 13,843
National Computer Systems, Inc. 4,011 148,407
National Data Corporation 2,741 133,452
+National Instruments Corporation 1,616 55,146
National Penn Bancshares, Inc. 519 14,143
+National R.V. Holdings, Inc. 1,200 30,900
National Steel Corporation (Class B) 3,200 22,800
Nationwide Health Properties, Inc. 5,075 109,430
+Natural Microsystems Corp. 1,200 8,738
Natures Sunshine Products, Inc. 2,000 30,500
+Nautica Enterprises, Inc. 4,069 61,035
+Network Appliance, Inc. 6,356 286,020
+Network Equipment Technologies, Inc. 3,419 35,258
Nevada Power Company 4,400 114,400
New England Business Services, Inc. 2,100 82,163
New Plan Excel Realty Trust 10,885 241,511
+Newfield Exploration Company 3,150 65,756
+Newpark Resources, Inc. 6,970 47,483
Newport News Shipbuilding Inc. 4,410 147,459
+Nichols Research Corporation 465 9,707
+Nine West Group Inc. 664 10,334
Nordson Corporation 1,549 78,999
Norrell Corporation 1,457 21,491
North Carolina Natural Gas Corporation 712 23,630
+The North Face, Inc. 1,900 24,700
Northwest Natural Gas Company 1,600 41,400
Northwestern Corporation 4,000 105,750
+NovaCare Employee Services, Inc. 3,500 18,813
+NovaCare, Inc. 5,800 14,500
+Novellus Systems, Inc. 2,905 143,798
+Nuevo Energy Company 2,296 26,404
+O'Reilly Automotive, Inc. 2,157 101,918
OEA, Inc. 2,125 25,102
+OEC Medical Systems, Inc. 445 13,990
OM Group, Inc. 3,225 117,713
OMEGA Healthcare Investors, Inc. 2,710 81,808
ONEOK, Inc. 3,052 110,254
+Oak Industries Inc. 2,797 97,895
Oakwood Homes Corporation 6,024 91,490
Ocean Financial Corp. 943 15,677
+Oceaneering International, Inc. 4,329 64,935
+Offshore Logistics, Inc. 4,674 55,504
Old National Bancorp 3,258 181,634
Olsten Corporation 6,319 46,603
Omega Financial Corporation 475 14,369
+OmniAmerica, Inc. 800 25,600
OmniQuip International, Inc. 1,778 26,670
+Omnipoint Corporation 3,025 28,170
+On Assignment, Inc. 1,988 68,586
One Valley Bancorp, Inc. 3,421 112,465
Oregon Steel Mills, Inc. 3,982 47,286
+Organogenesis Inc. 3,398 38,228
Oriental Financial Group Inc. 1,880 58,868
+Orthodontic Centers of America, Inc. 4,616 89,724
Otter Tail Power Company 2,166 86,369
Overseas Shipholding Group, Inc. 4,058 65,182
Owens & Minor, Inc. 4,000 63,000
+Oxford Health Plans, Inc. 7,253 107,888
+P-Com, Inc. 4,282 17,061
P.H. Glatfelter Company 2,400 29,700
+PAREXEL International Corporation 2,461 61,525
+PETCO Animal Supplies, Inc. 2,755 27,722
+PETsMART, Inc. 8,300 91,300
+PFF Bancorp, Inc. 3,894 62,304
+PJ America, Inc. 2,397 43,446
PMA Capital Corporation (Class A) 664 12,990
+PMC--Sierra, Inc. 3,631 229,207
+PRI Automation, Inc. 1,500 39,000
+PSINet Inc. 5,407 112,871
+PSS World Medical, Inc. 6,990 160,770
Pacific Capital Bancorp 532 13,699
+Pacific Gateway Exchange, Inc. 922 44,314
Pacific Gulf Properties, Inc. 849 17,033
+Pacific Sunwear of California, Inc. 2,619 42,886
+PageMart Wireless, Inc. (Class A) 1,494 8,310
+PairGain Technologies, Inc. 6,604 50,768
+Palm Harbor Homes, Inc. 2,078 52,340
+Panavision Inc. 118 1,460
+Papa John's International, Inc. 2,337 103,120
Park Electrochemical Corp. 2,619 74,969
+Parker Drilling Company 8,151 25,981
Parkway Properties, Inc. 2,500 78,125
+PathoGenesis Corporation 1,820 105,560
+Patterson Dental Company 2,880 125,280
+Paxar Corporation 3,037 27,143
+Pediatrix Medical Group, Inc. 1,417 84,931
+Pegasus Communications Corporation 1,900 47,263
+Pegasus Systems, Inc. 1,300 46,800
+PennCorp Financial Group, Inc. 2,510 2,510
Pennsylvania Enterprises, Inc. 635 16,193
+Pennzoil-Quaker State Company 3,455 51,173
Peoples Bancorp, Inc. 896 9,744
Peoples Energy Corporation 594 23,686
+Performance Food Group Company 364 10,238
+Perrigo Company 7,793 68,676
+Personnel Group of America, Inc. 3,683 64,453
+Pharmaceutical Product Development, Inc. 2,755 82,822
+Pharmacyclics, Inc. 1,400 35,700
Phillips-Van Heusen Corporation 4,953 35,600
Phoenix Investment Partners, Ltd. 8,596 72,529
+Photronics, Inc. 1,746 41,849
+PhyCor, Inc. 6,507 44,329
+PictureTel Corporation 6,470 42,864
Piedmont Natural Gas Company, Inc. 3,851 139,117
+Pinnacle Systems, Inc. 900 32,175
+The Pioneer Group, Inc. 2,300 45,425
Pioneer-Standard Electronics, Inc. 5,049 47,334
Pittson BAX Group 2,849 31,695
+Plantronics, Inc. 1,869 160,734
+Platinum Software Corporation 1,700 21,781
+Playboy Enterprises, Inc. 3,117 65,262
+Playtex Products, Inc. 2,190 35,177
+Plexus Corporation 349 11,822
Pogo Producing Company 3,112 40,456
Polaris Industries, Inc. 2,868 112,390
+Polymer Group, Inc. 6,253 62,139
+Pool Energy Services Co. 2,900 31,356
Potlatch Corporation 581 21,424
+Powertel, Inc. 500 6,781
+Pre-Paid Legal Services, Inc. 2,460 81,180
Precision Castparts Corp. 2,002 88,589
Premier Bancshares, Inc. 2,125 55,648
+Premier Parks Inc. 3,156 95,469
+Premiere Technologies, Inc. 2,400 17,700
+Premisys Communications, Inc. 2,541 23,345
Prentiss Properties Trust 796 17,761
Presidential Life Corporation 2,000 39,750
+Preview Travel, Inc. 1,200 22,125
+Price Enterprises, Inc. 1,442 7,661
+Price Enterprises, Inc. (Preferred) 8,000 111,000
+Pride International, Inc. 5,127 36,209
+Primark Corporation 2,460 66,728
+Prime Hospitality Corp. 5,782 61,072
Prime Retail, Inc. 4,367 42,851
18 & 19
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(continued)
+Prime Retail, Inc. (Convertible Preferred) 960 $ 15,960
Primex Technologies, Inc. 1,000 42,500
+Priority Healthcare Corporation (Class B) 2,361 122,477
+Progress Software Corporation 3,260 110,025
+Protein Design Labs, Inc. 2,211 51,406
Provident Bancshares Corporation 3,267 81,267
Public Service Company of New Mexico 5,647 115,411
Public Service Company of North Carolina,
Incorporated 762 19,812
Pulte Corporation 1,400 38,938
+QLogic Corporation 128 16,752
+QRS Corporation 208 9,984
+QuadraMed Corporation 1,300 26,650
Quanex Corporation 3,091 69,741
Queens County Bancorp Inc. 2,250 66,938
+Quest Diagnostics Incorporated 3,758 66,939
+R&B Falcon Corporation 2,550 19,444
+RCN Corporation 3,065 54,212
+REMEC, Inc. 1,900 34,200
RFS Hotel Investors, Inc. 3,725 45,631
+Ralcorp Holdings, Inc. 4,265 77,836
+Rambus Inc. 1,079 103,854
Range Resources Corporation 3,185 10,948
+Rational Software Corporation 8,759 232,114
Rayonier Inc. 496 22,785
+Rayovac Corporation 3,149 84,039
+Read-Rite Corporation 5,593 82,672
+RealNetworks, Inc. 800 28,700
Realty Income Corporation 3,800 94,525
Reckson Associates Realty Corporation 4,383 97,248
+Recoton Corporation 1,200 21,525
+Red Roof Inns, Inc. 4,151 70,048
Regal-Beloit Corporation 3,476 79,948
Regency Realty Corporation 3,000 66,750
+Regeneron Pharmaceuticals, Inc. 2,900 21,388
Regis Corporation 2,268 90,720
Reinsurance Group of America,
Incorporated 2,976 208,320
Reliance Bancorp, Inc. 1,400 38,938
Reliance Steel & Aluminum Co. 1,022 28,233
+Remedy Corporation 2,567 35,778
+Renaissance Worldwide, Inc. 1,800 11,025
+Renal Care Group, Inc. 4,787 137,925
+Rent-Way, Inc. 1,200 29,175
+Rental Service Corporation 436 6,840
Renters Choice, Inc. 2,145 68,104
Republic Bancorp Inc. 4,000 54,500
Republic Security Financial Corporation 1,584 19,206
+Respironics, Inc. 3,015 60,394
Richfood Holdings, Inc. 5,568 115,536
Riggs National Corporation 5,534 112,755
+Rio Hotel & Casino, Inc. 2,097 33,290
+Risk Capital Holdings, Inc. 2,700 58,725
+Roberts Pharmaceutical Corporation 472 10,266
Rochester Gas and Electric Corporation 4,286 133,938
Rock-Tenn Company (Class A) 3,800 64,363
+Rogers Corporation 396 11,831
Rollins Truck Leasing Corp. 8,539 125,950
Rollins, Inc. 3,412 59,710
+Romac International, Inc. 4,675 104,019
Roper Industries, Inc. 4,053 82,580
Roslyn Bancorp, Inc. 5,077 109,156
Ruby Tuesday, Inc. 5,035 106,994
Ruddick Corporation 3,300 75,900
+Rural/Metro Corp. 2,200 24,063
Russell Corporation 554 11,253
+Ryan's Family Steak Houses, Inc. 8,251 102,106
+The Ryland Group, Inc. 4,195 121,131
+S3 Incorporated 6,900 50,780
S&T Bancorp, Inc. 446 12,293
+SCM Microsystems, Inc. 1,103 78,382
SCPIE Holdings Inc. 2,400 72,750
+SEACOR SMIT Inc. 1,793 88,641
SEI Investments Company 1,641 163,074
+SEQUUS Pharmaceuticals, Inc. 5,200 105,300
+SFX Entertainment, Inc. (Class A) 1,532 84,069
SIGCORP, Inc. 2,897 103,387
+SIPEX Corporation 304 10,678
+SITEL Corporation 5,673 13,828
SL Green Realty Corp. 778 16,824
+SLI, Inc. 1,350 37,463
+SMART Modular Technologies, Inc. 2,805 77,839
+SPS Technologies, Inc. 2,044 115,742
+SPX Corporation 1,368 91,656
+SS&C Technologies, Inc. 1,100 13,613
+STAR Telecommunications, Inc. 1,500 18,281
+Sabratek Corporation 257 4,208
+Safeguard Scientifics, Inc. 3,099 85,029
+Samsonite Corporation 873 4,856
+SanDisk Corporation 2,400 33,900
+SangStat Medical Corporation 2,259 48,004
+Santa Fe Energy Resources, Inc. 5,800 42,775
+Sapient Corporation 191 10,696
+Scholastic Corporation 1,433 76,845
Schweitzer-Manduit International, Inc. 2,338 36,093
+Scios Inc. 4,600 47,725
Scotsman Industries, Inc. 2,735 56,238
+Scott Technologies, Inc. 687 11,357
+The Scotts Company (Class A) 3,454 132,763
+Seagull Energy Corporation 5,085 32,099
+Security Capital Group Incorporated
(Class B) 826 11,203
+Security Dynamics Technologies, Inc. 3,652 83,996
+Seitel, Inc. 4,012 49,899
Selective Insurance Group, Inc. 3,819 76,857
Sensormatic Electronics Corporation 6,433 44,629
+Sepracor Inc. 2,859 250,341
+Sequa Corporation (Class A) 700 41,913
+Sequent Computer Systems, Inc. 5,151 62,134
+Serologicals Corporation 3,149 94,470
+Service Experts, Inc. 1,852 54,171
+Shiva Corporation 4,400 24,888
+ShopKo Stores, Inc. 2,438 81,064
+Sierra Health Services, Inc. 2,661 56,047
Sierra Pacific Resources 3,700 140,600
+Silgan Holdings Inc. 1,819 50,563
+Silicon Valley Bancshares 3,421 58,264
+Silicon Valley Group, Inc. 3,590 45,773
+Siliconix Incorporated 1,300 26,975
Simmons First National Corporation
(Class A) 315 11,694
Simpson Industries, Inc. 950 9,203
Sky Financial Group, Inc. 4,585 121,205
+SkyTel Communications Inc. 5,458 119,735
SkyWest, Inc. 359 11,735
Skyline Corporation 2,500 81,250
Snyder Oil Corporation 5,307 70,649
+Smithfield Foods, Inc. 3,296 111,652
+Software AG Systems, Inc. 2,998 54,339
+Sola International Inc. 2,897 49,973
+Sonic Corp. 2,950 73,381
Sotheby's Holdings, Inc. (Class A) 4,207 134,624
South Jersey Industries, Inc. 663 17,362
Southern Peru Limited 6,907 65,185
+Southwest Bancorporation of Texas, Inc. 4,043 72,269
Southwest Gas Corporation 600 16,125
Southwest Securities Group, Inc. 578 11,632
Southwestern Energy Company 6,300 47,250
Sovran Self Storage, Inc. 622 15,628
+The Sports Authority, Inc. 3,490 18,323
+SportsLine USA, Inc. 1,200 18,675
Spring Industries, Inc. (Class A) 1,325 54,905
St. Johns Knits, Inc. 2,465 64,090
St. Mary Land & Exploration Company 2,097 38,795
St. Paul Bancorp, Inc. 3,917 106,616
+Staff Leasing, Inc. 1,600 18,600
+StaffMark, Inc. 1,588 35,532
+Stage Stores, Inc. 2,882 27,019
Standard PDTS 2,971 60,534
Standard Pacific Corp. 5,700 80,513
Staten Island Bancorp, Inc. 5,216 103,994
+Steel Dynamics, Inc. 3,545 41,654
+Steinway Musical Instruments, Inc. 423 10,998
Sterling Bancorp (New York Registered
Shares) 658 15,011
Sterling Bancshares, Inc. 4,646 69,109
Stewart & Stevenson Services, Inc. 3,872 37,752
+Stillwater Mining Company 2,785 114,185
Stone & Webster, Incorporated 1,200 39,900
+Stone Energy Corporation 1,774 51,003
Storage Trust Realty 4,000 93,500
Storage USA, Inc. 3,809 123,078
The Stride Rite Corporation 6,531 57,146
+Structural Dynamics Research Corporation 3,977 79,043
Sturm, Ruger & Company, Inc. 2,700 32,231
Summit Properties Inc. 4,300 74,175
+Sun Healthcare Group, Inc. 4,049 26,572
+Sunglass Hut International, Inc. 5,874 41,118
+Sunrise Assisted Living, Inc. 1,029 53,379
+Sunrise Medical Inc. 3,454 42,959
Sunstone Hotel Investors, Inc. 1,228 11,589
Superior Industries International, Inc. 2,449 68,113
+Superior Services, Inc. 2,788 55,934
Susquehanna Bancshares, Inc. 5,263 107,727
+Swift Energy Company 2,119 15,628
+Swift Transportation Co., Inc. 2,393 67,079
+Sybase, Inc. 7,649 56,650
+Sylvan Learning System, Inc. 3,402 103,761
+Symantec Corporation 6,318 137,417
+Synetic, Inc. 2,085 91,740
+Syntroleum Corporation 1,600 9,900
+Systems & Computer Technology
Corporation 3,879 53,336
T R Financial Corp. 2,391 94,146
20 & 21
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
Merrill Lynch Small Cap Index Series (continued)
- --------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
================================================================================
COMMON STOCKS
(concluded)
+TAVA Technologies, Inc. 2,400 $ 18,300
TIG Holdings, Inc. 923 14,364
TJ International, Inc. 3,261 83,563
TNP Enterprises, Inc. 3,104 117,758
+Techne Corporation 2,971 62,762
Technitrol, Inc. 1,947 62,061
+Technology Solutions Company 4,932 52,865
+Tekelec 558 9,242
+Tel-Save.com, Inc. 3,700 61,975
Telxon Corporation 2,809 38,975
Tennant Company 1,700 68,213
+Terex Corporation 409 11,682
Terra Industries, Inc. 3,800 23,513
+Tesoro Petroleum Corporation 3,058 37,078
+Tetra Tech, Inc. 3,977 107,628
Texas Industries, Inc. 2,467 66,455
Texas Regional Bancshares, Inc. (Class A) 2,682 67,218
The Toro Company 2,281 65,009
The Trust Company of New Jersey 3,700 90,650
+Theragenics Corporation 2,537 42,653
+Thermo Cardiosystems Inc. 1,740 18,161
Thomas Industries Inc. 4,086 80,188
+Titan Exploration, Inc. 6,417 42,112
Titanium Metals Corporation 2,170 18,445
+Toll Brothers, Inc. 3,353 75,652
+Tom Brown, Inc. 3,531 35,420
+Tower Automotive, Inc. 3,735 93,142
Tower Realty Trust, Inc. 986 19,843
Town & Country Trust 1,166 18,729
+Trammell Crow Company 3,139 87,892
+Trans World Airlines, Inc. 5,000 24,063
+TransMontaigne Inc. 4,813 72,797
+Transaction Systems Architects, Inc.
(Class A) 2,283 114,150
+Transition Systems, Inc. 2,634 39,510
+Transkaryotic Therapies, Inc. 2,381 60,418
Trenwick Group Inc. 2,050 66,881
TriNet Corporate Realty Trust, Inc. 2,970 79,448
+Triad Guaranty Inc. 2,030 44,787
Triangle Bancorp, Inc. 3,891 61,526
+Triarc Companies, Inc. 2,041 32,656
+Trico Marine Services, Inc. 2,871 13,996
+Trimble Navigation Limited 3,523 25,542
+Triumph Group, Inc. 1,805 57,760
TrustCo Bank Corp NY 5,267 158,010
+Tuboscope Inc. 6,004 48,783
+Twinlab Corporation 2,374 31,159
+Tyler Corporation 3,100 18,988
U.S. Home Corporation 2,194 72,951
UGI Corporation 3,200 76,000
+UICI 740 18,130
+UMB Financial Corporation 1,765 80,969
+UNOVA, Inc. 3,887 70,452
USBANCORP, Inc. 4,304 85,542
USFreightways Corporation 3,369 98,122
UST Corp. 3,940 92,836
+USWeb Corporation 3,871 102,098
+Ultratech Stepper, Inc. 2,375 38,000
+UniCapital Corporation 3,949 29,124
UniFirst Corporation 2,500 57,031
+UniSource Energy Corporation 4,385 59,198
Unisource Worldwide, Inc. 1,383 10,027
+United Bankshares, Inc. 4,619 122,404
+United Companies Financial Corporation 2,785 9,399
United Dominion Realty Trust, Inc. 7,700 79,406
The United Illuminating Company 2,200 113,300
+United International Holdings, Inc.
(Class A) 5,370 103,373
United National Bancorp 713 16,577
+United Rentals (North America), Inc. 1,964 65,058
+United States Satellite Broadcasting
Company, Inc. 8,016 110,220
+United Stationers, Inc. 2,580 67,080
+Unitrode Corporation 2,345 41,038
Universal Corporation 2,334 81,982
Universal Foods Corporation 5,665 155,433
+Urban Shopping Centers, Inc. 1,100 36,025
+VISX, Incorporated 213 18,624
+VIVUS, Inc. 3,696 9,587
+VLSI Technology, Inc. 4,065 44,461
+VWR Scientific Products Corporation 1,610 27,974
+Vail Resorts, Inc. 3,515 77,330
+Valassis Communications, Inc. 2,828 145,996
+Valmont Industries, Inc. 3,500 48,563
+Vanguard Cellular Systems, Inc. (Class A) 3,900 100,669
+Vanstar Corporation 4,687 43,355
+Ventana Medical Systems, Inc. 1,400 30,275
+Ventas, Inc. 7,039 85,788
+Veritas DGC Inc. 2,445 31,785
+Vermont Financial Services Corp. 3,894 129,476
+Vertex Pharmaceuticals Incorporated 3,218 95,736
Vesta Insurance Group, Inc. 899 5,394
+Veterinary Centers of America, Inc. 2,613 52,097
+Viasoft, Inc. 2,125 14,875
+Vical Incorporated 1,800 25,538
+Vicor Corporation 3,193 28,737
Vintage Petroleum, Inc. 3,053 26,332
+Vishay Intertechnology, Inc. 4,553 66,019
+Visio Corporation 2,638 96,452
+Visual Nteworks, Inc. 1,866 69,975
+Vlasic Foods International Inc. 2,300 54,769
W.H. Brady Co. 2,598 69,984
+WD-40 Company 2,981 85,331
+WHX Corporation 3,200 32,200
WICOR, Inc. 5,543 120,907
WPS Resources Corporation 2,645 93,236
Wabash National Corporation 3,195 64,898
The Wackenhut Corporation (Class A) 430 10,938
+Wackenhut Corrections Corporation 1,200 34,350
Walden Residential Properties, Inc. 6,000 122,625
Wallace Computer Services, Inc. 3,577 94,343
+Walter Industries, Inc. 3,629 55,569
+Wang Laboratories, Inc. 4,516 125,319
Washington Gas Light Company 4,200 113,925
Washington Real Estate Investment Trust 2,700 50,288
Washington Water Power Co. 6,219 119,716
Watsco, Inc. 2,700 45,225
Watts Industries, Inc. (Class A) 2,349 39,052
Wausau-Mosinee Paper Corporation 5,006 88,544
+WavePhore, Inc. 1,900 15,259
Webster Financial Corporation 3,465 95,071
Weeks Corporation 2,800 78,925
Weingarten Realty Investors 466 20,795
Wellman, Inc. 3,485 35,503
+Wellsford Real Properties Inc. 4,971 51,263
Werner Enterprises, Inc. 3,385 59,872
WesBanco, Inc. 2,900 85,550
West Coast Bancorp 649 13,629
The West Company, Incorporated 449 16,024
Westamerica Bancorporation 5,414 198,965
Western Bancorp 412 12,051
Western Investment Real Estate Trust 8,223 97,134
Western Wireless Corporation (Class A) 8,732 192,104
Westernbank Puerto Rico 796 12,637
Westinghouse Air Brake Co. 1,361 33,259
+Westwood One, Inc. 3,246 99,003
+The Wet Seal, Inc. (Class A) 1,355 40,904
Whitney Holding Corporation 2,860 107,250
+Whittman-Hart, Inc. 517 14,282
+Wilmar Industries, Inc. 365 7,414
+WinStar Communications, Inc. 3,596 140,244
+Wind River Systems, Inc. 2,335 109,745
+Windmere-Durable Holdings, Inc. 2,445 18,949
+Wisconsin Central Transportation
Corporation 4,082 70,159
+Wolverine Tube, Inc. 1,459 30,639
Wolverine World Wide, Inc. 3,802 50,377
+World Access, Inc. 2,317 49,526
+World Color Press, Inc. 4,420 134,534
+Wyman-Gordon Company 2,040 20,910
Wynn's International, Inc. 3,719 82,283
X-Rite, Incorporated 2,800 21,700
XTRA Corporation 1,600 66,200
+Xircom, Inc. 361 12,274
+Xylan Corporation 3,864 67,862
+Yellow Corporation 3,780 72,056
+Young Broadcasting Inc. (Class A) 1,100 46,063
+Zale Corporation 3,882 125,195
+Zebra Technologies Corporation (Class A) 2,343 67,361
Zenith National Insurance Corp. 2,500 57,813
+Zoltex Companies, Inc. 1,100 10,106
+Zonagen, Inc. 1,300 24,863
- --------------------------------------------------------------------------------
Total Common Stocks (Cost--$75,907,378)--89.7% 75,206,986
================================================================================
22 & 23
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
Merrill Lynch Small Cap Index Series (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM Face Value
OBLIGATIONS Amount Issue (Note 1a)
====================================================================================================================
<S> <C> <C> <C>
Commercial $4,000,000 General Electric Capital Corp., 5% due 1/04/1999 $ 3,998,333
Paper* 3,708,000 General Motors Acceptance Corp., 5.13% due 1/04/1999 3,706,415
====================================================================================================================
Total Short-Term Obligations (Cost--$7,704,748)--9.2% 7,704,748
====================================================================================================================
Total Investments (Cost--$83,612,126)--98.9% 82,911,734
Variation Margin on Financial Futures Contracts***--0.2% 158,875
Other Assets Less Liabilities--0.9% 760,046
-----------
Net Assets--100.0% $83,830,655
===========
====================================================================================================================
</TABLE>
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rate paid at the time of purchase by the
Series.
** American Depositary Receipts (ADR).
*** Financial futures contracts purchased as of December 31, 1998 were
as follows:
--------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
--------------------------------------------------------------------
41 Russell 2000 March 1999 $8,717,625
--------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$8,243,809) $8,717,625
==========
--------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES As of December 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$83,612,126) (Note 1a) ... $ 82,911,734
Cash on deposit for financial futures contracts (Note 1b) ........ 369,000
Receivables:
Contributions .................................................. $ 704,821
Variation margin (Note 1b) ..................................... 158,875
Dividends ...................................................... 100,333
Investment adviser (Note 2) .................................... 15,920 979,949
----------
Deferred organization expenses (Note 1e) ......................... 4,237
------------
Total assets ..................................................... 84,264,920
------------
===============================================================================================================
Liabilities: Withdrawals payable .............................................. 388,348
Accrued expenses and other liabilities ........................... 45,917
------------
Total liabilities ................................................ 434,265
------------
===============================================================================================================
Net Assets: Net assets ....................................................... $ 83,830,655
============
===============================================================================================================
Net Assets Partners' capital ................................................ $ 84,057,231
Consist of: Unrealized depreciation on investments--net ...................... (226,576)
------------
Net assets ....................................................... $ 83,830,655
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
24 & 25
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
SMALL CAP
INDEX SERIES For the Year Ended December 31, 1998
=========================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends (net of $249 foreign withholding tax) ...................... $ 920,558
(Note 1d): Interest and discount earned ......................................... 334,955
-----------
Total income ......................................................... 1,255,513
-----------
=========================================================================================================================
Expenses: Professional fees .................................................... $ 73,145
Investment advisory fees (Note 2) .................................... 61,476
Custodian fees ....................................................... 40,144
Accounting services (Note 2) ......................................... 38,573
Amortization of organization expenses (Note 1e) ...................... 1,303
Trustees' fees and expenses .......................................... 964
Other ................................................................ 872
-----------
Total expenses before reimbursement .................................. 216,477
Reimbursement of expenses (Note 2) ................................... (85,841)
-----------
Total expenses after reimbursement ................................... 130,636
-----------
Investment income--net ............................................... 1,124,877
-----------
=========================================================================================================================
Realized & Realized gain from investments--net .................................. 6,658,814
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net ... (7,991,435)
(Loss) on -----------
Investments--Net Net Decrease in Net Assets Resulting from Operations ................. $ (207,744)
(Notes 1b, 1d & 3): ===========
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
MERRILL LYNCH For the Period April 9,
SMALL CAP Year Ended 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: Dec. 31, 1998 Dec. 31, 1997
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................................... $ 1,124,877 $ 809,135
Realized gain on investments--net ......................................... 6,658,814 1,553,214
Change in unrealized appreciation on investments--net ..................... (7,991,435) 7,764,859
------------ -----------
Net increase (decrease) in net assets resulting from operations ........... (207,744) 10,127,208
------------ -----------
==================================================================================================================================
Net Capital Increase (decrease) in net assets derived from net capital contributions .. (11,706,710) 85,617,901
Contributions: ------------ -----------
==================================================================================================================================
Net Assets: Total increase (decrease) in net assets ................................... (11,914,454) 95,745,109
Beginning of period ....................................................... 95,745,109 --
------------ -----------
End of period* ............................................................ $ 83,830,655 $95,745,109
============ ===========
==================================================================================================================================
*Undistributed investment income--net ...................................... $ 1,934,012 $ 809,135
============ ===========
==================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH For the For the Period
SMALL CAP The following ratios have been derived from Year Ended April 9, 1997+ to
INDEX SERIES information provided in the financial statements. Dec. 31, 1998 Dec. 31, 1997
===========================================================================================================================
<S> <C> <C> <C>
Ratios to Average Expenses, net of reimbursement ...................................... .17% .18%*
Net Assets: ========== ==========
Expenses ............................................................ .28% .29%*
========== ==========
Investment income--net .............................................. 1.46% 1.78%*
========== ==========
===========================================================================================================================
Supplemental Net assets, end of period (in thousands) ............................ $ 83,831 $ 95,745
Data: ========== ==========
Portfolio turnover .................................................. 48.16% 16.45%
========== ==========
===========================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
27 & 28
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
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 Fund's financial
statements are prepared in accordance with generally accepted accounting
principles which may require the use of management accruals and estimates. 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 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). Short-term
securities are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are stated at
market value. Securities and assets for which market quotations are not readily
available are valued at fair market value, as determined in good faith by or
under the direction of the Trust's Board of Trustees.
(b) Derivative financial instruments--The Series may engage in various portfolio
investment techniques to provide liquidity, or in connection with the Series'
arbitrage strategies. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell financial futures
contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a foreign withholding tax may be imposed on interest and
capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a period not exceeding five years.
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 0.08% of the average daily value of the Series' net
assets. For the year ended December 31, 1998, MLAM earned fees of $61,476, all
of which were voluntarily waived. MLAM also reimbursed the Series for additional
expenses of $24,365.
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
year ended December 31, 1998 were $34,171,765 and $39,527,299, respectively.
Net realized gains for the year ended December 31, 1998 and net unrealized gains
(losses) as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .......................... $ 5,516,599 $ (700,392)
Financial futures contracts .................... 1,142,215 473,816
----------- ----------
Total .......................................... $ 6,658,814 $ (226,576)
=========== ==========
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized depreciation for Federal income tax
purposes aggregated $836,588, of which $11,639,245 related to appreciated
securities and $12,475,833 related to depreciated securities. At December 31,
1998, the aggregate cost of investments for Federal income tax purposes was
$83,748,322.
29 & 30
<PAGE>
Merrill Lynch Small Cap Index Fund, December 31, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
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, 1998, the
related statements of operations for the year then ended and changes in net
assets and the financial highlights for the year ended December 31, 1998 and 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 audits.
We conducted our audits 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, 1998 by correspondence with the custodian and broker. 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 audits provide 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 Merrill Lynch Index Trust as of December 31, 1998, the
results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 18, 1999
31
<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--12/98
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