MERRILL LYNCH
S&P 500
INDEX FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
December 31, 1998
<PAGE>
Merrill Lynch S&P 500 Index Fund
Officers and Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
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, Vice President
Gerald M. Richard, 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 S&P 500 Index Fund to
shareholders of record on December 8, 1998, 71.02% qualifies for the dividends
received deduction for corporations.
Additionally, the Fund paid a long-term capital gains distribution of $.519562
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 S&P 500 Index Fund, December 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
The Standard & Poor's 500 Composite (S&P 500) Index exceeded all expectations
and had another extraordinary year in 1998, registering a total return of
+28.58% for the year. This strong performance occurred in spite of heightened
levels of market volatility, stemming from concerns over the impact of global
financial and currency crises. Such concerns resulted in the substantial market
sell-off in the summer of 1998. However, three interest rate cuts by the US
Federal Reserve Board in late September, mid-October, and mid-November prompted
an explosive fourth-quarter rally, resulting in an unprecedented fourth
consecutive year with an annual return in excess of 20%. Despite the narrowness
of the gains within the Index's universe of component stocks, which were
centered around its largest capitalization growth stocks, the total return for
the year created the Index's best five-years in its recorded history from 1926,
and its best ten-year period since 1959. In addition, 1998 became the
eighth-straight year in which the Index had a positive total return. For the
three-year and five-year periods ended December 31, 1998, the S&P 500 Index had
compound annual returns of +28.23% and +24.05%, respectively.
The third quarter of 1998 followed a strong first half, in which May was the
only negative return month. However, after reaching another all-time high of
1186.75 on July 17, 1998, renewed concerns regarding Asia, combined with
weakening earnings prospects for domestic companies, sent the S&P 500 Index on a
rapid descent through the end of the month. By July 31, 1998, the Index had
dropped more than 66 points, finishing July at a level of 1120.67. Fear of the
spreading economic crisis in many emerging markets of the world gripped
financial markets in the United States as extreme levels of volatility continued
throughout August. During that month, the S&P 500 Index suffered its worst
one-month decline since October 1987 and its ninth-largest one-month decline
since 1929. The S&P 500 Index declined by 14.58% in August, culminated by a
70-point drop on August 31. This brought the Index back to 957.28, nearly 230
points off its peak of July 17, marking its first close below 1000 since January
30, 1998. The month of September began with a strong rally as the Index gained
nearly 37 points on the first day of the month, retracing a good part of its
losses on the prior day. Extreme levels of volatility continued throughout the
month, with gains or losses of 20 to 30 points becoming commonplace. Overall,
the Index produced a strong gain of 6.24% during September, but the month was
capped-off by a 32-point drop on the last day of trading. This was investors'
response to the Federal Reserve Board's 25 basis point reduction (0.25%) in the
Federal Funds rate on the prior day, which was viewed at that time as
inadequate. The Index finished the third quarter at 1017.01, with a total return
for the three-month period ended September 30, 1998 of -9.96%.
Despite the increasing turmoil of financial markets throughout the world, it was
once again the largest-capitalization multinational stocks in the United States
that fared better than other capitalization groups throughout the summer
decline. One more round of selling hit the equity market during early October as
the S&P 500 Index lost nearly 100 points in the first two weeks of the month,
reflecting continued investor uncertainty. By October 8, 1998, the S&P 500 Index
had declined to 959.44, just two points above the low of August 31. This formed
the base of a powerful rally as the Federal Reserve Board surprised investors
with an additional interest rate cut on October 15, which catapulted the S&P 500
Index to a 42-point rise that day. Coordinated interest rate cuts by central
bankers around the world boosted equity markets globally, and created the
backdrop for an extended seven-week advance off the October lows. Investors
displayed renewed confidence in the Federal Reserve Board's ability to manage
the global economic crisis after it reduced interest rates for a third time on
November 17, 1998. This momentum carried the S&P 500 Index back to
record-breaking territory by the end of November. Following a brief pause in the
market's advance during the first two weeks of December, the Index gained an
additional 90 points to reach a new all-time high of 1231.93 by December 30,
1998. Overall, the tumultuous summer decline was more than entirely reversed
during the fourth quarter of 1998, as the S&P 500 Index posted a 270-point
advance between early October and the end of the year.
For the year ended December 31, 1998, the Fund's Class A and Class D Shares had
total returns of +28.24% and +27.95%, respectively, compared to the unmanaged
S&P 500 Index's total return of +28.58% for the same 12-month period. (For
complete performance information, see pages 4 and 5 of this report to
shareholders.)
The Fund invests all of its assets in Merrill Lynch S&P 500 Index Series, which
has the same investment objective as the Fund. The principal investments of the
Series are a fully replicating portfolio of all 500 stocks in the Index, plus a
long position in S&P 500 futures contracts.
Net assets of the Fund grew from $1.0 billion on June 30, 1998 to $1.1 billion
by December 31, 1998, as the Fund continued to experience consistently positive
daily net cash inflows during the second half of the year. Nearly all of the
Series' assets are held in the form of a fully replicating portfolio of all 500
stocks in the Index. Incremental cash inflows are typically invested through the
use of S&P 500 futures contracts. As the inventory of futures contracts
increases, the Series looks for opportune times to swap out of its holdings of
futures contracts and replace them with incremental positions of all 500 stocks
in the Index. At December 31, 1998, the Series' equity portfolio was valued at
$1.087 billion, and the Series held a long position in S&P 500 March 1999
futures contracts. Through its holdings of equities and futures contracts, it is
the Series' goal to be 100% invested in the S&P 500 Index at all times.
A number of new equity positions were added to the Series during the second half
of 1998, since Standard & Poor's revised the constituents of the Index. Such
activity typically results from mergers and acquisitions involving constituents
of the Index, which continued at a rapid pace throughout the second half of
1998. In this period, the Series added the following equities to its portfolio:
Fred Meyer, Inc., Dollar General Corporation, Electronic Data Systems
Corporation, Kohl's Corporation, Regions Financial Corporation, Provident
Companies, Inc., RJR Nabisco Holdings Corp., HCR Manor Care, Inc., BMC Software,
Inc., Union Planters Corporation, The AES Corporation, PeopleSoft, Inc.,
Paychex, Inc., Coca-Cola Enterprises Inc., Staples, Inc., Danaher Corporation,
New Century Energies, Inc., Safeway Inc., Sprint Corporation (PCS Group),
Carnival Corporation, Solectron Corporation, Compuware Corporation, Firstar
Corporation and America Online, Inc.
In Conclusion
We appreciate your investment in Merrill Lynch S&P 500 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 9, 1999
2 & 3
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers two pricing alternatives:
o Class A Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible investors.
o Class D Shares do not incur a maximum initial sales charge or deferred
sales charge and bear no ongoing distribution fee. In addition, Class D
Shares are subject to an ongoing account maintenance fee of 0.25%.
None of the past results shown should be considered a representation of future
performance. Figures shown in the "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 S&P 500 Index Fund Class A Shares* +28.24% +21.37% +67.74%
- ---------------------------------------------------------------------------------------
ML S&P 500 Index Fund Class D Shares* +27.95% +21.28% +67.02%
- ---------------------------------------------------------------------------------------
S&P 500 Index** +28.58% +21.30% +68.48%
=======================================================================================
</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 4/03/97.
** This unmanaged broad-based Index is comprised of common stocks. Since
inception total return is from 4/03/97 to 12/31/98.
Total Return Based on a $10,000 Investment
Class A & Class D Shares
[A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class D Shares compared to growth of an investment in the Standard & Poor's
500 Index.]
Beginning and ending values are:
4/03/97** 12/98
--------- -----
ML S&P 500 Index Fund+--
Class A Shares* $10,000 $16,774
ML S&P 500 Index Fund+--
Class D Shares* $10,000 $16,702
Standard & Poor's 500 Index++ $10,000 $16,848
* Assuming transaction costs and other operating expenses, including
advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in the Merrill Lynch S&P 500 Index
Series of Merrill Lynch Index Trust. The Trust's investments are allocated
among common stocks in approximately the same weightings as the S&P 500
Index.
++ This unmanaged broad-based Index is comprised of common stocks.
Average Annual Total Return
% Return
================================================================================
Class A Shares
================================================================================
Year Ended 12/31/98 +28.24%
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/98 +34.50
- --------------------------------------------------------------------------------
% Return
================================================================================
Class D Shares
================================================================================
Year Ended 12/31/98 +27.95%
- --------------------------------------------------------------------------------
Inception (4/03/97) through 12/31/98 +34.17
- --------------------------------------------------------------------------------
4 & 5
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX FUND As of December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Assets: Investment in Merrill Lynch S&P 500 Index Series, at value
(identified cost -- $926,954,745) (Note 1a) .............. $1,118,220,298
Deferred organization expenses (Note 1d) ................... 14,187
Prepaid registration fees and other assets (Note 1d) ....... 51,640
--------------
Total assets ............................................... 1,118,286,125
--------------
=============================================================================================================================
Liabilities: Payables:
Administrative fees (Note 2) ............................. $ 179,129
Distributor (Note 2) ..................................... 85,184 264,313
--------------
Accrued expenses ........................................... 96,799
--------------
Total liabilities .......................................... 361,112
--------------
=============================================================================================================================
Net Assets: Net assets ................................................. $1,117,925,013
==============
=============================================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value,
Consist of: 125,000,000 shares authorized ............................ $ 4,463
Class D Shares of Common Stock, $0.0001 par value,
125,000,000 shares authorized ............................ 2,849
Paid-in capital in excess of par ........................... 925,847,676
Undistributed investment income -- net ..................... 539,232
Undistributed realized capital gains on investments
from the Series -- net ................................... 265,240
Unrealized appreciation on investments from the
Series -- net ............................................ 191,265,553
--------------
Net assets ................................................. $1,117,925,013
==============
=============================================================================================================================
Net Asset Class A -- Based on net assets of $682,669,335 and
Value: 44,631,697 shares outstanding ............................ $ 15.30
==============
Class D -- Based on net assets of $435,255,678 and
28,488,310 shares outstanding ............................ $ 15.28
==============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX FUND For the Year Ended December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Investment Income Investment income allocated from the Series ................ $ 15,033,349
(Note 1b): Expenses allocated from the Series ......................... (876,982)
--------------
Net investment income from the Series ...................... 14,156,367
--------------
=============================================================================================================================
Expenses: Administration fee (Note 2) ................................ $ 1,815,951
Account maintenance fee -- Class D (Note 2) ................ 699,584
Transfer agent fees (Note 2) ............................... 555,448
Printing and shareholder reports ........................... 186,564
Registration fees (Note 1d) ................................ 158,888
Professional fees .......................................... 35,037
Amortization of organization expenses (Note 1d) ............ 4,365
Accounting services (Note 2) ............................... 400
Other ...................................................... 9,188
--------------
Total expenses before reimbursement ........................ 3,465,425
Reimbursement of expenses (Note 2) ......................... (62,952)
--------------
Total expenses after reimbursement ......................... 3,402,473
--------------
Investment income -- net ................................... 10,753,894
--------------
=============================================================================================================================
Realized & Realized gain on investments from the Series -- net ........ 38,594,938
Unrealized Change in unrealized appreciation on investments from
Gain from the the Series -- net ........................................ 145,214,701
Series -- Net --------------
Net Increase in Net Assets Resulting from Operations ....... $ 194,563,533
==============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Year For the Period
S&P 500 Ended April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Assets: Dec. 31, 1998 Dec. 31, 1997
=============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net ................................... $ 10,753,894 $ 4,878,634
Realized gain on investments from the Series -- net ........ 38,594,938 20,857,038
Change in unrealized appreciation on investments from
the Series -- net ........................................ 145,214,701 46,050,852
-------------- --------------
Net increase in net assets resulting from operations ....... 194,563,533 71,786,524
-------------- --------------
=============================================================================================================================
Dividends & Investment income -- net
Distributions to Class A .................................................. (6,818,554) (3,734,820)
Shareholders Class D .................................................. (3,415,559) (1,124,363)
(Note 1e): Realized gain on investments from the Series -- net
Class A .................................................. (25,172,753) (13,898,161)
Class D .................................................. (15,177,398) (4,938,424)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ............................ (50,584,264) (23,695,768)
-------------- --------------
=============================================================================================================================
Capital Share Net increase in net assets derived from capital share
Transactions transactions ............................................. 371,363,058 554,466,930
(Note 4): -------------- --------------
=============================================================================================================================
Net Assets: Total increase in net assets ............................... 515,342,327 602,557,686
Beginning of period ........................................ 602,582,686 25,000
-------------- --------------
End of period* ............................................. $1,117,925,013 $ 602,582,686
============== ==============
=============================================================================================================================
*Undistributed investment income -- net .................... $ 539,232 $ 19,451
============== ==============
=============================================================================================================================
+Commencement of operations.
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios Class A Class D
have been derived from information provided -------------------------------- --------------------------------
MERRILL LYNCH in the financial statements. For the Year For the Period For the Year For the Period
S&P 500 Ended April 3, 1997+ to Ended April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 12.55 $ 10.00 $ 12.54 $ 10.00
Operating --------- --------- --------- ---------
Performance: Investment income -- net ......................... .18 .11 .11 .11
Realized and unrealized gain on investments from
the Series -- net .............................. 3.33 2.97 3.37 2.95
--------- --------- --------- ---------
Total from investment operations ................. 3.51 3.08 3.48 3.06
--------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net ....................... (.16) (.11) (.14) (.10)
Realized gain on investments from the
Series-- net ................................. (.60) (.42) (.60) (.42)
--------- --------- --------- ---------
Total dividends and distributions ................ (.76) (.53) (.74) (.52)
--------- --------- --------- ---------
Net asset value, end of period ................... $ 15.30 $ 12.55 $ 15.28 $ 12.54
========= ========= ========= =========
====================================================================================================================================
Total Based on net asset value per share ............... 28.24% 30.80%@ 27.95% 30.53%@
Investment ========= ========= ========= =========
Return:
====================================================================================================================================
Ratios to Expenses, net of reimbursement++ ................. .39% .40%* .64% .65%*
Average ========= ========= ========= =========
Net Assets: Expenses++ ....................................... .40% .57%* .65% .82%*
========= ========= ========= =========
Investment income -- net ......................... 1.27% 1.71%* 1.00% 1.47%*
========= ========= ========= =========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 682,669 $ 445,016 $ 435,256 $ 157,567
Data: ========= ========= ========= =========
====================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Fund (the "Fund") is part of Merrill Lynch Index
Funds, Inc. (the "Corporation"). The Fund is registered under the Investment
Company Act of 1940 as a non-diversified mutual fund. 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 seeks to achieve its investment objective by investing all of its assets in
the Merrill Lynch S&P 500 Index Series (the "Series") of the Merrill Lynch Index
Trust, which has the same investment objective as the Fund. The value of the
Fund's investment in the Series reflects the Fund's proportionate interest in
the net assets of the Series. The performance of the Fund is directly affected
by the performance of the Series. The financial statements of the Series,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements. The Fund
offers two classes of shares, Class A Shares and Class D Shares. Shares of Class
A and Class D are sold without the imposition of a front-end or deferred sales
charge. Both classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class D Shares bear
certain expenses related to the account maintenance of such shares and has
exclusive voting rights with respect to matters relating to its account
maintenance expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Valuation of securities is discussed in Note 1a
of the Series' Notes to Financial Statements, which 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.
(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.
(f) Investment transactions -- Investment transactions are accounted for on a
trade date basis.
2. Transactions with Affiliates:
The Corporation has entered into an Administrative Services Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of ML & Co., which
is the limited partner. The Fund pays a monthly fee at an annual rate of 0.20%
of the Fund's average daily net assets for the performance of administrative
services (other than investment advice and related portfolio activities)
necessary for the operation of the Fund. For the year ended December 31, 1998,
MLAM earned fees of $1,815,951, of which $62,952 was voluntarily waived.
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 Distribution Plan adopted by the
Corporation in accordance with Rule 12b-1 under the Investment Company Act of
1940, the Fund pays the Distributor an ongoing account maintenance fee. The fee
is accrued daily and paid monthly at the annual rate of 0.25% based upon the
average daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
also provides account maintenance services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class D shareholders.
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 investments in the Series for the year
ended December 31, 1998 were $559,939,116 and $242,485,195, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$371,363,058 and $554,466,930 for the year ended December 31, 1998 and the
period April 3, 1997 to December 31, 1997, respectively.
8 & 9
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
S&P 500
INDEX FUND
================================================================================
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 .......................... 37,535,322 $ 523,733,579
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 2,106,793 30,969,855
----------- -------------
Total issued ......................... 39,642,115 554,703,434
Shares redeemed ...................... (30,483,660) (411,225,731)
----------- -------------
Net increase ......................... 9,158,455 $ 143,477,703
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Period Dollar
April 3, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 37,854,298 $ 438,112,086
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 1,361,172 17,164,377
----------- -------------
Total issued ......................... 39,215,470 455,276,463
Shares redeemed ...................... (3,743,478) (45,298,859)
----------- -------------
Net increase ......................... 35,471,992 $ 409,977,604
=========== =============
- --------------------------------------------------------------------------------
+ Prior to April 3, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1998 Shares Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 25,706,795 $ 363,953,608
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 1,037,731 15,244,271
----------- -------------
Total issued ......................... 26,744,526 379,197,879
Shares redeemed ...................... (10,821,319) (151,312,524)
----------- -------------
Net increase ......................... 15,923,207 $ 227,885,355
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Period Dollar
April 3, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 16,128,798 $ 187,590,003
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 366,327 4,615,723
----------- -------------
Total issued ......................... 16,495,125 192,205,726
Shares redeemed ...................... (3,931,272) (47,716,400)
----------- -------------
Net increase ......................... 12,563,853 $ 144,489,326
=========== =============
- --------------------------------------------------------------------------------
+ Prior to April 3, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
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 S&P 500 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 3, 1997 (commencement of operations) to
December 31, 1997. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
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 S&P
500 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 16, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series
- --------------------------------------------------------------------------------------------
Shares Value
Issue Held (Note 1a)
============================================================================================
<S> <C> <C> <C>
Common +3Com Corporation ............................ 38,955 $ 1,745,671
Stocks +The AES Corporation ......................... 19,589 928,029
ALLTEL Corporation .......................... 29,776 1,780,977
+ALZA Corporation ............................ 9,465 494,546
AMP Incorporated ............................ 23,736 1,235,755
+AMR Corporation ............................. 19,810 1,176,219
ASARCO Incorporated ......................... 4,308 64,889
AT&T Corp. .................................. 196,240 14,767,060
Abbott Laboratories ......................... 164,874 8,078,826
Adobe Systems Incorporated .................. 7,139 333,748
Adolph Coors Company ........................ 3,936 222,138
+Advanced Micro Devices, Inc. ................ 15,728 455,129
Aeroquip-Vickers, Inc. ...................... 3,037 90,920
Aetna Inc. .................................. 15,530 1,221,046
Air Products and Chemicals, Inc. ............ 25,137 1,005,480
+Airtouch Communications, Inc. ............... 62,149 4,482,497
Alberto-Culver Company (Class B) ............ 5,988 159,805
Albertson's, Inc. ........................... 26,683 1,699,374
Alcan Aluminum Ltd. ......................... 24,714 668,823
Allegheny Teledyne Incorporated ............. 21,313 435,584
Allergan Inc. ............................... 7,169 464,193
AlliedSignal Inc. ........................... 60,844 2,696,150
The Allstate Corporation .................... 89,137 3,442,917
Aluminum Co. of America ..................... 19,943 1,487,000
Amerada Hess Corporation .................... 9,817 488,396
Ameren Corporation .......................... 14,903 636,172
+America Online, Inc. ........................ 46,550 7,436,032
American Electric Power Company, Inc. ....... 20,788 978,335
American Express Company .................... 49,115 5,022,009
American General Corporation ................ 27,383 2,135,874
American Greetings Corporation
(Class A) ................................. 7,669 314,908
American Home Products Corporation .......... 143,188 8,063,274
American International Group, Inc. .......... 114,032 11,018,342
American Stores Company ..................... 29,815 1,101,292
Ameritech Corporation ....................... 119,856 7,595,874
+Amgen Inc. .................................. 27,650 2,891,153
Anadarko Petroleum Corporation .............. 13,027 402,209
+Andrew Corporation .......................... 9,347 154,225
Anheuser-Busch Companies, Inc. .............. 51,921 3,407,316
Aon Corporation ............................. 18,477 1,023,164
Apache Corporation .......................... 10,620 268,819
+Apple Computer .............................. 14,616 598,342
+Applied Materials, Inc. ..................... 40,149 1,713,860
Archer-Daniels-Midland Company .............. 64,450 1,107,734
Armstrong World Industries, Inc. ............ 4,346 262,118
+Ascend Communications, Inc. ................. 23,567 1,549,530
Ashland Inc. ................................ 8,308 401,899
Associates First Capital Corporation
(Class A) ................................. 78,508 3,326,776
Atlantic Richfield Company .................. 34,877 2,275,724
Autodesk, Inc. .............................. 5,039 215,102
</TABLE>
10 & 11
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (contined)
===============================================================================
Shares Value
Issue Held (Note 1a)
============================================================================================
<S> <C> <C> <C>
Common Automatic Data Processing, Inc. ............. 32,820 $ 2,631,754
Stocks +AutoZone, Inc. .............................. 16,558 545,379
(continued) Avery Dennison Corporation .................. 12,630 569,139
Avon Products, Inc. ......................... 28,540 1,262,895
BB&T Corporation ............................ 31,957 1,288,267
The B.F. Goodrich Company ................... 8,036 288,291
+BMC Software, Inc. .......................... 23,415 1,043,431
Baker Hughes Incorporated ................... 35,518 628,225
Ball Corporation ............................ 3,348 153,171
Baltimore Gas and Electric Company .......... 16,214 500,607
The Bank of New York Company, Inc. .......... 82,638 3,326,179
Bank One Corporation ........................ 127,173 6,493,771
BankAmerica Corporation ..................... 188,018 11,304,582
BankBoston Corporation ...................... 32,007 1,246,273
Bankers Trust Corporation ................... 10,354 884,620
Barrick Gold Corporation .................... 40,510 789,945
Battle Mountain Gold Company ................ 24,958 102,952
Bausch & Lomb Incorporated .................. 6,072 364,320
Baxter International Inc. ................... 31,070 1,998,189
The Bear Stearns Companies Inc. ............. 12,231 457,134
Becton, Dickinson and Company ............... 26,852 1,146,245
Bell Atlantic Corporation ................... 168,639 9,580,803
BellSouth Corporation ....................... 212,456 10,596,243
Bemis Company, Inc. ......................... 5,689 215,826
+Berkshire Hathaway Inc. (Class B) ........... 1 1,845
Bestfoods ................................... 31,045 1,653,146
+Bethlehem Steel Corporation ................. 14,079 117,912
Biomet, Inc. ................................ 12,172 489,923
The Black & Decker Corporation .............. 9,545 535,117
The Boeing Co. .............................. 108,546 3,541,313
Boise Cascade Corporation ................... 6,095 188,945
+Boston Scientific Corporation ............... 42,687 1,144,545
Briggs and Statton Corporation .............. 2,528 126,084
Bristol-Myers Squibb Company ................ 107,941 14,443,855
Brown-Forman Corporation .................... 7,462 564,780
Browning Ferris ............................. 18,874 536,729
Brunswick Corporation ....................... 10,435 258,266
Burlington Northern Santa Fe Corp. .......... 50,962 1,719,967
Burlington Resources Inc. ................... 19,278 690,393
CBS Corporation ............................. 76,712 2,512,318
CIGNA Corporation ........................... 22,432 1,734,274
C.R. Bard, Inc. ............................. 5,823 288,239
CSX Corporation ............................. 23,748 985,542
CVS Corporation ............................. 42,364 2,330,020
+Cabletron Systems, Inc. ..................... 17,850 149,494
Campbell Soup Company ....................... 48,671 2,676,905
Capital One Financial Corporation ........... 7,126 819,490
Cardinal Health, Inc. ....................... 21,807 1,654,606
Carnival Corporation (Class A) .............. 64,690 3,105,120
Carolina Power & Light Company .............. 16,428 773,143
Case Corporation ............................ 7,914 172,624
Caterpillar Inc. ............................ 38,968 1,792,528
+Cendant Corporation ......................... 92,678 1,766,674
Centex Corporation .......................... 6,476 291,825
Central and South West Corporation .......... 23,076 633,148
+Ceridian Corporation ........................ 7,771 542,513
Champion International Corporation .......... 10,389 420,754
The Charles Schwab Corporation .............. 43,556 2,447,303
The Chase Manhattan Corporation ............. 91,886 6,253,991
Chevron Corporation ......................... 70,881 5,878,693
The Chubb Corporation ....................... 17,702 1,148,417
Cincinnati Financial Corporation ............ 18,147 664,634
Cinergy Corp. ............................... 17,220 591,937
Circuit City Stores -- Circuit City Group ... 10,862 542,421
+Cisco Systems, Inc. ......................... 171,547 15,921,706
Citigroup Inc. .............................. 246,826 12,217,887
+Clear Channel Communications, Inc. .......... 28,615 1,559,517
Clorox Company .............................. 11,276 1,317,178
The Coastal Corporation ..................... 23,089 806,672
The Coca-Cola Company ....................... 267,808 17,909,660
Coca-Cola Enterprises Inc. .................. 42,579 1,522,199
Colgate-Palmolive Company ................... 31,811 2,954,447
Columbia Energy Group ....................... 9,039 522,002
Columbia/HCA Healthcare Corporation ......... 70,086 1,734,628
Comcast Corporation (Class A) ............... 40,079 2,352,136
Comerica Incorporated ....................... 16,884 1,151,278
Compaq Computer Corporation ................. 184,687 7,745,311
Computer Associates International, Inc. ..... 58,476 2,492,539
+Computer Sciences Corporation ............... 17,217 1,109,420
+Compuware Corporation ....................... 17,735 1,385,547
ConAgra, Inc. ............................... 53,160 1,674,540
Conseco, Inc. ............................... 34,161 1,044,046
Consolidated Edison, Inc. ................... 25,333 1,339,482
Consolidated Natural Gas Company ............ 10,398 561,492
+Consolidated Stores Corporation ............. 11,876 239,747
Cooper Industries, Inc. ..................... 11,238 535,912
Cooper Tire & Rubber Company ................ 8,234 168,282
Corning Incorporated ........................ 25,114 1,130,130
+Costco Companies, Inc. ...................... 23,500 1,696,406
Countrywide Credit Industries , Inc. ........ 12,153 609,929
Crane Co. ................................... 7,442 224,655
Crestar Financial Corporation ............... 12,247 881,784
Crown Cork & Seal Company, Inc. ............. 13,291 409,529
Cummins Engine Company, Inc. ................ 4,552 161,596
Cyprus Amax Minerals Company ................ 9,880 98,800
DTE Energy Company .......................... 15,759 675,667
Dana Corporation ............................ 17,984 735,096
Danaher Corporation ......................... 14,498 787,423
Darden Restaurants, Inc. .................... 15,119 272,142
+Data General Corporation .................... 5,330 87,612
Dayton Hudson Corporation ................... 47,795 2,592,879
Deere & Company ............................. 25,912 858,335
+Dell Computer Corporation ................... 138,354 10,125,783
Delta Air Lines, Inc. ....................... 15,501 806,052
Deluxe Corporation .......................... 8,775 320,836
Dillard's, Inc. ............................. 11,605 329,292
Dollar General Corporation .................. 20,071 474,177
Dominion Resources, Inc. .................... 21,224 992,222
Dover Corporation ........................... 24,202 886,398
The Dow Chemical Company .................... 24,046 2,186,683
Dow Jones & Company, Inc. ................... 10,180 489,912
Duke Energy Corporation ..................... 39,325 2,519,258
Dun & Bradstreet Corporation ................ 18,154 572,986
du Pont (E.I.) de Nemours and Company ....... 122,313 6,490,234
EG & G, Inc. ................................ 4,857 135,085
+EMC Corporation ............................. 54,520 4,634,200
Eastern Enterprises ......................... 2,431 106,356
Eastman Chemical Company .................... 8,588 384,313
Eastman Kodak Company ....................... 35,194 2,533,968
Eaton Corporation ........................... 7,756 548,252
Ecolab Inc. ................................. 14,081 509,556
Edison International ........................ 38,318 1,068,114
Electronic Data Systems Corporation ......... 53,533 2,690,033
Eli Lilly and Company ....................... 119,471 10,617,985
Emerson Electric Co. ........................ 47,836 2,992,740
Engelhard Corporation ....................... 15,563 303,478
Enron Corporation ........................... 35,930 2,050,256
Entergy Corporation ......................... 26,742 832,345
Equifax Inc. ................................ 16,051 548,744
Exxon Corporation++ ......................... 264,128 19,314,360
+FDX Corporation ............................. 16,015 1,425,335
+FMC Corporation ............................. 3,594 201,264
FPL Group, Inc. ............................. 19,683 1,212,965
Federal Home Loan Mortgage Association ...... 73,724 4,750,590
Federal National Mortgage Association ....... 112,610 8,333,140
+Federated Department Stores, Inc. ........... 22,262 969,788
Fifth Third Bancorp ......................... 28,981 2,066,708
First Data Corporation ...................... 48,089 1,523,820
First Union Corporation ..................... 107,635 6,545,553
FirstEnergy Corp. ........................... 25,747 838,387
Firstar Corporation ......................... 22,165 2,066,886
Fleet Financial Group, Inc. ................. 61,743 2,759,140
Fleetwood Enterprises, Inc. ................. 3,741 130,000
Fluor Corporation ........................... 8,231 350,332
Ford Motor Company .......................... 131,455 7,714,765
Fort James Corporation ...................... 23,921 956,840
Fortune Brands, Inc. ........................ 18,578 587,529
Foster Wheeler Corporation .................. 4,400 58,025
Franklin Resources, Inc. .................... 27,482 879,424
+Fred Meyer, Inc. ............................ 16,784 1,011,236
Freeport-McMoRan Copper & Gold, Inc.
(Class B) ................................. 17,985 187,718
Frontier Corporation ........................ 18,644 633,896
+Fruit of the Loom, Inc. (Class A) ........... 7,808 107,848
GPU, Inc. ................................... 13,879 613,278
GTE Corporation ............................. 104,849 7,070,754
Gannett Co., Inc. ........................... 30,593 2,024,874
The Gap, Inc. ............................... 62,954 3,541,162
+Gateway 2000, Inc. .......................... 16,979 869,113
General Dynamics Corporation ................ 13,767 807,090
General Electric Company .................... 355,994 36,333,638
+General Instrument Corporation .............. 18,180 616,984
General Mills, Inc. ......................... 16,615 1,291,816
General Motors Corporation .................. 71,102 5,088,237
Genuine Parts Company ....................... 19,543 653,469
Georgia-Pacific Group ....................... 9,558 559,740
Gillette Company ............................ 120,515 5,822,381
Golden West Financial Corporation ........... 6,184 566,995
The Goodyear Tire & Rubber
Company ................................... 16,936 854,209
The Great Atlantic & Pacific Tea
Company, Inc. ............................. 4,140 122,647
Great Lakes Chemical Corporation ............ 6,409 256,360
Guidant Corporation ......................... 16,367 1,804,462
H & R Block, Inc. ........................... 10,923 491,535
H.J. Heinz Company .......................... 39,321 2,226,552
HBO & Company ............................... 50,490 1,448,432
+HCR Manor Care, Inc. ........................ 12,042 353,734
+HEALTHSOUTH Corporation ..................... 45,961 709,523
Halliburton Company ......................... 47,764 1,415,008
Harcourt General, Inc. ...................... 7,672 408,054
Harnischfeger Industries, Inc. .............. 5,190 52,873
+Harrah's Entertainment, Inc. ................ 10,995 172,484
Harris Corporation .......................... 8,651 316,843
</TABLE>
12 & 13
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (contined)
===============================================================================
Shares Value
Issue Held (Note 1a)
============================================================================================
<S> <C> <C> <C>
Common The Hartford Financial Services
Stocks Group, Inc. ............................... 25,355 $ 1,391,356
(continued) Hasbro, Inc. ................................ 14,212 513,408
Helmerich & Payne, Inc. ..................... 5,460 105,787
Hercules Incorporated ....................... 10,928 299,154
Hershey Foods Corporation ................... 15,545 966,705
Hewlett-Packard Company ..................... 112,672 7,696,906
Hilton Hotels Corporation ................... 28,330 541,811
The Home Depot, Inc. ........................ 169,816 10,390,616
Homestake Mining Company .................... 25,937 238,296
Honeywell Inc. .............................. 13,692 1,031,179
Household International, Inc. ............... 52,451 2,078,371
Houston Industries Incorporated ............. 30,905 992,823
+Humana Inc. ................................. 18,184 323,902
Huntington Bancshares Incorporated .......... 22,950 689,934
IKON Office Solutions, Inc. ................. 14,694 125,817
IMS Health Incorporated ..................... 17,399 1,312,537
ITT Industries, Inc. ........................ 11,275 448,181
Illinois Tool Works Inc. .................... 27,122 1,573,076
Inco Limited ................................ 18,021 190,347
Ingersoll-Rand Company ...................... 17,863 838,445
Intel Corporation ........................... 181,102 21,471,906
International Business Machines
Corporation ............................... 101,334 18,721,456
International Flavors & Fragrances Inc. ..... 11,527 509,349
International Paper Company ................. 33,369 1,495,348
The Interpublic Group of
Companies, Inc. ........................... 15,099 1,204,145
J.P. Morgan & Co., Incorporated ............. 18,992 1,995,347
Jefferson-Pilot Corporation ................. 11,524 864,300
Johnson Controls, Inc. ...................... 9,183 541,797
Johnson & Johnson ........................... 146,058 12,250,615
Jostens, Inc. ............................... 3,839 100,534
+KLA-Tencor Corporation ...................... 9,496 411,889
Kaufman and Broad Home Corporation .......... 4,331 124,516
Kellogg Company ............................. 44,032 1,502,592
Kerr-McGee Corporation ...................... 5,124 195,993
KeyCorp ..................................... 49,452 1,582,464
Kimberly-Clark Corporation .................. 58,870 3,208,415
+King World Productions, Inc. ................ 7,949 233,999
+Kmart Corporation ........................... 53,552 820,015
Knight Ridder, Inc. ......................... 8,563 437,783
Kohl's Corporation .......................... 17,186 1,055,865
The Kroger Co. .............................. 27,861 1,685,590
+LSI Logic Corporation ....................... 15,347 247,470
Laidlaw Inc. ................................ 35,815 360,388
Lehman Brothers Holdings, Inc. .............. 12,600 555,187
The Limited, Inc. ........................... 24,749 720,815
Lincoln National Corporation ................ 10,977 898,056
Liz Claiborne, Inc. ......................... 7,016 221,442
Lockheed Martin Corporation ................. 21,321 1,806,955
Loews Corporation ........................... 12,351 1,213,486
Longs Drug Stores Corporation ............... 4,209 157,837
Louisiana-Pacific Corporation ............... 11,807 216,216
Lowe's Companies, Inc. ...................... 38,298 1,960,379
Lucent Technologies Inc. .................... 142,811 15,709,210
MBIA, Inc. .................................. 10,780 706,764
MBNA Corporation ............................ 81,646 2,036,047
+MCI WorldCom, Inc. .......................... 199,183 14,291,380
MGIC Investment Corporation ................. 11,897 473,649
Mallinckrodt Inc. ........................... 7,751 238,828
Marriott International, Inc. (Class A) ...... 27,166 787,814
Marsh & McLennan Companies, Inc. ............ 27,953 1,633,503
Masco Corporation ........................... 36,897 1,060,789
Mattel, Inc. ................................ 31,249 712,868
The May Department Stores Company ........... 25,380 1,532,317
Maytag Corporation .......................... 9,774 608,431
McDermott International, Inc. ............... 6,431 158,765
McDonald's Corporation ...................... 73,501 5,632,014
The McGraw-Hill Companies, Inc. ............. 10,690 1,089,044
The Mead Corporation ........................ 11,162 327,186
+MediaOne Group, Inc. ........................ 65,934 3,098,898
Medtronic, Inc. ............................. 53,273 3,955,520
Mellon Bank Corporation ..................... 28,370 1,950,437
Mercantile Bancorporation Inc. .............. 17,095 788,507
Merck & Co., Inc. ........................... 129,397 19,110,319
Meredith Corporation ........................ 5,684 215,282
Merrill Lynch & Co., Inc.@ .................. 38,536 2,572,278
+Micron Technology, Inc. ..................... 23,195 1,172,797
+Microsoft Corporation++ ..................... 270,900 37,570,444
Milacron Inc. ............................... 4,178 80,427
Millipore Corporation ....................... 4,756 135,249
Minnesota Mining and Manufacturing
Company ................................... 43,602 3,101,192
+Mirage Resorts, Incorporated ................ 19,522 291,610
Mobil Corporation ........................... 84,722 7,381,404
Monsanto Company ............................ 68,063 3,232,993
Moore Corporation Ltd. ...................... 9,608 105,688
Morgan Stanley Dean Witter & Co. ............ 62,757 4,455,747
Morton International, Inc. .................. 13,183 322,984
Motorola, Inc. .............................. 65,203 3,981,458
NACCO Industries, Inc. (Class A) ............ 886 81,512
NICOR, Inc. ................................. 5,188 219,193
Nalco Chemical Company ...................... 7,159 221,929
National City Corporation ................... 35,932 2,605,070
+National Semiconductor Corporation .......... 18,053 243,716
National Service Industries, Inc. ........... 4,502 171,076
+Navistar International Corporation .......... 7,287 207,680
New Century Energies, Inc. .................. 12,418 605,378
Newell Co. .................................. 17,664 728,640
Newmont Mining Corporation .................. 18,117 327,238
The New York Times Company
(Class A) ................................. 19,812 687,229
+Nextel Communications, Inc. ................. 31,232 737,856
+Niagara Mohawk Power Corporation ............ 20,332 327,854
Nike, Inc. (Class B) ........................ 31,105 1,261,697
Nordstrom, Inc. ............................. 16,151 560,238
Norfolk Southern Corporation ................ 41,156 1,304,131
Northern States Power Company ............... 16,576 459,984
Northern Telecom Limited .................... 70,823 3,550,003
Northern Trust Corporation .................. 12,084 1,055,084
Northorp Grumman Corporation ................ 7,474 546,536
+Novell, Inc. ................................ 38,251 693,299
Nucor Corporation ........................... 9,558 413,384
ONEOK, Inc. ................................. 3,426 123,764
Occidental Petroleum Corporation ............ 37,581 634,179
Omnicom Group Inc. .......................... 18,327 1,062,966
+Oracle Corporation .......................... 105,587 4,553,439
+Oryx Energy Company ......................... 11,523 154,840
Owens Corning ............................... 5,860 207,664
+Owens-Illinois, Inc. ........................ 16,872 516,705
PACCAR Inc. ................................. 8,475 348,534
PECO Energy Company ......................... 24,340 1,013,153
PG&E Corporation ............................ 41,556 1,309,014
PNC Bank Corp. .............................. 32,688 1,769,238
PP&L Resources, Inc. ........................ 16,429 457,958
PPG Industries, Inc. ........................ 19,223 1,119,740
PacifiCorp .................................. 32,264 679,561
Pall Corporation ............................ 13,468 340,909
+Parametric Technology Corporation ........... 29,550 483,881
Parker-Hannifin Corporation ................. 11,833 387,531
Paychex, Inc. ............................... 17,772 914,147
Penney (J.C.) Company, Inc. ................. 27,591 1,293,328
+PeopleSoft, Inc. ............................ 25,315 479,403
Peoples Energy Corporation .................. 3,844 153,280
The Pep Boys -- Manny, Moe & Jack ........... 6,929 108,699
PepsiCo, Inc. ............................... 159,399 6,525,397
The Perkin-Elmer Corporation ................ 5,411 527,911
Pfizer Inc. ................................. 140,992 17,685,684
Pharmacia & Upjohn, Inc. .................... 55,195 3,125,417
Phelps Dodge Corporation .................... 6,295 320,258
Philip Morris Companies Inc. ................ 264,501 14,150,804
Phillips Petroleum Company .................. 27,662 1,179,093
Pioneer Hi-Bred International, Inc. ......... 26,237 708,399
Pitney Bowes, Inc. .......................... 29,620 1,956,771
Placer Dome Inc. ............................ 27,137 312,076
Polaroid Corporation ........................ 4,793 89,569
Potlatch Corporation ........................ 3,130 115,419
Praxair, Inc. ............................... 17,180 605,595
The Procter & Gamble Company ................ 144,147 13,162,423
The Progressive Corporation ................. 7,869 1,332,812
Provident Companies, Inc. ................... 14,681 609,262
Providian Financial Corporation ............. 15,384 1,153,838
Public Service Enterprise Group
Incorporated .............................. 24,795 991,800
Pulte Corporation ........................... 4,684 130,274
Quaker Oats Company ......................... 14,806 880,957
RJR Nabisco Holdings Corp. .................. 35,249 1,046,455
R.R. Donnelley & Sons Company ............... 14,754 646,410
Ralston Purina Group ........................ 33,908 1,097,772
Raychem Corporation ......................... 8,593 277,661
Raytheon Company (Class B) .................. 36,608 1,949,376
+Reebok International Ltd. ................... 6,114 90,946
Regions Financial Corporation ............... 24,027 968,588
Republic New York Corporation ............... 11,654 530,985
Reynolds Metals Company ..................... 7,003 368,971
+Rio Hotel & Casino, Inc. .................... 2,687 42,656
Rite Aid Corporation ........................ 28,065 1,390,972
Rockwell International Corporation .......... 20,767 1,008,497
Rohm and Haas Company ....................... 18,086 544,841
+Rowan Companies. Inc. ....................... 9,107 91,070
Royal Dutch Petroleum Company
(NY Registered Shares) .................... 232,955 11,152,721
Rubbermaid Incorporated ..................... 16,287 512,023
Russell Corporation ......................... 3,934 79,909
Ryder Systems, Inc. ......................... 7,787 202,462
SAFECO Corporation .......................... 14,803 635,604
SBC Communications Inc. ..................... 212,501 11,395,366
SLM Holding Corporation ..................... 18,003 864,144
SUPERVALU INC ............................... 13,139 367,892
SYSCO Corporation ........................... 36,295 995,844
+Safeway Inc. ................................ 52,787 3,216,708
Sara Lee Corporation ........................ 99,236 2,797,215
Schering-Plough Corporation ................. 159,658 8,821,105
</TABLE>
14 & 15
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch S&P 500 Index Series (concluded)
===============================================================================
Shares Value
Issue Held (Note 1a)
============================================================================================
<S> <C> <C> <C>
Common Schlumberger Limited ........................ 59,306 $ 2,735,489
Stocks Scientific-Atlanta, Inc. .................... 8,134 185,557
(continued) +Seagate Technology, Inc. .................... 26,644 805,981
The Seagram Company Ltd. .................... 42,787 1,625,906
+Sealed Air Corporation ...................... 9,044 461,809
Sears, Roebuck and Co. ...................... 41,620 1,768,850
Sempra Energy ............................... 26,075 661,653
Service Corporation International ........... 28,015 1,066,321
Shared Medical Systems Corporation .......... 2,890 144,139
The Sherwin-Williams Company ................ 18,680 548,725
Sigma-Aldrich Corporation ................... 10,910 320,481
+Silicon Graphics, Inc. ...................... 20,363 262,174
Snap-On Incorporated ........................ 6,423 223,601
Snynovus Financial Corp. .................... 29,039 707,826
+Solectron Corporation ....................... 12,780 1,187,741
Sonat Inc. .................................. 11,917 322,504
The Southern Company ........................ 75,784 2,202,473
Southwest Airlines Co. ...................... 36,542 819,911
Spring Industries, Inc. (Class A) ........... 1,947 80,679
Sprint Corporation (Fon Group) .............. 46,795 3,936,629
Sprint Corporation (PCS Group) .............. 45,129 1,043,608
+St. Jude Medical, Inc. ...................... 9,140 253,064
The St. Paul Companies, Inc. ................ 25,645 891,164
The Stanley Works ........................... 9,640 267,510
+Staples, Inc. ............................... 33,844 1,478,560
State Street Corporation .................... 17,437 1,212,961
Summit Bancorp .............................. 18,879 824,776
+Sun Microsystems, Inc. ...................... 41,347 3,540,337
SunAmerica, Inc. ............................ 23,586 1,913,414
SunTrust Banks, Inc. ........................ 22,767 1,741,676
Sunoco, Inc. ................................ 10,154 366,179
The TJX Companies, Inc. ..................... 35,001 1,015,029
TRW Inc. .................................... 13,010 730,999
Tandy Corporation ........................... 10,753 442,889
Tektronix, Inc. ............................. 5,140 154,521
+Tele-Communications, Inc. (Class A) ......... 58,444 3,232,684
+Tellabs, Inc. ............................... 21,104 1,446,943
Temple-Inland, Inc. ......................... 6,039 358,188
+Tenet Healthcare Corporation ................ 33,638 882,998
Tenneco Inc. ................................ 18,484 629,611
Texaco Inc. ................................. 58,071 3,070,504
Texas Instruments Incorporated .............. 42,348 3,623,401
Texas Utilities Company ..................... 30,673 1,432,046
Textron, Inc. ............................... 17,213 1,307,112
+Thermo Electron Corp. ....................... 17,256 292,274
Thomas & Betts Corporation .................. 6,162 266,892
Time Warner, Inc. ........................... 133,298 8,272,807
The Times Mirror Company (Class A) .......... 8,646 484,176
The Timken Company .......................... 6,740 127,218
Torchmark Corporation ....................... 15,224 537,598
+Toys R Us, Inc. ............................. 28,384 478,980
Transamerica Corporation .................... 6,795 784,823
Tribune Company ............................. 12,902 851,532
+Tricon Global Restaurants, Inc. ............. 16,529 828,516
Tupperware Corporation ...................... 6,272 103,096
Tyco International Ltd. ..................... 69,975 5,278,739
UNUM Corporation ............................ 15,020 876,793
U S WEST, Inc. .............................. 54,593 3,528,073
+US Airways Group, Inc. ...................... 9,495 493,740
U.S. Bancorp ................................ 78,841 2,798,856
UST Inc. .................................... 20,203 704,580
USX-Marathon Group .......................... 33,410 1,006,476
USX-U.S. Steel Group ........................ 9,569 220,087
Unicom Corporation .......................... 23,594 909,844
Unilever N.V. (NY Registered Shares) ........ 69,526 5,766,313
Union Camp Corporation ...................... 7,524 507,870
Union Carbide Corporation ................... 14,437 613,573
Union Pacific Corporation ................... 26,875 1,211,055
Union Pacific Resources Group Inc. .......... 27,250 246,953
Union Planters Corporation .................. 14,782 669,809
+Unisys Corporation .......................... 27,725 954,780
United HealthCare Corporation ............... 20,232 871,241
United Technologies Corporation ............. 24,534 2,668,073
Unocal Corporation .......................... 26,199 764,683
V. F. Corporation ........................... 13,028 610,688
+Viacom, Inc. (Class B) ...................... 37,788 2,796,312
+W.R. Grace & Co. ............................ 7,986 125,280
W. W. Grainger, Inc. ........................ 10,315 429,362
Wachovia Corporation ........................ 22,027 1,925,986
Wal-Mart Stores, Inc. ....................... 244,749 19,931,747
Walgreen Co. ................................ 54,180 3,172,916
The Walt Disney Company ..................... 222,569 6,677,070
Warner-Lambert Company ...................... 89,238 6,709,582
Washington Mutual, Inc. ..................... 64,410 2,459,657
Waste Management, Inc. ...................... 62,399 2,909,353
Wells Fargo Company ......................... 175,687 7,016,500
Wendy's International, Inc. ................. 13,520 294,905
Westvaco Corporation ........................ 11,004 295,045
Weyerhaeuser Company ........................ 21,597 1,097,398
Whirlpool Corporation ....................... 8,254 457,065
Willamette Industries, Inc. ................. 12,104 405,484
The Williams Companies, Inc. ................ 46,473 1,449,377
Winn-Dixie Stores, Inc. ..................... 16,134 724,013
Worthington Industries, Inc. ................ 10,046 125,575
Wrigley (Wm.) Jr. Company ................... 12,623 1,130,547
Xerox Corporation ........................... 35,625 4,203,750
------------------------------------------------------------------------------
Total Common Stocks (Cost -- $896,352,536) -- 97.2% 1,086,706,534
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Short-Term Obligations
============================================================================================
<S> <C> <C> <C>
Commercial $35,608,000 General Motors Acceptance Corp.,
Paper* 5.13% due 1/04/1999 35,592,778
============================================================================================
Total Short-Term Obligations (Cost -- $35,592,778) -- 3.2% 35,592,778
============================================================================================
Total Investments (Cost -- $931,945,314) -- 100.4% 1,122,299,312
Variation Margin on Financial Futures Contracts** -- 0.0% 71,410
Liabilities in Excess of Other Assets -- (0.4%) (4,150,256)
--------------
Net Assets -- 100.0% $1,118,220,466
==============
============================================================================================
</TABLE>
+ Non-income producing security.
++ Portions of securities held as collateral for open financial
futures contracts.
@ An affiliate of the Series.
* Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by
the Fund.
** Financial futures contracts purchased as of December 31, 1998 were
as follows:
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
-------------------------------------------------------------------
100 S&P 500 Stock Index March 1999 $31,137,500
-------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price -- $30,225,894) $31,137,500
===========
-------------------------------------------------------------------
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES As of December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $931,945,314)
(Note 1a) ................................................ $1,122,299,312
Cash ....................................................... 11,078
Receivables:
Securities sold .......................................... $ 6,497,107
Contributions ............................................ 5,163,964
Dividends ................................................ 1,131,203
Variation margin (Note 1b) ............................... 71,410 12,863,684
--------------
Deferred organization expenses (Note 1e) ................... 5,821
--------------
Total assets ............................................... 1,135,179,895
--------------
=============================================================================================================================
Liabilities: Payables:
Securities purchased ..................................... 13,004,096
Withdrawals .............................................. 3,769,074
Investment adviser (Note 2) .............................. 44,819 16,817,989
--------------
Accrued expenses and other liabilities ..................... 141,440
--------------
Total liabilities .......................................... 16,959,429
--------------
=============================================================================================================================
Net Assets: Net assets ................................................. $1,118,220,466
==============
=============================================================================================================================
Net Assets Partners' capital .......................................... $ 926,954,862
Consist of: Unrealized appreciation on investments -- net .............. 191,265,604
--------------
Net assets ................................................. $1,118,220,466
==============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
S&P 500
INDEX SERIES For the Year Ended December 31, 1998
=============================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends (net of $47,477 foreign withholding tax) ......... $ 12,884,019
(Notes 1c & 1d): Interest and discount earned ............................... 2,111,742
Other ...................................................... 37,590
--------------
Total income ............................................... 15,033,351
--------------
=============================================================================================================================
Expenses: Investment advisory fees (Note 2) .......................... $ 454,138
Accounting services (Note 2) ............................... 285,864
Custodian fees ............................................. 103,991
Professional fees .......................................... 17,304
Amortization of organization expenses (Note 1e) ............ 7,426
Trustees' fees and expenses ................................ 6,021
Other ...................................................... 2,238
--------------
Total expenses ............................................. 876,982
--------------
Investment income -- net ................................... 14,156,369
--------------
=============================================================================================================================
Realized & Realized gain from investments -- net ...................... 38,594,945
Unrealized Change in unrealized appreciation on investments -- net .... 145,214,729
Gain on --------------
Investments -- Net Increase in Net Assets Resulting from Operations ....... $ 197,966,043
Net (Notes 1b, ==============
1d & 3):
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Year For the Period
S&P 500 Ended April 3, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: Dec. 31, 1998 Dec. 31, 1997
===============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net ................................... $ 14,156,369 $ 5,923,564
Realized gain on investments -- net ........................ 38,594,945 20,857,044
Change in unrealized appreciation on investments -- net .... 145,214,729 46,050,875
-------------- --------------
Net increase in net assets resulting from operations ....... 197,966,043 72,831,483
-------------- --------------
===============================================================================================================================
Net Capital Increase in net assets derived from net capital
Contributions: contributions ............................................ 317,453,922 529,969,018
-------------- --------------
===============================================================================================================================
Net Assets: Total increase in net assets ............................... 515,419,965 602,800,501
Beginning of period ........................................ 602,800,501 --
-------------- --------------
End of period .............................................. $1,118,220,466 $ 602,800,501
============== ==============
===============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch S&P 500 Index Fund, December 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios
have been derived from information provided
MERRILL LYNCH in the financial statements. For the Year For the Period
S&P 500 Ended April 3, 1997+ to
INDEX SERIES Increase (Decrease) in Net Asset Value: Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C>
Ratios to Expenses, net of reimbursement ............................. .10% .12%*
Average ========== ========
Net Assets: Expenses ................................................... .10% .17%*
========== ========
Investment income -- net ................................... 1.56% 1.99%*
========== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ................... $1,118,220 $602,801
Data: ========== ========
Portfolio turnover ......................................... 25.97% 24.31%
========== ========
====================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
S&P 500
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch S&P 500 Index Series (the "Series") is part of Merrill Lynch Index
Trust (the "Trust"). The Trust is registered under the Investment Company Act of
1940 and is organized as a Delaware business trust. The Series' 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. 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). Other investments, including futures
contracts and related options, are stated at market value. Short-term securities
are valued at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
market value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Derivative financial instruments -- The Series may engage in various
portfolio investment techniques to provide liquidity, or in connection with the
Series' arbitrage strategies. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Series may purchase or sell 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 withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(d) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses -- Deferred organization expenses are charged
to expense on a straight-line basis over a 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 0.05% of the average daily value of the Series' net
assets.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1998 were $543,671,697 and $225,342,294, respectively.
Net realized gains (losses) for the year December 31, 1998 and unrealized gains
as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ............... $ 40,071,769 $190,353,998
Financial futures contracts ......... (1,476,824) 911,606
------------ ------------
Total ............................... $ 38,594,945 $191,265,604
============ ============
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $184,810,851, of which $222,054,017 related to appreciated
securities and $37,243,166 related to depreciated securities. At December 31,
1998, the aggregate cost of investments for Federal income tax purposes was
$937,488,461.
20 & 21
<PAGE>
Merrill Lynch S&P 500 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 S&P 500 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 then ended and the period April
3, 1997 (commencement of operations) to December 31, 1997. These financial
statements and the financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our 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 brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 S&P
500 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 16, 1999
22
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011 Index 4 -- 12/98
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