MERRILL LYNCH
INTERNATIONAL
INDEX FUND
[GRAPHIC OMITTED]
Merrill Lynch
Index Funds, Inc.
STRATEGIC
Performance
Annual Report
December 31, 1998
<PAGE>
Merrill Lynch International Index Fund
Officers and
Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
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
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Important Tax
Information
The following information summarizes all per share distributions paid by Merrill
Lynch International Index Fund during the taxable year ended December 31, 1998:
<TABLE>
<CAPTION>
===================================================================================================
Non-Qualifying Foreign
Domestic Foreign Total Taxes Long-Term
Record Payable Ordinary Source Ordinary Paid or Capital
Date Date Income Income Income Withheld Gains
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Class A
- ---------------------------------------------------------------------------------------------------
12/08/98 12/16/98 $.899762 $.150734 $1.050496 $.021368 $.138392
===================================================================================================
Class D
- ---------------------------------------------------------------------------------------------------
12/08/98 12/16/98 $.869188 $.145612 $1.014800 $.021368 $.138392
===================================================================================================
</TABLE>
The foreign taxes paid or withheld represent taxes incurred by the Fund on
dividends received by the Fund from foreign sources. Foreign taxes paid or
withheld should be included as foreign source income with an offsetting
deduction from gross income or as a credit for taxes paid to foreign
governments. You should consult your tax adviser regarding the appropriate
treatment of foreign taxes paid.
Please retain this information for your records.
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended December 31, 1998, Merrill Lynch International Index Fund's
Class A and Class D Shares had total returns of +25.65% and +25.40%,
respectively. This compares to the total return of the unmanaged benchmark
Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Gross Domestic Product (GDP) Weighted Index of +26.71% for the same
12-month period. (Complete performance results can be found on pages 3 and 4 of
this report to shareholders.)
During 1998, markets worldwide were subject to considerable volatility, stemming
from concerns regarding the currency and financial crises in Southeast Asia. A
period of relative stability in this region during the early part of 1998
allowed investors to focus on strong earnings and increased merger and
acquisition activity, sending equity markets across Europe on a strong upward
trend in the first quarter of 1998. Most of the major European markets produced
strong double-digit gains during this period, including Spain, Italy, France and
Germany, which led the MSCI Europe Index to a 20.30% gain in the first quarter
of 1998. However, stock market returns for the Pacific Rim countries were much
more subdued for this period, as the MSCI Pacific region's total return was only
slightly positive at +3.18%. As was the case for the US equity market during the
first half of 1998, total returns for the MSCI EAFE GDP Weighted Index were
vastly higher in the first quarter of the year than for the second. Having
finished 1997 at a level of 2575.18, the MSCI EAFE Index gained more than 400
points to close the first quarter of 1998 at 3020.77, with a total return of
+17.30%. However, yet another round of concerns regarding the financial and
currency crises in Asia took their toll, as their equity markets became
especially unstable in the second quarter of the year. In the three months ended
June 30, 1998, the Malaysian component of the MSCI EAFE Index fell by 45.9%,
Singapore by 32.6%, Hong Kong by 26.9%, while the Japanese component fell by
4.6%. The major European markets once again drastically outperformed the dismal
returns of the Asian markets as Germany advanced by 16.7%, France by 11.2%, and
Spain by 4.2%. During June, inflationary concerns in the United Kingdom led to a
particularly difficult month, with the MSCI UK Index finishing the second
quarter of 1998 with a total return of -2.0%. (References to markets of all
countries in this letter to shareholders correspond to those countries' stock
market components in the MSCI EAFE Index and are in US dollars, unless otherwise
noted.)
Double-digit declines occurred in nearly all major stock markets throughout the
world during the third quarter of 1998 as the fallout from Asia's economic and
currency crises led to higher levels of volatility. Global uncertainty and
heightened perceptions of risk around the world caused equity markets to suffer
their most serious setback since the Persian Gulf War in 1990. Some stock
markets, such as the United Kingdom, fell from their highs by as much as they
did during the bear market of 1987. All major markets included in the MSCI EAFE
Index suffered accordingly in the third quarter. Japan was down by 15.0%;
Germany declined by 15.6%; the United Kingdom fell by 11.0%; France was down by
16.4%; and Italy declined by 9.9%. The worst-performing countries in the MSCI
EAFE Index during the third quarter of 1998 were Malaysia (- 38.6%), which was
removed from the Index on September 30, 1998 and Norway, which declined by
29.6%. Of all MSCI EAFE countries, only Hong Kong managed to produce a positive
total return for the quarter, gaining 0.6%.
In contrast to the second quarter of the year, European markets were unable to
cushion the effect of the declining Asian components of the Index. On a regional
basis, MSCI Europe was down by - 14.4% in the third quarter of 1998, and the
MSCI Pacific Index lost - 13.7% during that same period. In contrast to the
recovery posted by the US equity market during September, the malaise affecting
most of the EAFE countries could not be reversed during that month. Only
Australia, Malaysia and Singapore managed to recover any ground off their August
lows during September. Cushioning the blow for US investors was the weakness of
the US dollar, which corrected sharply relative to many of the major EAFE
currencies since the end of June.
The summer sell-off in the world's equity markets was followed by an even more
explosive rally in the year's fourth quarter, when strong double-digit advances
occurred in nearly all major stock markets throughout the world as fears
regarding the fallout from Asia's economic and currency crises began to subside.
A series of coordinated interest cuts by central banks around the world followed
the actions by the US Federal Reserve Board, which cut interest rates three
times during the fourth quarter. These moves led to powerful equity market
rallies in all major markets included in the MSCI EAFE Index, which appreciated
at least 10% during the fourth quarter. These advances were topped by Finland's
return of +41.7%, followed by Singapore, up by +40.3%, and Hong Kong, which
posted a return of +30.7%. Powerful gains were also produced by the largest
markets included in the Index, with the United Kingdom posting a total return of
+14.3%, Germany up 12.3% and France advancing by 22.1%. Japan also contributed
strongly to the Index during the fourth quarter with a return of +26.8%,
although nearly all of this resulted from currency fluctuations as the Index (in
local currency terms) advanced by only 5.1% during this period. On a regional
basis, the strong showing by Japan led to a greater return contribution from the
Pacific region than from Europe during the fourth quarter, as the MSCI Pacific
Index had a return of +26.1%, while MSCI Europe advanced by +18.7%.
In Conclusion
We appreciate your investment in Merrill Lynch International Index Fund, and we
look forward to serving 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 16, 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 International Index Fund Class A Shares* +25.65% +20.84% +36.27%
- ------------------------------------------------------------------------------------------------
ML International Index Fund Class D Shares* +25.40 +20.71 +35.71
- ------------------------------------------------------------------------------------------------
MSCI EAFE Index -- GDP Weighted** +26.71 +21.59 +33.44
================================================================================================
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund
commenced operations on 4/09/97.
** This unmanaged gross domestic product-weighted Index is comprised of
equity securities of companies from various industrial sectors whose
primary trading markets are located outside the United States and which
are selected from among the larger-capitalization companies in such
markets. Since inception total return is from 4/30/97 to 12/31/98.
3 & 4
<PAGE>
Merrill Lynch International 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 MSCI EAFE GDP
Weighted Index:
4/09/97** 12/98
--------- -----
ML International Index Fund+--
Class A Shares* $10,000 $13,205
ML International Index Fund+--
Class D Shares* $10,000 $13,151
MSCI EAFE GDP Weighted Index++-- $10,000 $13,344
* Assuming transaction costs and other operating expenses, including
advisory fees.
** The Fund commenced operations on April 9, 1997. For purposes of fair
comparison of the Fund's performance relative to the Index, the line graph
begins on April 30, 1997.
+ The Fund invests all of its assets in Merrill Lynch International Index
Series of Merrill Lynch Index Trust. The Trust may invest in a
statistically selected sample of the equity securities included in the
Europe, Australia and Far East Index and other types of financial
instruments.
++ This unmanaged gross domestic product-weighted Index is comprised of
equity securities of companies from various industrial sectors whose
primary trading markets are located outside the United States and which
are selected from among the larger-capitalization companies in such
markets.
Past performance is not predictive of future results.
Average Annual
Total Return
% Return
================================================================================
Class A Shares
================================================================================
Year Ended 12/31/98 +25.65%
- --------------------------------------------------------------------------------
Inception (4/09/97) through 12/31/98 +19.60
- --------------------------------------------------------------------------------
% Return
================================================================================
Class D Shares
================================================================================
Year Ended 12/31/98 +25.40%
- --------------------------------------------------------------------------------
Inception (4/09/97) through 12/31/98 +19.32
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND As of December 31, 1998
===================================================================================================
<S> <C> <C>
Assets: Investment in Merrill Lynch International Index Series, at value
(identified cost -- $113,641,944) (Note 1a) .................. $ 133,569,442
Deferred organization expenses (Note 1d) ....................... 13,451
Prepaid registration fees and other assets (Note 1d) ........... 17,274
-------------
Total assets ................................................... 133,600,167
-------------
===================================================================================================
Liabilities: Payable to administrator (Note 2) .............................. 51,390
Payable to distributor (Note 2) ................................ 3,078
Accrued expenses and other liabilities ......................... 51,580
-------------
Total liabilities .............................................. 106,048
-------------
===================================================================================================
Net Assets: Net assets ..................................................... $133,494,119
=============
===================================================================================================
Net Assets Class A Shares of Common Stock, $0.0001 par value, 125,000,000
Consist of: shares authorized ............................................ $ 986
Class D Shares of Common Stock, $0.0001 par value, 125,000,000
shares authorized ............................................ 123
Paid-in capital in excess of par ............................... 113,428,780
Accumulated distributions in excess of investment income --
net (Note 1e) ................................................ (428,199)
Undistributed realized capital gains on investments and foreign
currency transactions from the Series -- net ................. 564,931
Unrealized appreciation on investments and foreign currency
transactions from the Series -- net .......................... 19,927,498
-------------
Net assets ..................................................... $ 133,494,119
=============
===================================================================================================
Net Asset Class A -- Based on net assets of $118,692,068 and 9,858,144
Value: shares outstanding ........................................... $ 12.04
=============
Class D -- Based on net assets of $14,802,051 and 1,228,751
shares outstanding ........................................... $ 12.05
=============
===================================================================================================
</TABLE>
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch International Index Fund, December 31 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX FUND For the Year Ended December 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Investment Income Investment income allocated from the Series (net of
(Notes 1b & 1c): $219,810 foreign withholding tax) .................................... $ 2,201,354
Expenses allocated from the Series ..................................... (297,183)
------------
Net investment income from the Series .................................. 1,904,171
------------
====================================================================================================================================
Expenses: Administration fee (Note 2) ............................................ $ 275,261
Transfer agent fees (Note 2) ........................................... 90,656
Registration fees (Note 1d) ............................................ 71,555
Printing and shareholder reports ....................................... 46,152
Account maintenance fee -- Class D (Note 2) ............................ 41,326
Professional fees ...................................................... 7,053
Amortization of organization expenses (Note 1d) ........................ 4,139
Accounting services (Note 2) ........................................... 1,200
Other .................................................................. 1,906
------------
Total expenses before reimbursement .................................... 539,248
Reimbursement of expenses (Note 2) ..................................... (57,566)
------------
Total expenses after reimbursement ..................................... 481,682
------------
Investment income -- net ............................................... 1,422,489
------------
====================================================================================================================================
Realized & Realized gain (loss) from the Series on:
Unrealized Gain Investments -- net ................................................... 11,039,864
(Loss) From the Foreign currency transactions -- net ................................. (21,965) 11,017,899
Series -- Net: ------------
Change in unrealized appreciation on investments and foreign currency
transactions from the Series -- net .................................. 19,554,453
------------
Net realized and unrealized gain on investments and foreign currency
transactions from the Series ......................................... 30,572,352
------------
Net Increase in Net Assets Resulting from Operations ................... $ 31,994,841
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the For the Period
INTERNATIONAL 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 ............................................... $ 1,422,489 $ 1,446,154
Realized gain on investments and foreign currency transactions from
the Series -- net .................................................... 11,017,899 2,058,988
Change in unrealized appreciation on investments and foreign currency
transactions from the Series -- net .................................. 19,554,453 373,045
------------ ------------
Net increase in net assets resulting from operations ................... 31,994,841 3,878,187
------------ ------------
====================================================================================================================================
Dividends & Investment income -- net:
Distributions to Class A .............................................................. (1,103,767) (1,258,141)
Shareholders Class D .............................................................. (108,053) (188,013)
(Note 1e): In excess of investment income -- net:
Class A .............................................................. (351,648) (183,280)
Class D .............................................................. (34,425) (27,389)
Realized gain on investments from the Series -- net:
Class A .............................................................. (9,430,008) (1,638,854)
Class D .............................................................. (1,190,493) (294,727)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ...................................................... (12,218,394) (3,590,404)
------------ ------------
====================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions transactions ......................................................... (22,007,983) 135,412,872
(Note 4): ------------ ------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets ................................ (2,231,536) 135,700,655
Beginning of period .................................................... 135,725,655 25,000
------------ ------------
End of period .......................................................... $133,494,119 $135,725,655
============ ============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch International 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
INTERNATIONAL Ended April 9, 1997+ to Ended April 9, 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 ......... $ 10.56 $ 10.00 $ 10.56 $ 10.00
Operating -------- -------- ------- -------
Performance: Investment income -- net ..................... .15 .10 .13 .15
Realized and unrealized gain on investments
and foreign currency transactions from
the Series -- net .......................... 2.52 .75 2.51 .67
-------- -------- ------- -------
Total from investment operations ............. 2.67 .85 2.64 .82
-------- -------- ------- -------
Less dividends and distributions:
Investment income -- net ................... (.12) (.12) (.09) (.10)
In excess of investment income -- net ...... (.04) (.02) (.03) (.01)
Realized gain on investments from the
Series -- net ............................ (1.03) (.15) (1.03) (.15)
-------- -------- ------- -------
Total dividends and distributions ............ (1.19) (.29) (1.15) (.26)
-------- -------- ------- -------
Net asset value, end of period ............... $ 12.04 $ 10.56 $ 12.05 $ 10.56
======== ======== ======= =======
====================================================================================================================================
Total Based on net asset value per share ........... 25.65% 8.45%@ 25.40% 8.22%@
Investment ======== ======== ======= =======
Return:
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement++ ..... .64% .86%* .89% 1.11%*
Net Assets: ======== ======== ======= =======
Expenses++ ................................... .76% 1.10%* 1.02% 1.35%*
======== ======== ======= =======
Investment income -- net ..................... 1.26% 1.64%* 1.14% 1.67%*
======== ======== ======= =======
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ..... $118,692 $115,190 $14,802 $20,536
Data: ======== ======== ======= =======
====================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Includes the Fund's share of the Series' allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
INTERNATIONAL
INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch International Index Fund (the "Fund") is part of Merrill Lynch
Index Funds, Inc. (the "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 International 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 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. Under 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 and realized capital gains are due primarily to differing tax treatments
for post-October losses.
(f) Investment transactions -- Investment transactions are accounted for on a
trade date basis.
(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 $42,126 have been reclassified between undistributed net
realized capital gains and accumulated distributions excess of 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 0.24%
of the Fund's average daily net assets for the performance of administrative
services (other than investment advice and related portfolio activities)
necessary for the operation of the Fund. For the year ended December 31, 1998,
MLAM earned fees of $275,261, of which $57,566 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 ongoing account maintenance fees. The fees
are accrued daily and paid monthly at the annual rate of 0.25% based upon the
average daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith 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 to Class D shareholders.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLAM, PSI, PFD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for the year
ended December 31, 1998 were $36,452,280 and $71,069,894, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(22,007,983) and $135,412,872 for the year ended December 31, 1998 and for
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 ................................ 5,652,758 $ 64,794,136
Shares issued to shareholders in reinvest-
ment of dividends and distributions ........ 910,386 10,606,003
---------- ------------
Total issued ............................... 6,563,144 75,400,139
Shares redeemed ............................ (7,618,229) (89,230,079)
---------- ------------
Net decrease ............................... (1,055,085) $(13,829,940)
========== ============
- --------------------------------------------------------------------------------
8 & 9
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
INTERNATIONAL
INDEX FUND
- --------------------------------------------------------------------------------
Class A Shares for the Period Dollar
April 9, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 13,557,058 $ 146,212,922
Shares issued to shareholders in reinvest-
ment of dividends and distributions ........ 282,548 3,003,483
---------- -------------
Total issued ............................... 13,839,606 149,216,405
Shares redeemed ............................ (2,927,627) (32,681,148)
---------- -------------
Net increase ............................... 10,911,979 $ 116,535,257
========== =============
- --------------------------------------------------------------------------------
+ Prior to April 9, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 444,487 $ 5,440,002
Shares issued to shareholders in reinvest-
ment of dividends and distributions ........ 98,508 1,148,598
---------- -------------
Total issued ............................... 542,995 6,588,600
Shares redeemed ............................ (1,258,899) (14,766,643)
---------- -------------
Net decrease ............................... (715,904) $ (8,178,043)
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Period Dollar
April 9, 1997+ to December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................ 2,975,922 $ 30,254,277
Shares issued to shareholders in reinvest-
ment of dividends and distributions ........ 44,774 475,948
---------- -------------
Total issued ............................... 3,020,696 30,730,225
Shares redeemed ............................ (1,077,291) (11,852,610)
---------- -------------
Net increase ............................... 1,943,405 $ 18,877,615
========== =============
- --------------------------------------------------------------------------------
+ Prior to April 9, 1997 (commencement of operations), the Fund issued 1,250
shares to MLAM for $12,500.
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 International 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 mate-rial 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
International 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
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Merrill Lynch International Index Series
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Australia AMP Limited (a) 11,700 $ 148,356
Australian Gas Light Company Limited 13,800 99,480
Boral Limited 52,100 74,131
Broken Hill Proprietary Company Limited 42,100 310,330
CSR Limited 41,600 101,798
Coca-Cola Amatil Limited 19,800 73,832
Coca-Cola Beverages PLC (a) 18,100 33,313
Coles Myer Limited 26,000 136,337
Foster's Brewing Group Limited 66,700 180,809
National Australia Bank Limited 29,000 437,528
The News Corporation Limited 39,500 261,149
The News Corporation Limited (Preferred) 25,400 154,688
Normandy Mining Limited 60,300 55,843
North Limited 42,900 69,986
Orica Limited 19,000 98,931
Pacific Dunlop Limited 64,900 105,080
Pioneer International Limited 40,800 86,328
Rio Tinto Limited 12,100 143,632
Santos Limited 27,700 74,409
Schroders Property Fund 107,300 175,047
Smith (Howard) Limited 12,800 84,751
TABCORP Holdings Limited 20,500 125,727
WMC Limited 35,400 106,817
Westpac Banking Corporation Limited 41,200 275,926
--------------------------------------------------------------------------------
Total Investments in Australia (Cost -- $3,791,986) -- 2.3% 3,414,228
=====================================================================================================
Austria Bank Austria AG 8,000 406,616
Flughafen Wien AG 3,200 156,945
Generali Holding Vienna AG 700 171,867
Mayr-Melnhof Karton AG 1,950 91,100
OMV AG 2,350 221,377
Oesterreichische Elektrizitaetswirtschafts
AG "Verbund" (Class A) 2,750 420,119
VA Technologie AG 1,500 129,923
Wienerberger Baustoffindustrie AG 1,100 218,687
--------------------------------------------------------------------------------
Total Investments in Austria (Cost -- $1,822,772) -- 1.2% 1,816,634
=====================================================================================================
Belgium Barco NV 640 179,682
Bekaert NV 159 78,695
Cimenteries CBR Cementbedrijven 1,940 190,912
Delhaize "Le Lion" SA 2,720 239,329
Electrabel SA 1,370 598,755
Fortis (a)(b) 1,170 421,606
Generale de Banque SA 390 182,301
Glaverbel SA 650 85,601
Groupe Bruxelles Lambert SA 910 184,370
PetroFina SA 920 419,392
Royale Belge 470 189,088
Solvay SA 2,580 193,407
Union Miniere SA 1,160 43,915
--------------------------------------------------------------------------------
Total Investments in Belgium (Cost -- $2,178,018) -- 2.0% 3,007,053
=====================================================================================================
Denmark A/S Dampskibsselskabet Svendborg (Class B) 26 263,596
D/S 1912 (Class B) 33 230,824
Danisco A/S 2,130 115,506
Den Danske Bank Group 1,502 201,856
Novo Nordisk A/S (Class B) 2,190 289,154
TeleDenmark A/S (Class B) 4,030 544,132
Unidanmark A/S (Class A) 1,845 166,752
--------------------------------------------------------------------------------
Total Investments in Denmark (Cost -- $1,314,889) -- 1.2% 1,811,820
=====================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Finland Kesko OYJ 4,300 $ 64,122
Merita PLC 17,500 110,566
Nokia OYJ (Class A) 7,700 936,721
Nokia OYJ (Class K) 2,800 340,626
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
Outokumpu OYJ 5,900 54,178
Sampro Insurance Company PLC (Class A) 1,800 68,341
UPM-Kymmene OYJ 5,100 142,098
--------------------------------------------------------------------------------
Total Investments in Finland (Cost -- $718,480) -- 1.1% 1,716,652
<CAPTION>
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
France Accor SA 800 173,207
Air Liquide 2,181 400,008
Alcatel Alsthom Cie Generale d'Electricite SA 3,950 483,440
Axa 7,900 1,144,989
Banque Nationale de Paris (BNP) 5,200 428,193
Bouygues SA 750 154,598
Canal Plus 750 204,654
Carrefour SA 950 717,170
Compagnie de Saint Gobain 2,200 310,591
Compagnie Financiere de Paribas 4,000 347,630
Compagnie Generale des Etablissements Michelin (Class B) 3,500 139,970
Comptoirs Modernes 40 25,766
Danone 1,800 515,326
Elf Aquitaine SA 6,650 768,676
Eridania Beghin-Say SA 700 121,119
France Telecom SA 19,150 1,521,391
Havas SA 2,100 194,643
Imetal SA 600 60,121
LVMH (Louis Vuitton Moet Hennessy) 2,100 415,589
L'Oreal SA 1,700 1,228,908
Lafarge SA (Ordinary) 2,500 237,533
Lagardere SCA 3,200 135,989
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
Legrand SA 650 172,249
PSA Peugeot Citroen 1,300 201,210
Pathe 400 111,654
Pernod Ricard 1,700 110,419
Pinault-Printemps-Redoute SA 2,700 515,970
Promodes 550 399,950
Rallye, 3% due 1/01/2003 (Convertible) Frf 537 39,876
Rallye, 4.50% due 1/01/2005 (Convertible) Frf 537 62,552
Rhone-Poulenc SA 8,850 455,430
SEITA 1,750 109,596
Sagem SA 120 79,446
Sanofi SA 2,750 452,699
Schneider SA 3,800 230,501
Sidel SA 1,050 89,055
Societe BIC SA 1,550 85,977
Societe Generale (Class A) 2,450 396,738
Sodexho Alliance 800 178,932
Suez Lyonnaise des Eaux 2,850 585,431
Thomson-CSF SA 3,000 128,831
Total SA (Class B) 5,950 602,591
Usinor SA 6,600 73,278
Valeo SA 1,800 141,843
Vivendi 3,200 830,247
--------------------------------------------------------------------------------
Total Investments in France (Cost -- $11,078,588) -- 10.4% 15,783,986
<CAPTION>
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Germany AMB Aachener & Muenchener
Beteiligungs AG 1,250 183,824
Adidas-Salomon AG 1,400 152,101
Allianz AG 6,450 2,365,516
Axa Colonia Konzern AG 1,050 119,118
BASF AG 18,350 700,516
Bayer AG 20,850 870,419
Beiersdorf AG 3,450 238,145
Buderus AG 240 87,443
Continental AG 4,500 124,250
DaimlerChrysler AG (a) 19,313 1,906,907
Degussa AG 3,100 170,351
Deutsche Bank AG 14,650 862,204
Deutsche Lufthansa AG 11,850 261,753
Deutsche Telekom AG 64,000 2,105,162
Dresdner Bank AG 13,850 581,933
Friedrich Grohe AG (Preferred) 300 79,232
Heidelberger Zement AG 2,000 156,062
Hochtief AG 3,150 122,899
HypoVereinsbank 15,287 1,197,451
Karstadt AG 410 214,106
Linde AG 350 215,336
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
MAN AG 410 120,588
Mannesmann AG 10,800 1,238,175
Merck KGaA 6,400 288,115
Metro AG 6,700 534,874
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) 2,250 1,089,886
Preussag AG 500 225,990
RWE AG 9,250 506,640
RWE AG (Preferred) 5,050 184,298
SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung) 1,775 767,107
SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung) (Preferred) 1,000 477,311
SGL Carbon AG 800 48,019
Schering AG 2,350 295,161
Siemens AG 15,700 1,013,055
Thyssen AG 1,200 222,641
VEBA AG 13,600 813,878
Viag AG 750 439,826
Volkswagen AG 8,200 654,622
Volkswagen AG (Preferred) 2,200 109,604
--------------------------------------------------------------------------------
Total Investments in Germany (Cost -- $16,737,607) -- 14.3% 21,744,518
<CAPTION>
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Hong Kong CLP Holdings Limited 27,000 134,531
Cheung Kong (Holdings) Ltd. 36,000 259,071
Hang Seng Bank Limited 21,200 189,508
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
Hong Kong Telecommunications Ltd. 123,400 215,837
Hutchison Whampoa Limited 40,000 282,694
Sun Hung Kai Properties Ltd. 32,000 233,384
--------------------------------------------------------------------------------
Total Investments in Hong Kong (Cost -- $1,359,928) -- 0.9% 1,315,025
<CAPTION>
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Ireland Allied Irish Banks PLC 23,100 412,893
CRH PLC 14,000 241,294
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
Greencore Group PLC 29,000 133,573
Jefferson Smurfit Group PLC 42,000 75,508
--------------------------------------------------------------------------------
Total Investments in Ireland (Cost -- $612,568) -- 0.6% 863,268
=====================================================================================================
Italy Assicurazioni Generali 35,400 1,477,677
Banca Commerciale Italiana 75,400 520,000
Banca Popolare di Milano (BPM) 13,000 117,967
Banka Intesa SpA 33,100 198,540
Benetton Group SpA 95,400 192,185
Bulgari SpA 13,300 79,253
Burgo (Cartiere) SpA 12,600 81,027
ENI SpA 322,800 2,109,038
Edison SpA 30,900 363,865
Fiat SpA 153,600 533,372
Fiat SpA (Preferred) 51,000 98,267
Fiat SpA (RNC) 42,200 84,247
Istituto Bancario San Paolo di Torino 61,765 1,091,070
Istituto Nazionale delle Assicurazioni (INA) 175,600 463,699
Italcementi SpA 9,700 106,800
<CAPTION>
================================================================================
Shares Held/ Value
Investments Face Amount (Note 1a)
================================================================================
<S> <C> <C> <C>
Italgas SpA 37,200 201,303
Mediaset SpA 50,200 406,945
Mediobanca SpA 22,300 309,610
Montedison SpA (a) 218,700 290,409
Olivetti SpA 126,700 440,729
Parmalat Finanziaria SpA 81,000 154,846
Pirelli SpA 78,100 250,175
Riunione Adriatica di Sicurta SpA 16,300 236,168
Sirti SpA 22,400 135,105
Telecom Italia Mobile (TIM) SpA 66,800 314,400
Telecom Italia Mobile (TIM) SpA 267,200 1,972,075
Telecom Italia SpA 38,500 242,226
Telecom Italia SpA 148,500 1,266,697
Unicredito Italiano SpA 108,200 641,149
Unione Immobiliare SpA (a) 175,600 91,571
--------------------------------------------------------------------------------
Total Investments in Italy (Cost -- $8,570,924) -- 9.5% 14,470,415
=====================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Japan The 77 Bank, Ltd. 12,000 $ 120,266
Acom Co., Ltd. 5,100 328,390
Advantest Corporation 2,800 177,809
Ajinomoto Co., Inc. 25,000 266,075
Alps Electric Co., Ltd. 5,000 92,018
Aoyamma Trading Co., Ltd. 4,400 123,317
The Asahi Bank, Ltd. 85,000 312,106
Asahi Breweries Limited 12,000 177,206
Asahi Chemical Industry Co., Ltd. 55,000 262,927
Asahi Glass Company, Limited 35,000 217,605
Autobacs Seven Co., Ltd. 1,300 43,814
Bank of Tokyo-Mitsubishi, Ltd. 148,000 1,535,787
The Bank of Yokohama, Ltd. 38,000 91,335
Bridgestone Corporation 25,000 568,736
CSK CORPORATION 1,300 29,978
Canon, Inc. 28,000 599,734
Casio Computer Co., Ltd. 10,000 73,969
The Chiba Bank Ltd. 30,000 119,468
Chugai Pharmaceutical Co., Ltd. 24,000 240,532
Citizen Watch Co. 17,000 102,528
Cosmo Oil Co., Ltd. 48,000 72,798
Credit Saison Co., Ltd. 3,800 93,863
Dai Nippon Printing Co., Ltd. 22,000 351,610
The Daiei, Inc. 20,000 54,457
The Daimaru, Inc. 22,000 66,341
Dainippon Ink and Chemicals, Inc. 36,000 98,661
Dainippon Screen Mfg. Co., Ltd. 5,000 12,506
Daiwa House Industry Co., Ltd. 19,000 202,723
Daiwa Securities Co. Ltd. 53,000 181,446
Denso Corporation 10,000 185,366
East Japan Railway Company 115 643,592
Ebara Corporation 15,000 129,446
Eisai Company, Ltd. 10,000 195,122
Fanuc Ltd. 7,600 260,860
The Fuji Bank, Limited 94,000 346,820
Fuji Photo Film 15,000 558,758
Fujikura Ltd. 7,000 37,623
Fujita Kanko Inc. 1,000 8,896
Fujitsu Limited 61,000 814,235
The Gunma Bank Ltd. 12,000 95,468
Hankyu Department Stores, Inc. 2,000 13,144
Hirose Electric Co. Ltd. 1,300 91,202
Hitachi Ltd. 116,000 720,177
Honda Motor Co., Ltd. 30,000 987,140
Hoya Corporation 2,000 97,561
The Industrial Bank of Japan, Limited 72,000 332,701
Isetan Company Ltd. 7,000 75,246
Ito-Yokado Co., Ltd. 10,000 700,665
Itochu Corporation 59,000 114,075
JUSCO Co., Ltd. 12,000 243,193
Japan Airlines Company, Ltd. (JAL) 55,000 145,366
Japan Energy Corp. 72,000 68,328
The Joyo Bank, Ltd. 30,000 117,605
KOKUYO CO., LTD 5,000 67,450
Kajima Corporation 78,000 204,080
Kaneka Corporation 24,000 180,293
Kansai Electric Power Company, Inc. 30,000 658,537
Kao Corporation 20,000 452,328
Kawasaki Heavy Industries Ltd. 66,000 155,122
Kawasaki Steel Corporation 158,000 236,825
Keihin Electric Express Railway Co., Ltd. 50,000 157,428
Kinden Corporation 21,000 319,982
Kirin Brewery Company, Ltd. 40,000 510,865
Komatsu Ltd. 36,000 189,339
Konami Co., Ltd. 1,300 37,703
Kubota Corp. 57,000 170,368
Kurita Water Industries Ltd. 2,000 29,410
Kyocera Corporation 6,700 354,758
Lion Corporation 66,000 275,707
Marubeni Corporation 94,000 161,738
Marui Co., Ltd. 12,000 231,486
Matsushita Electric Industrial Company, Ltd. 68,000 1,205,605
Minebea Co., Ltd. 10,000 114,767
Mitsubishi Chemical Corporation 72,000 151,982
Mitsubishi Corporation 45,000 259,424
Mitsubishi Electric Corporation (a) 97,000 305,410
Mitsubishi Estate Company Limited 39,000 350,395
Mitsubishi Heavy Industries, Ltd. 118,000 460,488
Mitsubishi Logistics Corp. 3,000 35,122
Mitsubishi Materials Corporation 63,000 106,164
Mitsubishi Trust & Banking Corp. 33,000 212,780
Mitsui & Co., Ltd. 52,000 291,016
Mitsui Fudosan Co., Ltd. 19,000 144,080
Mitsui Marine and Fire Insurance Company, Ltd. 35,000 184,701
Mitsui Mining & Smelting Co., Ltd. 12,000 59,282
Mitsui O.S.K. Lines 53,000 85,552
The Mitsui Trust & Banking Co., Ltd. 52,000 59,494
Mitsukoshi, Ltd. 11,000 29,268
Murata Manufacturing Co., Ltd. 7,000 291,175
Mycal Corporation 15,000 89,667
NAMCO LTD 1,300 26,173
NEC Corporation 50,000 461,197
NKK Corporation 174,000 118,829
NSK Limited 24,000 89,827
Nankai Electric Railway Co., Ltd. 50,000 252,328
The Nichido Fire & Marine Insurance Co., Ltd. 15,000 73,836
Nikon Corporation 10,000 97,561
Nippon COMSYS Corporation 5,000 68,248
Nippon Express Co., Ltd. 64,000 361,011
The Nippon Fire & Marine Insurance Co., Ltd. 14,000 51,654
Nippon Light Metal Co., Ltd. 48,000 50,235
Nippon Oil Co. (a) 44,000 153,756
Nippon Paper Industries Co. 30,000 136,763
Nippon Steel Corporation 291,000 529,091
Nippon Telegraph & Telephone Corporation (NTT) 437 3,379,726
Nippon Yusen Kabushiki Kaisha 45,000 142,483
Nissan Motor Co., Ltd. 83,000 254,705
Nissin Food Products 3,000 75,698
Nomura Securities Co., Ltd. 63,000 550,377
Noritake Co., Ltd. 2,000 10,359
Obayashi Corporation 19,000 91,335
Oji Paper Co., Ltd. 41,000 213,455
Omron Corporation 7,000 96,106
Orix Corporation 2,000 149,712
Osaka Gas Co. 72,000 248,408
Pioneer Electronic Corporation 5,000 84,035
Rohm Company Ltd. 3,000 273,792
SHIMANO INC 5,000 129,268
SMC Corporation 2,000 160,000
The Sakura Bank, Ltd. 127,000 291,734
Sankyo Company, Ltd. 15,000 328,603
Sanyo Electric Co., Ltd. 87,000 270,067
Secom Co., Ltd. 3,000 249,047
Sega Enterprises Ltd. 3,800 84,426
Seino Transportation Co., Ltd. 19,000 108,860
Sekisui Chemical Co., Ltd. 16,000 107,849
Sekisui House, Ltd. 24,000 254,368
Sharp Corporation 38,000 343,432
Shimizu Corporation 73,000 245,384
Shin-Etsu Chemical Co., Ltd. 12,000 289,490
Shiseido Company, Limited 14,000 180,293
The Shizuoka Bank, Ltd. 20,000 247,450
Sony Corporation 13,300 970,812
Sumitomo Bank, Ltd. 95,000 977,384
Sumitomo Chemical Co., Ltd. 81,000 316,098
Sumitomo Corporation 33,000 160,976
Sumitomo Electric Industries 28,000 315,636
Sumitomo Heavy Industries, Ltd. 24,000 50,235
The Sumitomo Marine & Fire Insurance Co., Ltd. 22,000 139,707
Sumitomo Metal Industries Ltd. 83,000 94,962
Taisho Pharmaceutical Company, Ltd. 8,000 220,665
Taiyo Yuden Co., Ltd. 2,000 23,734
Takara Shuzo Co., Ltd. 2,000 11,938
Takashimaya Co., Ltd. 11,000 92,780
Takeda Chemical Industries 26,000 1,003,104
Toho Co., Ltd. 1,300 178,483
Tohoku Electric Power Co., Inc. 28,900 512,639
The Tokai Bank Ltd. 63,000 298,377
Tokio Marine & Fire Insurance Co., Ltd. 33,000 395,122
Tokyo Broadcasting System, Inc. 5,000 56,009
Tokyo Dome Corporation 3,000 16,018
Tokyo Electric Power (a) 51,800 1,281,792
Tokyo Electron Limited 3,000 114,146
Tokyo Gas Co. 130,000 342,439
Tokyu Corporation 31,000 81,659
Toppan Printing Co., Ltd. 22,000 269,268
Toray Industries, Inc. 50,000 261,641
Tostem Corporation 8,000 158,936
Toto Limited 10,000 80,443
Toyo Seikan Kaisha, Ltd. 7,000 119,078
Toyoda Automatic Loom Works, Ltd. 10,000 177,295
Toyota Motor Corporation 120,000 3,267,406
Uny Co., Ltd. 6,000 109,889
Wacoal Corp. 15,000 193,304
The Yamaguchi Bank, Ltd. 7,000 66,182
Yamaha Corporation 7,000 72,639
Yamanouchi Pharmaceutical Co., Ltd. 15,000 484,257
Yamato Transport Co., Ltd. 15,000 210,200
Yamazaki Baking Co., Ltd. 10,000 130,643
The Yasuda Trust & Banking Co., Ltd. (a) 36,000 27,778
Yokogawa Electric Corporation 14,000 69,534
--------------------------------------------------------------------------------
Total Investments in Japan (Cost -- $50,716,114) -- 31.1% 47,114,564
=====================================================================================================
</TABLE>
14 & 15
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (continued)
================================================================================
Shares Value
COUNTRY Investments Held (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Netherlands ABN AMRO Holding N.V 14,700 $ 309,103
Akzo Nobel N.V 4,200 191,163
Elsevier NV 8,900 124,605
Heineken N.V 4,950 297,764
ING Groep N.V 9,300 566,862
KPN N.V 6,300 315,252
Koninklijke Ahold N.V 6,300 232,750
Koninklijke (Royal) Philips Electronics N.V 3,800 254,884
Royal Dutch Petroleum Company 19,200 955,656
TNT Post Group N.V 6,300 202,901
Unilever N.V 6,500 555,363
Wolters Kluwer N.V 900 192,505
--------------------------------------------------------------------------------
Total Investments in the Netherlands (Cost -- $3,060,908) -- 2.8% 4,198,808
=====================================================================================================
New Zealand Brierley Investments Limited 138,800 31,501
Carter Holt Harvey Limited 89,000 79,856
Fletcher Challenge Building 34,900 53,971
Fletcher Challenge Energy 13,000 24,701
Fletcher Challenge Paper 50,300 33,716
Lion Nathan Limited 24,700 62,967
Telecom Corporation of New Zealand Limited 86,900 378,393
--------------------------------------------------------------------------------
Total Investments in New Zealand (Cost -- $846,392) -- 0.4% 665,105
=====================================================================================================
Norway Christiania Bank Og Kreditkasse 31,700 109,877
Den Norske Bank ASA 36,535 126,156
Dyno Industrier ASA (OSLO) 7,200 106,821
Elkem ASA 5,600 66,907
Kvaerner PLC 2,700 53,174
Merkantildata ASA 5,893 58,029
NCL Holdings (a) 11,902 28,128
Norsk Hydro ASA 12,867 434,165
Orkla ASA 6,900 102,823
Petroleum Geo-Services (a) 3,700 47,121
Storebrand ASA (a) 15,200 114,751
Tomra Systems ASA 2,779 91,216
--------------------------------------------------------------------------------
Total Investments in Norway (Cost -- $1,593,551) -- 0.9% 1,339,168
=====================================================================================================
Portugal Banco Comercial Portugues, S.A. (BCP) 6,500 199,839
Banco Espirito Santo e Comercial de Lisboa, S.A 4,950 153,635
Cimpor-Cimentos de Portugal, SGPS, S.A 3,750 119,707
EDP-- Electricidade de Portugal, S.A 13,200 290,627
Jeronimo Martins, SGPS, S.A 2,400 131,295
Portugal Telecom S.A 6,000 275,101
--------------------------------------------------------------------------------
Total Investments in Portugal (Cost -- $1,126,715) -- 0.8% 1,170,204
=====================================================================================================
Singapore City Developments Limited 16,900 73,300
Creative Technology (a) 1,600 22,615
DBS Land Limited 91,300 134,582
Keppel Corporation Ltd. 93,000 249,354
Oversea-Chinese Banking Corporation Ltd. 'Foreign' (a) 51,600 350,573
Singapore Airlines Ltd. 'Foreign' 26,200 192,308
Singapore Telecommunications Limited 126,000 192,611
United Overseas Bank Ltd. 'Foreign' 33,000 212,193
--------------------------------------------------------------------------------
Total Investments in Singapore (Cost -- $1,096,990) -- 0.9% 1,427,536
=====================================================================================================
Spain Acerinox, S.A 2,500 58,158
Argentina, Caja Postal y Banco Hipotecario
de Espana, S.A 13,200 341,451
Autopistas, Concesionari Espanola S.A 9,800 162,793
Banco Bilbao Vizcaya, S.A 48,900 774,442
Banco Central Hispanoamericano (BCH) 25,800 305,997
Banco Santander, S.A 23,800 472,415
Corporacion Financiera Alba, S.A 700 116,773
Endesa, S.A 25,300 669,585
Fomento de Construcciones y Contratas, S.A 2,400 178,222
Gas Natural SDG, S.A. (Class E) 4,000 433,589
Iberdrola, S.A 22,800 426,086
Repsol, S.A. (a) 8,400 447,582
Tabacalera, S.A. (Class A) 6,000 153,516
Telefonica, S.A 23,600 1,048,188
Telefonica, S.A. (Rights) (b) 23,600 20,931
Union Electrica Fenosa, S.A 9,700 168,984
--------------------------------------------------------------------------------
Total Investments in Spain (Cost -- $3,352,028) -- 3.8% 5,778,712
=====================================================================================================
Sweden ABB AB (A Shares) 11,900 127,335
Astra AB (A Shares) 18,300 374,657
Drott AB (B Shares) (a) 2,700 24,883
Electrolux AB 7,300 125,974
Hennes & Mauritz AB (H&M) (B Shares) 3,200 262,055
Skandia Forsakrings AB 9,100 139,588
Skandinaviska Enskilda Banken (S E B) (Class A) 8,400 88,844
Skanska AB (B Shares) 2,700 75,150
Svenska Cellulosa AB (B Shares) 4,800 105,099
Svenska Handelsbanken (A Shares) 3,400 143,843
Telefonaktiebolaget LM Ericsson (Class B) 24,900 594,485
Volvo AB (B Shares) 5,200 119,647
--------------------------------------------------------------------------------
Total Investments in Sweden (Cost -- $1,692,199) -- 1.4% 2,181,560
=====================================================================================================
Switzerland ABB AG (Bearer) 105 123,169
Credit Suisse Group (Registered) 1,740 272,568
Nestle SA (Registered Shares) 235 511,949
Novartis AG (Registered Shares) 360 708,197
Roche Holding AG 44 537,297
Schweizerische Rueckversicherungs-
Gesellschaft (Swiss Re) (Registered) 105 273,956
Swisscom AG (Registered) (a) 400 167,577
UBS AG 1,295 398,171
Zurich Allied AG 390 288,984
--------------------------------------------------------------------------------
Total Investments in Switzerland (Cost -- $2,241,285) -- 2.2% 3,281,868
=====================================================================================================
United Kingdom Abbey National PLC 14,300 306,079
Allied Zurich PLC (a) 16,150 240,792
BG PLC 41,700 263,015
BTR PLC 42,968 88,611
Barclays PLC 14,700 316,841
Bass PLC 11,996 174,567
The Boots Company PLC 13,700 233,199
British Aerospace PLC 18,700 158,454
British Airways PLC 15,200 102,444
British American Tobacco PLC (a) 16,150 141,950
British Petroleum Company PLC 53,100 792,588
British Sky Broadcasting Group PLC ("BSkyB") (a) 20,200 153,359
British Telecommunications PLC 61,600 927,657
Burmah Castrol PLC 12,500 178,783
Cable & Wireless PLC 25,900 318,319
Cadbury Schweppes PLC 15,700 267,634
Carlton Communications PLC 20,200 185,778
Diageo PLC 25,837 293,912
EMI Group PLC 15,300 102,291
General Electric Company PLC 34,100 307,661
Glaxo Wellcome PLC 33,000 1,134,966
Granada Group PLC 11,800 208,511
The Great University Stores PLC 13,400 141,179
HSBC Holdings PLC 17,000 429,745
HSBC Holdings PLC 8,700 235,844
Imperial Chemical Industries PLC 10,400 90,113
J Sainsbury PLC 22,200 177,866
Kingfisher PLC 19,000 205,551
Lloyds TSB Group PLC 49,400 702,444
Lucas Varity PLC 26,900 89,698
Marks & Spencer PLC 30,600 209,798
National Grid Group PLC 24,825 198,072
National Power PLC 15,200 130,946
Pearson PLC 9,100 180,551
Peninsular and Oriental Stream Navigation Company 13,900 164,247
Prudential Corporation PLC 20,400 307,890
Railtrack Group PLC 7,900 206,406
Rank Group PLC 22,900 88,167
Reed International PLC 15,000 117,249
Reuters Group PLC 19,406 203,650
Rio Tinto PLC (Registered) 13,300 154,613
Royal Bank of Scotland Group PLC 10,500 167,641
Royal & Sun Alliance Insurance Group PLC 18,100 147,726
Scottish & Newcastle PLC 13,500 151,999
Scottish Power PLC 18,100 185,881
SmithKline Beecham PLC 52,000 726,442
Tesco PLC 75,616 215,359
Unilever PLC 33,900 379,995
Vodafone Group PLC 33,000 535,651
Zeneca Group PLC 9,800 426,529
--------------------------------------------------------------------------------
Total Investments in the United Kingdom
(Cost -- $10,965,974) -- 9.2% 13,868,663
=====================================================================================================
</TABLE>
16 & 17
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Merrill Lynch International Index Series (concluded)
================================================================================
SHORT-TERM Face Value
SECURITIES Amount Issue (Note 1a)
=====================================================================================================
<S> <C> <C> <C>
Commercial $2,000,000 Delaware Funding Corp., 5.60% due 1/05/1999 $ 1,998,756
Paper* 1,254,000 General Motors Acceptance Corp., 5.13% due 1/04/1999 1,253,464
--------------------------------------------------------------------------------
Total Investments in Commercial Paper
(Cost-- $3,252,220)-- 2.1% 3,252,220
=====================================================================================================
US Government Federal Home Loan Mortgage Corporation (c): 198,367
Agency Obligations* 200,000 4.90% due 3/02/1999
200,000 4.86% due 4/06/1999 197,435
200,000 Federal National Mortgage Association,
4.89% due 2/05/1999 (c) 199,049
--------------------------------------------------------------------------------
Total Investments in US Government Agency Obligations
(Cost-- $594,851) -- 0.4% 594,851
=====================================================================================================
Total Investments in Short-Term Securities
(Cost -- $3,847,071) -- 2.5% 3,847,071
=====================================================================================================
Total Investments (Cost -- $128,724,987) -- 99.5% 150,816,858
Unrealized Appreciation on Forward Foreign Exchange
Contracts -- Net** -- 0.0% 13,763
Variation Margin on Financial Futures Contracts*** -- 0.0% 15,833
Other Assets Less Liabilities -- 0.5% 673,781
-------------
Net Assets -- 100.0% $ 151,520,235
=============
=====================================================================================================
</TABLE>
(a) Non-income producing security.
(b) The rights may be exercised until March 30, 1999.
(c) Security held as collateral in connection with open
financial futures contracts.
* Commercial Paper and certain US Government Agency
Obligations are traded on a discount basis; the interest
rates shown reflect the discount rates paid at the time of
purchase by the Series.
** Forward foreign exchange contracts as of December 31, 1998
were as follows:
- --------------------------------------------------------------------------------
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1b)
- --------------------------------------------------------------------------------
A$ 1,900,000 January 1999 $ 5,643
DM 2,968,340 January 1999 6,516
Frf 1,750,000 January 1999 1,735
HK$ 9,200,000 January 1999 (207)
GBP 360,000 January 1999 (3,985)
Lit 350,000,000 January 1999 560
Pta 90,000,000 January 1999 2,200
Skr 650,000 January 1999 (361)
(Y) 6,685,500 January 1999 1,662
- --------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts -- Net
(US$ Commitment -- $6,021,060) $13,763
=======
- --------------------------------------------------------------------------------
*** Financial futures contracts purchased as of December 31,
1998 were as follows:
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
18 Hang Seng HKFE January 1999 $1,175,696
8 IBEX 35 MEFF January 1999 558,305
10 OMX OMLX January 1999 87,273
6 DTB DAX March 1999 1,823,770
6 FTSE LIFFE March 1999 585,544
9 CAC MATIF March 1999 317,529
1 MIB 30 MSE March 1999 214,211
3 Nikkei 300 OSAKA March 1999 57,100
29 All Ordinaries SFE March 1999 1,272,567
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price -- $5,859,092) $6,091,995
==========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES As of December 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $128,724,987) (Note 1a) ...... $ 150,816,858
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 13,763
Foreign cash (Note 1c) ................................................. 101,165
Receivables:
Dividends ............................................................ $ 368,917
Contributions ........................................................ 356,519
Securities sold ...................................................... 171,749
Variation margin (Note 1b) ........................................... 15,833 913,018
----------
Deferred organization expenses (Note 1f) ............................... 8,536
Other assets ........................................................... 34,225
-------------
Total assets ........................................................... 151,887,565
-------------
====================================================================================================================================
Liabilities: Payables:
Withdrawals .......................................................... 174,489
Custodian bank ....................................................... 97,836
Investment adviser (Note 2) .......................................... 13,554 285,879
----------
Accrued expenses and other liabilities ................................. 81,451
-------------
Total liabilities ...................................................... 367,330
-------------
====================================================================================================================================
Net Assets: Net assets ............................................................. $151,520,235
=============
====================================================================================================================================
Net Assets Partners' capital ...................................................... $129,166,792
Consist of: Unrealized appreciation on investments and foreign currency
transactions -- net .................................................. 22,353,443
-------------
Net assets ............................................................. $ 151,520,235
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES For the Year Ended December 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends (net of $249,645 foreign withholding tax) .................... $ 1,955,714
(Notes 1d & 1e): Interest and discount earned ........................................... 531,070
-------------
Total income ........................................................... 2,486,784
-------------
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ...................................... $ 142,489
Custodian fees ......................................................... 126,249
Accounting services (Note 2) ........................................... 50,646
Professional fees ...................................................... 42,091
Pricing fees ........................................................... 17,516
Amortization of organization expenses (Note 1f) ........................ 2,627
Trustees' fees and expenses ............................................ 1,650
Other .................................................................. 39,660
------------
Total expenses before reimbursement .................................... 422,928
Reimbursement of expenses (Note 2) ..................................... (87,182)
------------
Total expenses ......................................................... 335,746
-------------
Investment income -- net ............................................... 2,151,038
-------------
====================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net ................................................... 11,510,481
(Loss) on Foreign currency transactions -- net ................................. (105,068) 11,405,413
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net ................................................... 21,790,345
(Notes 1b, 1c, Foreign currency transactions -- net ................................. 146,491 21,936,836
1e & 3): ------------ -------------
Net realized and unrealized gain on investments and foreign currency
transactions ......................................................... 33,342,249
-------------
Net Increase in Net Assets Resulting from Operations ................... $ 35,493,287
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the For the Period
INTERNATIONAL Year Ended April 9, 1997+ to
INDEX SERIES Increase (Decrease) in Net Assets: Dec. 31, 1998 Dec. 31, 1997
====================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net ............................................... $ 2,151,038 $ 1,808,888
Realized gain on investments and foreign currency transactions -- net .. 11,405,413 1,690,155
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions -- net ................................. 21,936,836 416,607
------------ -------------
Net increase in net assets resulting from operations ................... 35,493,287 3,915,650
------------ -------------
====================================================================================================================================
Net Capital Increase (decrease) in net assets derived from net capital contributions (27,390,852) 139,502,150
Contributions: ------------ -------------
====================================================================================================================================
Net Assets: Total increase in net assets ........................................... 8,102,435 143,417,800
Beginning of period .................................................... 143,417,800 --
------------ -------------
End of period .......................................................... $151,520,235 $ 143,417,800
============ =============
====================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MERRILL LYNCH For the For the Period
INTERNATIONAL 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 ......................................... .26% .33%*
Net Assets: ============ ===========
Expenses ............................................................... .33% .36%*
============ ===========
Investment income -- net ............................................... 1.66% 1.99%*
============ ===========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............................... $ 151,520 $ 143,418
Data: ============ ===========
Portfolio turnover ..................................................... 34.63% 14.79%
============ ===========
====================================================================================================================================
</TABLE>
+ Commencement of operations.
* Annualized.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES
1. Significant Accounting Policies:
Merrill Lynch International Index Series (the "Series") is part of Merrill Lynch
Index Trust (the "Trust"). The Trust is registered under the Investment Company
Act of 1940 and is organized as a Delaware business trust. The 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. Portfolio securities which are traded both in the
20 & 21
<PAGE>
Merrill Lynch International Index Fund, December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
INTERNATIONAL
INDEX SERIES
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.
o Forward foreign exchange contracts -- The Series is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Series' records. However, the effect on operations is recorded from the date the
Series enters into such contracts.
o Foreign currency options and futures -- The Series may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Series, sold by the Series but not yet delivered, or committed or anticipated to
be purchased by the Series.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income-Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends from
foreign securities where the ex-dividend date may have passed are subsequently
recorded when the Series has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Deferred organization expenses -- Deferred organization expenses are charged
to expense on a straight-line basis over a 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 0.11% of the average daily value of the Series' net
assets. For the year ended December 31, 1998, MLAM earned fees of $142,489, of
which $87,182 was voluntarily waived.
Accounting services are provided to the Series by MLAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
MLAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1998 were $42,102,483 and $53,958,132, respectively.
Net realized gains (losses) for the year ended December 31, 1998 and net
unrealized gains as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Investments:
Long-term .............................. $ 7,771,598 $22,091,871
Short-term ............................. (131) --
Financial futures contracts ............ 3,739,014 232,903
------------ -----------
Total investments ........................ 11,510,481 22,324,774
------------ -----------
Currency transactions:
Foreign currency transactions .......... 360,759 14,906
Forward foreign exchange contracts ..... (465,827) 13,763
------------ -----------
Total currency transactions .............. (105,068) 28,669
------------ -----------
Total .................................... $ 11,405,413 $22,353,443
============ ===========
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $21,930,260, of which $31,200,105 related to appreciated
securities and $9,269,845 related to depreciated securities. At December 31,
1998, the aggregate cost of investments for Federal income tax purposes was
$128,886,598.
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 International 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
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 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
International 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
22 & 23
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011 Index 2 -- 12/98
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