MERRILL LYNCH
AGGREGATE BOND
INDEX FUND
Merrill Lynch
Index Funds, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 2000
<PAGE>
Merrill Lynch Aggregate Bond Index Fund
Officers and Directors
Terry K. Glenn, President and Director
M. Colyer Crum, Director
Laurie Simon Hodricks, Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Fred G. Weiss, Director
Arthur Zeikel, Director
Christopher G. Ayoub, Senior Vice President
Robert C. Doll, Jr., Senior Vice President
Gregory Mark Maunz, Senior Vice President
Eric S. Mitofsky, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Jeffrey B. Hewson, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
Merrill Lynch Trust Company
800 Scudders Mill Road
Plainsboro, NJ 08536
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
DEAR SHAREHOLDER
The primary investment objective of Merrill Lynch Aggregate Bond Index Fund is
to seek to provide investment returns, that, before expenses replicate the total
return of the unmanaged Lehman Brothers Aggregate Bond Index. The Lehman
Brothers Aggregate Bond Index is highly recognized and widely used as a
performance benchmark in the high-quality fixed-income market. For the six
months ended June 30, 2000, the Fund's Class A and Class D Shares had total
returns of +3.89% and +3.66%, respectively. This compares to the total return of
+3.99% for the unmanaged Lehman Brothers Aggregate Bond Index for the same
period. (Complete performance information can be found on page 3 of this report
to shareholders.)
As of June 30, 2000, the Index was comprised of 5,632 securities. Of this
amount, 1,015 represented US Government and Government agency securities, 3,706
were investment-grade corporate securities and 911 were mortgage-backed
securities (MBS) and asset-backed securities. These three sectors represented
39.45%, 23.20% and 37.35%, respectively, in the Index. For the Government and
Government agency sector this represented a decline from 41.61% at the beginning
of the year as budget surpluses reduced the need for Government financing.
Consequently, the corporate bond and mortgage sectors were increased by 1.75%
and 0.41%, respectively.
The Fund invests all of its assets in Master Aggregate Bond Index Series, which
has the same investment objective as the Fund. The Series' assets are invested
and managed separately in the three sectors mentioned above. The Government and
agency and corporate sectors are managed similarly. In these sectors, we seek to
neutralize duration. Duration is a measurement of an anticipated price change of
a security (or group of securities) for a given change in interest rates.
Therefore, if the duration of each sector is identical to the duration in the
corresponding sector in the Index, the price movement of that sector should be
identical in the Series and in the Index. We also seek a sector match in the
composition of duration. That is, the exposure along the various points of the
yield curve needs to match in order to attain identical price change in the
event a change in the shape of the yield curve occurs. An additional exercise
takes place in the corporate sector of the Series. In order to further limit
tracking error, we seek to achieve subsector neutrality. We therefore look to
position the portfolio with a neutral industry exposure as well as identical
credit rating exposure.
The MBS sector is managed with a different approach. MBS are subject to
prepayments, which create an uncertainty in the timing of the underlying
cashflows. When interest rates rise, prepayments typically decline and the
result is relatively greater cashflows in the distant future and a longer
duration security. Also, prepayments typically rise as interest rates decline,
resulting in relatively greater cashflows in the near future and a shorter
duration security. Hence, MBS durations are not fixed and determinable, and are
mainly estimations. Accordingly, rather than relying on estimations of duration,
we seek to limit product variation. This entails having a neutral exposure to
mortgage coupon, mortgage type, and issuer.
In Conclusion
We appreciate your investment in Merrill Lynch Aggregate Bond Index Fund, and we
look forward to assisting you with your investment needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Christopher G. Ayoub
Christopher G. Ayoub
Senior Vice President and
Portfolio Manager
/s/ Gregory Mark Maunz
Gregory Mark Maunz
Senior Vice President and
Portfolio Manager
/s/ Jeffrey B. Hewson
Jeffrey B. Hewson
Vice President and
Portfolio Manager
August 7, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers two pricing alternatives:
o Class A Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible investors.
o Class D Shares do not incur a maximum initial sales charge or deferred
sales charge and bear no ongoing distribution fee. In addition, Class D
Shares are subject to an ongoing account maintenance fee of 0.25%.
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. Investment return
and principal value of shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders. The Fund's
Administrator voluntarily waived a portion of its administrative fee. Without
such waiver, the Fund's performance would have been lower.
Recent Performance Results
<TABLE>
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of June 30, 2000 Total Return Total Return Total Return 30-Day Yield
========================================================================================================
<S> <C> <C> <C> <C>
ML Aggregate Bond Index Fund Class A Shares* +3.89% +4.37% +21.82% 6.79%
--------------------------------------------------------------------------------------------------------
ML Aggregate Bond Index Fund Class D Shares* +3.66 +4.01 +20.84 6.55
--------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index** +3.99 +4.56 +23.18 --
========================================================================================================
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date. The Fund's inception
date is 4/03/97.
** This unmanaged market-weighted Index is comprised of investment-grade
corporate bonds (rated BBB or better), mortgages and US Treasury and
Government agency issues with at least one year to maturity. Since
inception total return is from 4/03/97.
Average Annual Total Return
% Return
================================================================================
Class A Shares
================================================================================
Year Ended 6/30/00 +4.37%
--------------------------------------------------------------------------------
Inception (4/03/97) through 6/30/00 +6.28
--------------------------------------------------------------------------------
% Return
================================================================================
Class D Shares
================================================================================
Year Ended 6/30/00 +4.01%
--------------------------------------------------------------------------------
Inception (4/03/97) through 6/30/00 +6.01
--------------------------------------------------------------------------------
2 & 3
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND As of June 30, 2000
=========================================================================================================
<S> <C> <C> <C>
Assets: Investment in Master Aggregate Bond Index Series, at value
(identified cost--$271,342,483) ........................... $ 261,637,899
Deferred organization expenses ............................ 5,092
Prepaid registration fees ................................. 8,800
-------------
Total assets .............................................. 261,651,791
-------------
=========================================================================================================
Liabilities: Payables:
Dividends to shareholders .............................. $ 448,729
Administrative fees .................................... 17,013
Distributor ............................................ 14,258 480,000
---------
Accrued expenses and other liabilities .................... 95,450
-------------
Total liabilities ......................................... 575,450
-------------
=========================================================================================================
Net Assets: Net assets ................................................ $ 261,076,341
=============
=========================================================================================================
Net Assets Class A Shares of Common Stock, $.0001 par value,
Consist of: 125,000,000 shares authorized ............................. $ 1,979
Class D Shares of Common Stock, $.0001 par value,
125,000,000 shares authorized ............................. 655
Paid-in capital in excess of par .......................... 279,451,061
Accumulated realized capital losses on investments
from the Series--net ...................................... (8,590,311)
Accumulated distributions in excess of realized
capital gains on investments from the Series--net ......... (82,459)
Unrealized depreciation on investments from the
Series--net ............................................... (9,704,584)
-------------
Net assets ................................................ $ 261,076,341
=============
=========================================================================================================
Net Asset Class A--Based on net assets of $196,154,545 and 19,790,972
Value: shares outstanding ........................................ $ 9.91
=============
Class D--Based on net assets of $64,921,796 and 6,548,381
shares outstanding ........................................ $ 9.91
=============
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MERRILL LYNCH
AGGREGATE BOND
INDEX FUND For the Six Months Ended June 30, 2000
=====================================================================================================================
<S> <C> <C> <C>
Investment Income: Investment income allocated from the Series ......................... $ 9,895,710
Expenses allocated from the Series .................................. (240,266)
-----------
Net investment income from the Series ............................... 9,655,444
-----------
=====================================================================================================================
Expenses: Administration fee .................................................. $ 271,827
Printing and shareholder reports .................................... 89,465
Account maintenance fee--Class D .................................... 87,688
Transfer agent fees ................................................. 51,313
Registration fees ................................................... 36,557
Professional fees ................................................... 17,130
Amortization of organization expenses ............................... 4,173
---------
Total expenses before reimbursement ................................. 558,153
Reimbursement of expenses ........................................... (129,379)
---------
Total expenses after reimbursement .................................. 428,774
-----------
Investment income--net .............................................. 9,226,670
-----------
=====================================================================================================================
Realized & Realized loss on investments from the Series--net ................... (7,817,026)
Unrealized Gain Change in unrealized depreciation on investments from
(Loss) from the the Series--net ..................................................... 8,188,486
Series--Net: -----------
Net Increase in Net Assets Resulting from Operations ................ $ 9,598,130
===========
=====================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MERRILL LYNCH For the Six For the
AGGREGATE BOND Months Ended Year Ended
INDEX FUND Increase (Decrease) in Net Assets: June 30, 2000 Dec. 31, 1999
=================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 9,226,670 $ 26,502,104
Realized loss on investments from the Series--net .............................. (7,817,026) (821,234)
Change in unrealized appreciation/depreciation on investments from the
Series--net .................................................................... 8,188,486 (32,395,278)
------------- -------------
Net increase (decrease) in net assets resulting from operations ................ 9,598,130 (6,714,408)
------------- -------------
=================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ..................................................................... (7,041,729) (21,683,176)
Shareholders: Class D ..................................................................... (2,184,941) (4,818,928)
In excess of realized gain on investments from the Series--net:
Class A ..................................................................... -- (66,954)
Class D ..................................................................... -- (15,505)
------------- -------------
Net decrease in net assets resulting from dividends and distributions to
shareholders ................................................................... (9,226,670) (26,584,563)
------------- -------------
=================================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital share transactions .. (143,292,143) 3,906,947
Transactions: ------------- -------------
=================================================================================================================================
Net Assets: Total decrease in net assets ................................................... (142,920,683) (29,392,024)
Beginning of period ............................................................ 403,997,024 433,389,048
------------- -------------
End of period .................................................................. $ 261,076,341 $ 403,997,024
============= =============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
4 & 5
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
For the Year
MERRILL LYNCH The following per share data and ratios have been derived For the Six Ended Dec. 31, For the Period
AGGREGATE BOND from information provided in the financial statements. Months Ended ------------------- April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: June 30, 2000 1999 1998 Dec. 31, 1997
====================================================================================================================================
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ...................... $ 9.85 $ 10.61 $ 10.42 $ 10.00
Operating --------- -------- -------- --------
Performance: Investment income--net .................................... .32 .62 .64 .48
Realized and unrealized gain (loss) on investments from the
Series--net ............................................... .06 (.76) .23 .45
--------- -------- -------- --------
Total from investment operations .......................... .38 (.14) .87 .93
--------- -------- -------- --------
Less dividends and distributions:
Investment income--net ................................. (.32) (.62) (.64) (.48)
Realized gain on investments from the Series--net ...... -- -- (.04) (.03)
In excess of realized gain on investments from
the Series--net ........................................ -- --++ -- --++
--------- -------- -------- --------
Total dividends and distributions ......................... (.32) (.62) (.68) (.51)
--------- -------- -------- --------
Net asset value, end of period ............................ $ 9.91 $ 9.85 $ 10.61 $ 10.42
========= ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ........................ 3.89%++++ (1.36%) 8.56% 9.49%++++
Return: ========= ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ ......................... .40%* .35% .35% .35%*
Net Assets: ========= ======== ======== ========
Expenses+++ ............................................... .49%* .37% .40% .52%*
========= ======== ======== ========
Investment income--net .................................... 6.46%* 6.06% 5.99% 6.22%*
========= ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) .................. $ 196,154 $324,254 $351,786 $251,140
Data: ========= ======== ======== ========
====================================================================================================================================
<CAPTION>
Class D
-----------------------------------------------------
For the Year
MERRILL LYNCH The following per share data and ratios have been derived For the Six Ended Dec. 31, For the Period
AGGREGATE BOND from information provided in the financial statements. Months Ended ------------------- April 3, 1997+ to
INDEX FUND Increase (Decrease) in Net Asset Value: June 30, 2000 1999 1998 Dec. 31, 1997
====================================================================================================================================
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ...................... $ 9.86 $ 10.61 $ 10.42 $ 10.00
Operating --------- -------- -------- --------
Performance: Investment income--net .................................... .30 .58 .61 .46
Realized and unrealized gain (loss) on investments from
the Series--net ........................................... .05 (.75) .23 .45
--------- -------- -------- --------
Total from investment operations .......................... .35 (.17) .84 .91
--------- -------- -------- --------
Less dividends and distributions:
Investment income--net ................................. (.30) (.58) (.61) (.46)
Realized gain on investments from the Series--net ...... -- -- (.04) (.03)
In excess of realized gain on investments from the
Series--net ............................................ -- --++ -- --++
--------- -------- -------- --------
Total dividends and distributions ......................... (.30) (.58) (.65) (.49)
--------- -------- -------- --------
Net asset value, end of period ............................ $ 9.91 $ 9.86 $ 10.61 $ 10.42
========= ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ........................ 3.66%++++ (1.50%) 8.29% 9.29%++++
Return: ========= ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ ......................... .65%* .60% .60% .60%*
Net Assets: ========= ======== ======== ========
Expenses+++ ............................................... .74%* .62% .65% .77%*
========= ======== ======== ========
Investment income--net .................................... 6.21%* 5.81% 5.75% 5.98%*
========= ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) .................. $ 64,922 $79,743 $ 81,603 $ 56,134
Data: ========= ======== ======== ========
====================================================================================================================================
</TABLE>
* Annualized.
+ Commencement of operations.
++ Amount is less than $.01 per share.
+++ Includes the Fund's share of the Series' allocated expenses.
++++ Aggregate total investment return.
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH AGGREGATE BOND INDEX FUND
1. Significant Accounting Policies:
Merrill Lynch Aggregate Bond Index Fund (the "Fund") is part of Merrill Lynch
Index Funds, Inc. (the "Corporation"). The Fund is registered under the
Investment Company Act of 1940 as a non-diversified mutual fund. The Fund seeks
to achieve its investment objective by investing all of its assets in the Master
Aggregate Bond Index Series (the "Series") of the Quantitative Master Series
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 accounting principles
generally accepted in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund offers two classes of shares, Class A
and Class D. Shares of Class A and Class D are sold without the imposition of a
front-end or deferred sales charge. Both classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class D Shares bear certain expenses related to the
account maintenance of such shares and have exclusive voting rights with respect
to matters relating to its account maintenance expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed in Note 1a of
the Series' Notes to Financial Statements, which are included elsewhere in this
report.
(b) Income--The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Series, less all actual and accrued
expenses of the Fund determined in accordance with accounting principles
generally accepted in the United States of America.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no Federal income tax provision is required.
(d) Prepaid registration fees and deferred organization expenses--Prepaid
registration fees are charged to expense as the related shares are issued.
Deferred organization expenses are charged to expense on a straight-line basis
over a period not exceeding five years.
(e) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for post-October losses.
(f) Investment transactions--Investment transactions are accounted for on a
trade date basis.
2. Transactions with Affiliates:
The Corporation has entered into an Administrative Services Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co.,
Incorporated ("ML & Co."), which is the limited partner. The Fund pays a monthly
fee at an annual rate of .19% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. For the six
months ended June 30, 2000, FAM earned fees of $271,827, of which $129,379 was
voluntarily waived.
The Corporation has also entered into a Distribution Agreement and Distribution
Plan with FAM Distributors, Inc., ("FAMD" or the "Distributor"), 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
.25% based upon the average daily net assets of Class D Shares.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account maintenance
services to Class D shareholders.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Series for the six
months ended June 30, 2000 were $13,155,140 and $157,308, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
were $(143,292,143) and $3,906,947 for the six months ended June 30, 2000 and
for the year ended December 31, 1999, respectively.
Transactions in capital shares for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 5,143,210 $ 50,577,577
Shares issued to shareholders
in reinvestment of dividends ........... 516,864 5,077,198
----------- -------------
Total issued ........................... 5,660,074 55,654,775
Shares redeemed ........................ (18,782,359) (183,780,560)
----------- -------------
Net decrease ........................... (13,122,285) $(128,125,785)
=========== =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 13,411,892 $ 138,448,898
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 1,890,860 19,194,348
----------- -------------
Total issued ........................... 15,302,752 157,643,246
Shares redeemed ........................ (15,554,608) (158,111,310)
----------- -------------
Net decrease ........................... (251,856) $ (468,064)
=========== =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 729,462 $ 7,183,977
Shares issued to shareholders
in reinvestment of dividends ........... 169,121 1,662,425
----------- -------------
Total issued ........................... 898,583 8,846,402
Shares redeemed ........................ (2,441,292) (24,012,760)
----------- -------------
Net decrease ........................... (1,542,709) $ (15,166,358)
=========== =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 3,428,567 $ 35,277,078
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 392,742 3,988,250
----------- -------------
Total issued ........................... 3,821,309 39,265,328
Shares redeemed ........................ (3,420,624) (34,890,317)
----------- -------------
Net increase ........................... 400,685 $ 4,375,011
=========== =============
--------------------------------------------------------------------------------
8 & 9
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Master Aggregate Bond Index Series
-------------------------------------------------------------------------------------------------------------
Face Interest Maturity
Issue Amount Rate Date(s) Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
US Government & Fannie Mae $ 1,200,000 5.625% 3/15/2001 $ 1,190,116
Agency Obligations-- 300,000 5.45 10/10/2003 285,561
39.6% 220,000 6.85 4/05/2004 218,535
1,100,000 7.125 3/15/2007 1,102,145
1,700,000 5.75 2/15/2008 1,562,642
=============================================================================================================
Financing Corp. 700,000 9.80 11/30/2017 882,546
=============================================================================================================
Freddie Mac 5,800,000 5.75 7/15/2003 5,601,524
1,300,000 7.18 6/27/2006 1,307,483
4,000,000 6.75 9/15/2029 3,825,016
=============================================================================================================
Tennessee Valley Authority, Series E 2,000,000 6.25 12/15/2017 1,812,500
=============================================================================================================
United States Treasury Bonds 800,000 8.75 11/15/2008 851,248
15,300,000 8.75 5/15/2017 19,270,809
5,000,000 6.375 8/15/2027 5,149,200
=============================================================================================================
United States Treasury Notes 4,200,000 5.25 5/31/2001 4,154,724
4,000,000 5.50 7/31/2001 3,959,360
4,900,000 5.50 8/31/2001 4,845,659
2,200,000 5.875 11/30/2001 2,182,114
13,000,000 6.50 5/31/2002 13,016,250
5,300,000 4.75 2/15/2004 5,039,134
2,700,000 5.875 2/15/2004 2,662,875
7,700,000 5.25 5/15/2004 7,429,268
2,000,000 6.00 8/15/2004 1,981,240
1,500,000 5.875 11/15/2004 1,478,205
4,600,000 5.875 11/15/2005 4,520,926
4,000,000 6.625 5/15/2007 4,083,760
3,300,000 6.125 8/15/2007 3,277,824
2,500,000 5.50 5/15/2009 2,392,175
====================================================================================================================================
Total Investments in US Government & Agency
Obligations (Cost--$106,978,937)--39.6% 104,082,839
====================================================================================================================================
US Government Agency Fannie Mae 1,144,770 5.50 6/01/2011-2/01/2014 1,062,418
Mortgage-Backed 4,016,274 6.00 2/01/2013-4/01/2014 3,803,520
Obligations*--33.7% 7,028,366 6.00 1/01/2026-3/01/2029 6,446,888
7,015 6.50(2) 10/01/2004 6,836
4,494,908 6.50 1/01/2013-8/01/2013 4,340,742
200,000 6.50 TBA(1) 192,437
12,830,365 6.50 12/01/2025-5/01/2029 12,110,682
5,467,295 7.00 4/01/2027-3/01/2030 5,284,864
2,096,203 7.50 10/01/2027-5/01/2030 2,068,757
200,000 8.00 6/01/2030 200,883
400,000 8.00 TBA(1) 401,437
=============================================================================================================
Freddie Mac--Gold Program 1,277,974 5.50 10/01/2013-1/01/2014 1,186,482
1,421,515 5.50 12/01/2028-2/01/2029 1,255,190
542,328 6.00 4/01/2013-8/01/2013 514,362
6,163,703 6.50 1/01/2026-7/01/2029 5,823,010
300,000 6.50 TBA(1) 282,937
2,596,158 7.00 1/01/2011-10/01/2014 2,552,916
8,368,261 7.00 9/01/2025-8/01/2029 8,096,652
200,000 7.00 TBA(1) 193,250
1,200,527 7.50 5/01/2007-5/01/2015 1,200,731
5,673,200 7.50 1/01/2023-4/01/2030 5,610,898
400,000 7.50 TBA(1) 394,375
2,844,764 8.00 6/01/2024-1/01/2028 2,865,194
474,618 8.50 5/01/2028-2/01/2029 484,657
631,244 9.50 2/01/2019 660,189
=============================================================================================================
Government National 1,655,453 6.00 4/20/2026-2/15/2029 1,524,834
Mortgage Association 172,757 6.50 2/15/2014 168,080
5,406,667 6.50 4/15/2026-7/15/2029 5,134,298
188,393 7.00 4/15/2013 186,707
6,162,380 7.00 7/15/2027-2/15/2029 5,996,201
4,312,222 7.50 3/15/2024-12/15/2029 4,288,581
2,685,138 8.00 12/15/2022-6/15/2030 2,719,768
200,000 8.00 TBA(1) 201,938
557,053 8.50 11/15/2017-4/15/2030 571,425
681,977 9.00 11/15/2016-11/15/2024 707,467
73,255 9.50 9/15/2021 76,525
====================================================================================================================================
Total US Government Agency Mortgage-Backed
Obligations (Cost--$91,795,904)--33.7% 88,616,131
====================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Master Aggregate Bond Index Series (continued)
---------------------------------------------------------------------------------------------------------------
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Banking--2.4% A Aa3 $ 1,000,000 BankAmerica Corporation, 6.875% due 6/01/2003 $ 981,510
A A1 1,000,000 Chase Manhattan Corporation, 9.75% due 11/01/2001 1,029,420
Citicorp:
A+ A1 500,000 9.50% due 2/01/2002 516,080
A+ A1 500,000 6.375% due 11/15/2008 458,935
A A1 1,000,000 First Bank Systems, Inc., 7.55% due 6/15/2004 1,005,520
A- A3 1,020,000 Fleet/Norstar Financial Group, Inc., 8.125% due 7/01/2004 1,039,747
A Aa3 500,000 NationsBank Corporation, 7.50% due 9/15/2006 497,475
A- aa2 1,000,000 Wells Fargo Capital, 8.125% due 12/01/2026 (a) 903,304
------------
6,431,991
====================================================================================================================================
Financial Services-- A aa3 500,000 Citigroup Capital II, 7.75% due 12/01/2036 453,026
5.0% AA- Aa2 1,000,000 Deutsche Telekom International Finance, 8% due 6/15/2010 1,009,610
BBB+ Baa1 500,000 EOP Operating LP, 6.75% due 2/15/2008 458,045
A+ A2 500,000 Equitable Companies Inc., 9% due 12/15/2004 521,970
Ford Motor Credit Co.:
A A2 1,000,000 7.75% due 11/15/2002 1,004,390
A A2 1,500,000 7.20% due 6/15/2007 1,439,415
A A2 1,000,000 7.875% due 6/15/2010 999,820
AAA Aaa 300,000 General Electric Capital Corp., 8.375% due 3/01/2001 302,595
General Motors Acceptance Corp.:
A A2 1,400,000 9% due 10/15/2002 1,442,462
A A2 600,000 8.80% due 3/01/2021 647,568
Lehman Brothers Holdings Inc.:
A A3 500,000 7.625% due 6/01/2006 488,100
A A3 1,000,000 7.20% due 8/15/2009 930,130
AA- Aa3 1,000,000 Morgan Stanley Group, Inc., 6.50% due 3/30/2001 994,310
A Aa3 2,000,000 Salomon, Smith Barney Holdings, Inc., 6.25% due 5/15/2003 1,934,380
BBB+ Baa1 500,000 Simon Debartolo, 6.75% due 7/15/2004 471,765
------------
13,097,586
====================================================================================================================================
Financial Services-- Associates Corp. N.A.:
Consumer--1.2% A+ Aa3 500,000 6.50% due 7/15/2002 488,795
A+ Aa3 500,000 7.23% due 5/17/2006 489,920
A A2 1,000,000 Household Finance Corp., 5.875% due 2/01/2009 869,700
Washington Mutual Inc.:
A- A3 500,000 7.25% due 6/15/2001 497,605
BBB+ A3 1,000,000 7.50% due 8/15/2006 970,380
------------
3,316,400
====================================================================================================================================
Foreign Government AA+ Aa1 500,000 Canada Government Bond, 5.25% due 11/05/2008 441,675
Obligations--1.8% AA- Aa2 1,000,000 Province of British Columbia, 7.25% due 9/01/2036 956,670
AA- Aa3 500,000 Province of Ontario, 7.375% due 1/27/2003 503,080
A A2 750,000 Province of Saskatchewan, 8% due 7/15/2004 771,840
AA Aa3 1,000,000 Republic of Italy, 6.875% due 9/27/2023 949,210
BB+ Baa3 1,000,000 United Mexican States, 9.875% due 2/01/2010 1,035,000
------------
4,657,475
====================================================================================================================================
Industrial--Consumer A+ A1 1,000,000 Anheuser-Busch Companies, Inc., 6.75% due 11/01/2006 958,190
Goods--1.4% A A2 1,000,000 Coca-Cola Enterprises, 6.75% due 9/15/2028 859,510
Nabisco Inc.:
BBB Baa2 1,000,000 6% due 2/15/2011 983,140
BBB Baa2 500,000 6.375% due 2/01/2035 447,045
A A2 365,000 Philip Morris Companies, Inc., 6.95% due 6/01/2006 359,580
------------
3,607,465
====================================================================================================================================
Industrial-- BBB+ Baa1 1,000,000 Apache Corporation, 7% due 2/01/2018 921,920
Energy--1.3% BBB+ A2 500,000 Consolidated Natural Gas Company, 6.625% due 12/01/2008 460,720
BBB+ Baa1 500,000 Enron Corp., 6.625% due 10/15/2003 485,440
BBB- Baa2 500,000 KN Energy, Inc., 6.65% due 3/01/2005 476,210
BBB- Baa3 500,000 Occidental Petroleum Corp., 8.45% due 2/15/2029 511,850
BBB Baa2 500,000 Philips Petroleum, 8.86% due 5/15/2022 488,935
------------
3,345,075
====================================================================================================================================
Industrial-- AA+ Aa2 500,000 Atlantic Richfield Company, 8.44% due 2/21/2012 543,905
Manufacturing--1.9% A+ A1 150,000 Chrysler Corp., 7.45% due 3/01/2027 143,929
BBB+ Baa1 500,000 Dana Corporation, 7% due 3/01/2029 410,645
BBB- Baa2 500,000 Georgia-Pacific Corp., 7.375% due 12/01/2025 432,945
A+ A1 1,000,000 International Business Machines Corp., 7.125% due 12/01/2096 941,600
BBB- Baa3 500,000 Lockheed Martin Corp., 7.25% due 5/15/2006 485,780
BBB- Baa2 600,000 Raytheon Co., 6.75% due 3/15/2018 518,808
BBB Baa2 1,500,000 Union Carbide Corp., 6.25% due 6/15/2003 1,457,235
------------
4,934,847
====================================================================================================================================
Industrial-- BBB- Baa3 750,000 Delta Airlines, 10.375% due 2/01/2011 819,712
Other--0.9% BBB Baa1 500,000 Norfolk Southern Corporation, 7.70% due 5/15/2017 478,790
BBB- Baa3 1,000,000 Union Pacific Corp., 9.625% due 12/15/2002 1,042,410
------------
2,340,912
====================================================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Master Aggregate Bond Index Series (concluded)
---------------------------------------------------------------------------------------------------------------
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds & Notes Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Industrial-- BBB+ Baa1 $ 500,000 Computer Associates International, Inc., 6.375%
Services--2.5% due 4/15/2005 $ 462,825
A- A2 1,000,000 Dayton Hudson Corp., 10% due 1/01/2011 1,145,910
A- A3 1,000,000 Hertz Corp., 7% due 1/15/2028 860,280
BBB Baa2 200,000 JC Penney Company, Inc., 7.95% due 4/01/2017 162,896
BBB- Baa3 1,000,000 News America Inc., 7.25% due 5/18/2018 889,590
A- A3 500,000 Sears Discover Credit Corp., 9.14% due 3/13/2012 549,755
AA- A2 1,375,000 Tele-Communications Inc., 8.25% due 1/15/2003 1,413,486
BBB Baa3 1,000,000 Time Warner Inc., 7.75% due 6/15/2005 1,004,970
------------
6,489,712
====================================================================================================================================
Utilities-- AA- A1 1,000,000 AT&T Corporation, 6% due 3/15/2009 889,210
Communications-- A+ Aa2 1,000,000 Bell Atlantic, PA, 6% due 12/01/2028 764,710
1.4% AA- Aa2 500,000 Southwestern Bell Telecommunications, 6.625% due 7/15/2007 470,555
BBB+ Baa1 500,000 Sprint Capital Corporation, 6.125% due 11/15/2008 445,685
A- A3 1,250,000 WorldCom, Inc., 8% due 5/15/2006 1,271,525
------------
3,841,685
====================================================================================================================================
Utilities--Gas & AA- A1 1,470,000 Baltimore Gas & Electric Co., 8.375% due 8/15/2001 1,487,552
Electric--1.7% BBB Baa2 500,000 Commonwealth Edison, Inc., 6.95% due 7/15/2018 443,440
BBB+ Baa1 500,000 Dominion Resources Inc., 8.125% due 6/15/2010 503,380
A- A3 500,000 Edison International Inc., 6.875% due 9/15/2004 485,245
BBB+ A3 500,000 Houston Lighting and Power, 8.75% due 3/01/2022 520,295
A A2 1,000,000 Southern California Edison, 7.625% due 1/15/2010 996,800
------------
4,436,712
====================================================================================================================================
Yankee-- A- A3 500,000 BHP Finance USA Limited, 6.42% due 3/01/2026 483,540
Corporate--2.2% A+ A1 550,000 Grand Metropolitan Investment Corp., 9% due 8/15/2011 597,300
A+ A2 1,000,000 Hydro-Quebec, 8.875% due 3/01/2026 1,132,370
BBB Baa2 1,000,000 Korea Development Bank, 6.625% due 11/21/2003 961,480
BBB Baa2 500,000 Korea Telecom, 7.625% due 4/15/2007 476,730
A A2 500,000 Norsk Hydro A/S, 6.70% due 1/15/2018 438,215
A A1 1,000,000 Santander Financial Issuances Ltd., 7% due 4/01/2006 960,680
A- Baa1 500,000 Tyco International Group SA, 6.875% due 1/15/2029 422,385
A A2 300,000 WMC Finance USA, 7.25% due 11/15/2013 276,510
------------
5,749,210
====================================================================================================================================
Total Investments in Corporate Bonds & Notes (Cost--$65,919,490)--23.7% 62,249,070
====================================================================================================================================
<CAPTION>
Short-Term Securities
====================================================================================================================================
<C> <C> <C> <S> <C>
Repurchase 2,047,000 Donaldson, Lufkin & Jenrette, Inc., purchased on
Agreements**--0.8% 6/30/2000 to yield 6.55% to 2/15/2010 2,047,000
====================================================================================================================================
Total Investments in Short-Term Securities (Cost--$2,047,000)--0.8% 2,047,000
====================================================================================================================================
Total Investments (Cost--$266,741,331)--97.8% 256,995,040
Other Assets Less Liabilities--2.2% 5,837,711
------------
Net Assets--100.0% $262,832,751
============
====================================================================================================================================
</TABLE>
* Mortgage-Backed Obligations are subject to principal paydowns as a result
of prepayments or refinancing of the underlying mortgage instruments. As a
result, the average life may be substantially less than the original
maturity.
** Repurchase Agreements are fully collateralized by US Government Agency
Obligations.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(1) Represents or includes a "to-be-announced" (TBA) transaction. The Series
has committed to purchase securities for which all specific information is
not available at this time.
(2) Represents balloon mortgages that amortize on a 30-year schedule and have
7-year maturities.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MASTER
AGGREGATE BOND
INDEX SERIES As of June 30, 2000
====================================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$266,741,331) ........................ $256,995,040
Cash ......................................................................... 575
Receivables:
Contributions ............................................................. $ 4,928,641
Interest .................................................................. 3,138,450
Securities sold ........................................................... 1,709,601 9,776,692
------------
Deferred organization expenses ............................................... 3,823
Prepaid expenses and other assets ............................................ 81,604
------------
Total assets ................................................................. 266,857,734
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ...................................................... 3,633,841
Withdrawals ............................................................... 316,800
Investment adviser ........................................................ 1,967 3,952,608
------------
Accrued expenses and other liabilities ....................................... 72,375
------------
Total liabilities ............................................................ 4,024,983
------------
====================================================================================================================================
Net Assets: Net assets ................................................................... $262,832,751
============
====================================================================================================================================
Net Assets Partners' capital ............................................................ $272,579,042
Consist of: Unrealized depreciation on investments--net .................................. (9,746,291)
------------
Net assets ................................................................... $262,832,751
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MASTER
AGGREGATE BOND
INDEX SERIES For the Six Months Ended June 30, 2000
====================================================================================================================================
<C> <S> <C> <C>
Investment Income: Interest and discount earned ............................................... $ 9,939,994
------------
====================================================================================================================================
Expenses: Interest expenses .......................................................... $ 78,511
Accounting services ........................................................ 57,099
Professional fees .......................................................... 30,859
Custodian fees ............................................................. 28,278
Pricing fees ............................................................... 25,306
Investment advisory fees ................................................... 14,485
Trustees' fees and expenses ................................................ 2,252
Amortization of organization expenses ...................................... 1,987
Other ...................................................................... 2,587
------------
Total expenses ............................................................. 241,364
------------
Investment income--net ..................................................... 9,698,630
------------
====================================================================================================================================
Realized & Realized loss from investments--net ........................................ (7,849,052)
Unrealized Gain Change in unrealized depreciation on investments--net ...................... 8,226,632
(Loss) On ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations ....................... $ 10,076,210
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MASTER For the Six For the
AGGREGATE BOND Months Ended Year Ended
INDEX SERIES Increase (Decrease) in Net Assets: June 30, 2000 Dec. 31, 1999
====================================================================================================================================
<C> <S> <C> <C>
Operations: Investment income--net ...................................................... $ 9,698,630 $ 27,956,624
Realized loss on investments--net ........................................... (7,849,052) (884,394)
Change in unrealized appreciation/depreciation on investments--net .......... 8,226,632 (32,485,362)
------------- ------------
Net increase (decrease) in net assets resulting from operations ............. 10,076,210 (5,413,132)
------------- ------------
====================================================================================================================================
Net Capital Decrease in net assets derived from net capital contributions ............... (153,391,737) (23,373,384)
Contributions: ------------- ------------
====================================================================================================================================
Net Assets: Total decrease in net assets ................................................ (143,315,527) (28,786,516)
Beginning of period ......................................................... 406,148,278 434,934,794
------------- ------------
End of period ............................................................... $ 262,832,751 $406,148,278
============= ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MASTER For the Six For the Year Ended Dec. 31, For the Period
AGGREGATE BOND The following ratios have been derived from Months Ended --------------------------- April 3, 1997+ to
INDEX SERIES information provided in the financial statements June 30, 2000 1999 1998 Dec. 31, 1997
====================================================================================================================================
<C> <S> <C> <C> <C> <C>
Ratios to Average Expenses, excluding interest expense ........... .11%* .10% .12% .15%*
Net Assets: ======== ======== ======== ========
Expenses, net of reimbursement ................. .17%* .10% .12% .15%*
======== ======== ======== ========
Expenses ....................................... .17%* .10% .13% .18%*
======== ======== ======== ========
Investment income--net ......................... 6.68%* 6.30% 6.20% 6.34%*
======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ....... $262,833 $406,148 $434,935 $307,740
Data: ======== ======== ======== ========
Portfolio turnover ............................. 16.03% 61.82% 27.89% 86.58%
======== ======== ======== ========
====================================================================================================================================
</TABLE>
+ Commencement of operations.
* Annualized.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch Aggregate Bond Index Fund, June 30, 2000
NOTES TO FINANCIAL STATEMENTS
MASTER AGGREGATE BOND INDEX SERIES
1. Significant Accounting Policies:
Master Aggregate Bond Index Series (the "Series") is part of Quantitative Master
Series 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 accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The following is a summary of significant
accounting policies followed by the Series.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid price at the close of trading on the New York Stock Exchange on each
day by brokers that make markets in the securities. Securities traded in the
NASDAQ National Market System are valued at the last sale price prior to the
time of valuation. Securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options traded in
the over-the-counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Other investments, including futures
contracts and related options, are stated at market value. Short-term securities
are valued at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
market value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Repurchase agreements--The Series invests in securities pursuant to
repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Series
takes possession of the underlying securities, marks to market such securities
and, if necessary, receives additional securities daily to ensure that the
contract is fully collateralized. If the counterparty defaults and the fair
value of the collateral declines, liquidation of the collateral by the Series
may be delayed or limited.
(c) Derivative financial instruments--The Series may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Series is exposed more quickly and efficiently than transactions in other types
of instruments. Losses may arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
o Financial futures contracts--The Series may purchase or sell financial futures
contracts and options on such futures contracts as a proxy for a direct
investment in securities underlying the Series' index. Upon entering into a
contract, the Series deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Series agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Series is authorized to purchase and write call and put options.
When the Series writes an option, an amount equal to the premium received by the
Series is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Series enters into
a closing transaction), the Series realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent that
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Income taxes--The Series is classified as a partnership for Federal income
tax purposes. As a partnership for Federal income tax purposes, the Series will
not incur Federal income tax liability. Items of partnership income, gain, loss
and deduction will pass through to investors as partners in the Series.
Therefore, no Federal income tax provision is required.
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Interest income (including amortization of discount) is recognized on
the accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Deferred organization expenses--Deferred organization expenses are charged
to expense on a straight-line basis over a period not exceeding five years.
(g) Dollar rolls--The Series may sell securities for delivery in the current
month and simultaneously contract to repurchase substantially similar (same
type, coupon and maturity) securities on a specific future date.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM 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 .01% of the average daily value of the Series' net
assets.
During the six months ended June 30, 2000, the Series paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $3,047 for security price
quotations to compute the net asset value of the Series.
Merrill Lynch Trust Company, an indirect wholly-owned subsidiary of ML & Co., is
the Series' custodian.
Accounting services are provided to the Series by FAM at cost.
Certain officers and/or trustees of the Series are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2000 were $47,007,334 and $193,680,894, respectively.
Net realized losses for the six months ended June 30, 2000 and net unrealized
losses as of June 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .......................... $(7,849,052) $(9,746,291)
----------- -----------
Total .......................................... $(7,849,052) $(9,746,291)
=========== ===========
--------------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax purposes
aggregated $9,746,291, of which $498,930 related to appreciated securities and
$10,245,221 related to depreciated securities. At June 30, 2000, the aggregate
cost of investments for Federal income tax purposes was $266,741,331.
4. Reverse Repurchase Agreements:
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. For the six months
ended June 30, 2000, the average amount outstanding was approximately $3,185,000
and the daily weighted average interest rate was 4.94%.
5. Capital Loss Carryforward:
At December 31, 1999, the Series had a net capital loss carryforward of
approximately $115,000, all of which expires in 2007. This amount will be
available to offset like amounts of any future taxable gains.
18 & 19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Index Funds, Inc.
Box 9011
Princeton, NJ
08543-9011 Index 1--6/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
