N-CSR 1 e300591_ncsr-mlaggregate.txt SEMI-ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-7899 811-7885 Name of Fund: Merrill Lynch Aggregate Bond Index Fund Master Aggregate Bond Index Series Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch Aggregate Bond Index Fund, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 12/31/03 Date of reporting period: 01/01/03 - 06/30/03 Item 1 - Attach shareholder report [LOGO] Merrill Lynch Investment Managers Semi-Annual Report June 30, 2003 Merrill Lynch Aggregate Bond Index Fund Merrill Lynch Index Funds, Inc. www.mlim.ml.com Merrill Lynch Aggregate Bond Index Fund Officers and Directors Terry K. Glenn, President and Director/Trustee Donald W. Burton, Director/Trustee M. Colyer Crum, Director/Trustee Laurie Simon Hodrick, Director/Trustee Fred G. Weiss, Director/Trustee Robert C. Doll, Jr., Senior Vice President Jeffrey B. Hewson, Vice President Frank Viola, Vice President Donald C. Burke, Vice President and Treasurer Brian D. Stewart, Secretary Custodian Merrill Lynch Trust Company, FSB 1300 Merrill Lynch Drive 3rd Floor - MSC 0303 Pennington, NJ 08534 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 800-637-3863 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 DEAR SHAREHOLDER Effective April 14, 2003, the share class names for the Merrill Lynch family of mutual funds were changed to be consistent with the standard share classes of most other mutual fund families. As of that date, all Class A Shares were redesignated Class I Shares. At the same time, Class D Shares were redesignated Class A Shares. Trading symbols have not changed nor have current eligibility rules or pricing structures. This redesignation of share classes does not impact your investment in any way. Merrill Lynch Aggregate Bond Index Fund is designed for investors who have an investment objective of seeking to achieve investment returns that replicate the total return of investment-grade fixed income securities. As such, the Fund seeks to achieve its objective by replicating the total return, before expenses, of the unmanaged Lehman Brothers Aggregate Bond Index, a widely accepted investment performance benchmark comprised of U.S. government securities, U.S. government agency mortgage-backed securities (MBS) and investment-grade corporate bonds. It is the intent of the Fund to provide returns that are representative of the bond market as a whole, rather than focus on or express bias to any specific sector. The Fund seeks to achieve its objective by investing all of its assets in Master Aggregate Bond Index Series. Therefore, the Series' structure is dependent on the structure of the underlying benchmark. Sector weighting and security selection in the underlying benchmark are determined by the market representation that the sectors have in the overall market. Portfolio Matters For the six months ended June 30, 2003, the Fund's Class A and Class I Shares had total returns of +3.53% and +3.75%, respectively. (Complete performance information can be found on pages 4 and 5 of this report to shareholders.) This compared to a total return of +3.93% for the unmanaged benchmark Lehman Brothers Aggregate Bond Index for the same period. At June 30, 2003, the Lehman Brothers Aggregate Bond Index was comprised of 7,454 securities. Logistical constraints preclude us from replicating a portfolio with all of the index positions. Therefore, we construct a proxy portfolio, which seeks to duplicate the return of the benchmark. The investments in the portfolio are determined by implementing stratified sampling techniques. Under this approach, securities that are selected collectively mimic the investment characteristics of the Index at the sector and sub-sector levels. The Index is comprised of three major investment sectors: government and agencies, agency guaranteed MBS, and investment-grade corporate bonds. The government and agency sector is currently comprised of 1,064 securities and accounts for 34.04% of the Index. In this area of the Series, we construct a sector portfolio, as we seek to minimize variation of the duration and partial duration attributes. This approach serves to ensure that price performance of this sector of the Series and of the Index should be identical in the event of a change of interest rates or a change in shape of the yield curve. We currently seek to achieve these objectives with 40 positions. The government guaranteed MBS sector of the Index had 2,420 issues including minor holdings in commercial MBS and asset-backed securities. This sector represents 38.50% of the Index. The measurement of duration in this sector is a subjective procedure. Unlike non-callable bonds, MBS are effectively callable beginning with the origination day of the underlying mortgage. The callable events are referred to as prepayments. Prepayments resulting from mortgage refinancing activity typically increase as interest rates decline and subside as interest rates rise. As a result, it is not possible to determine the life of an MBS upon issuance. Thus, it is not possible to accurately calculate the duration of MBS. However, investment professionals estimate durations using prepayment assumptions. Rather than matching estimated durations, we manage this sector by matching product type. We seek to minimize any variation through MBS coupon, term, guarantor and age. At June 30, 2003, there were 49 positions in the Series' MBS sector. The Series has 373 corporate securities. The Index counterpart has 3,970 positions and accounts for 27.46% of the Index. Since duration is determinable in this sector, we use the same management techniques for the corporate sector as we do for the government and agency sector, thus minimizing tracking error related to interest rate and yield curve changes. This sector also includes other investment attributes. The area has additional sub-sectors that are also managed to its index counterpart. These include industrial, utility, financial and sovereign sectors. In addition, we monitor credit rating exposure variation. For the six-month period ended June 30, 2003, the benchmark Index generated a total return of +3.93%. The corporate sector of the Index returned +7.32%, by far the best-performing sector in the Index. The second-highest performer was the government and agency sector, which returned +3.63%. The MBS sector was the lowest-performer for the period. While the sharp decline in interest rates permitted significant appreciation of non-callable bonds, it also sparked unprecedented refinance activity in the MBS sector. This muted price performance and escalated paydown losses in this sector as MBS returned +1.93% for the period. 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/Trustee /s/ Jeffrey B. Hewson Jeffrey B. Hewson Vice President and Co-Portfolio Manager /s/ Frank Viola Frank Viola Vice President and Co-Portfolio Manager July 24, 2003 2 & 3 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 PERFORMANCE DATA About Fund Performance Effective April 14, 2003, Class A Shares were redesignated Class I Shares and Class D Shares were redesignated Class A Shares. Investors are able to purchase shares of the Fund through two pricing alternatives: o Class A Shares do not incur a maximum initial sales charge or deferred sales charge and bear no ongoing distribution fee. In addition, Class A Shares are subject to an ongoing account maintenance fee of 0.25%. o Class I 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 I Shares are available only to eligible investors. None of the past results shown should be considered a representation of future performance. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the following 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
6-Month 12-Month Since Inception Standardized As of June 30, 2003 Total Return Total Return Total Return 30-Day Yield =========================================================================================================== ML Aggregate Bond Index Fund Class A Shares* +3.53% + 9.82% +58.25% 2.51% ----------------------------------------------------------------------------------------------------------- ML Aggregate Bond Index Fund Class I Shares* +3.75 +10.09 +60.72 2.76 ----------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index** +3.93 +10.40 +64.29 -- ===========================================================================================================
* 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 U.S. 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 Class A Shares % Return ================================================================================ One Year Ended 6/30/03 +9.82% -------------------------------------------------------------------------------- Five Years Ended 6/30/03 +6.90 -------------------------------------------------------------------------------- Inception (4/03/97) through 6/30/03 +7.63 -------------------------------------------------------------------------------- Class I Shares % Return ================================================================================ One Year Ended 6/30/03 +10.09% -------------------------------------------------------------------------------- Five Years Ended 6/30/03 + 7.17 -------------------------------------------------------------------------------- Inception (4/03/97) through 6/30/03 + 7.90 -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES MERRILL LYNCH AGGREGATE BOND INDEX FUND As of June 30, 2003 ================================================================================================================================= Assets: Investment in Master Aggregate Bond Index Series, at value (identified cost--$441,784,075) ............................................... $ 468,124,567 Prepaid registration fees and other assets .................................... 34,026 ------------- Total assets .................................................................. 468,158,593 ------------- ================================================================================================================================= Liabilities: Payables: Dividends to shareholders ................................................... $ 425,651 Administrative fees ......................................................... 61,999 Other affiliates ............................................................ 31,640 Distributor ................................................................. 14,227 533,517 ----------- Accrued expenses and other liabilities ........................................ 57,754 ------------- Total liabilities ............................................................. 591,271 ------------- ================================================================================================================================= Net Assets: Net assets .................................................................... $ 467,567,322 ============= ================================================================================================================================= Net Assets Class A Shares of Common Stock, $.0001 par value, 125,000,000 shares authorized $ 636 Consist of: Class I Shares of Common Stock, $.0001 par value, 125,000,000 shares authorized 3,564 Paid-in capital in excess of par .............................................. 444,055,179 Accumulated distributions in excess of investment income--net ................. $ (376,052) Accumulated realized capital losses on investments from the Series--net ....... (2,456,497) Unrealized appreciation on investments from the Series--net ................... 26,340,492 ----------- Total accumulated earnings--net ............................................... 23,507,943 ------------- Net assets .................................................................... $ 467,567,322 ============= ================================================================================================================================= Net Asset Class A--Based on net assets of $70,860,567 and 6,364,565 shares outstanding .. $ 11.13 Value: ============= Class I--Based on net assets of $396,706,755 and 35,635,842 shares outstanding $ 11.13 ============= =================================================================================================================================
See Notes to Financial Statements. 4 & 5 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 STATEMENT OF OPERATIONS MERRILL LYNCH AGGREGATE BOND INDEX FUND For the Six Months Ended June 30, 2003 ============================================================================================================================ Investment Income Net investment income allocated from the Series: From the Series--Net: Interest income from other investments ............................. $ 9,665,750 Interest income on swaps--net ...................................... 61,938 Securities lending--net ............................................ 548 Expenses ........................................................... (131,943) ------------ Net investment income from the Series ................................ 9,596,293 ------------ ============================================================================================================================ Expenses: Administration fee ................................................... $ 416,017 Transfer agent fees .................................................. 131,162 Account maintenance fee--Class A ..................................... 80,123 Printing and shareholder reports ..................................... 57,310 Registration fees .................................................... 24,999 Professional fees .................................................... 9,953 Directors' fees and expenses ......................................... 2,738 Other ................................................................ 3,641 --------- Total expenses before waiver ......................................... 725,943 Waiver of expenses ................................................... (16,414) --------- Total expenses after waiver .......................................... 709,529 ------------ Investment income--net ............................................... 8,886,764 ------------ ============================================================================================================================ Realized & Realized gain on investments from the Series--net .................... 1,729,573 Unrealized Gain Change in unrealized appreciation on investments from the Series--net 5,766,418 From the ------------ Series -- Net: Total realized and unrealized gain on investments from the Series--net 7,495,991 ------------ Net Increase in Net Assets Resulting from Operations ................. $ 16,382,755 ============ ============================================================================================================================
See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the MERRILL LYNCH Months Ended Year Ended AGGREGATE BOND June 30, December 31, INDEX FUND Increase (Decrease) in Net Assets: 2003 2002 ============================================================================================================================= Operations: Investment income--net .............................................. $ 8,886,764 $ 21,794,189 Realized gain on investments from the Series--net ................... 1,729,573 3,143,394 Change in unrealized appreciation on investments from the Series--net 5,766,418 15,125,614 ------------- ------------- Net increase in net assets resulting from operations ................ 16,382,755 40,063,197 ------------- ------------- ============================================================================================================================= Dividends to Investment income--net: Shareholders: Class A ........................................................... (1,251,166) (2,879,105) Class I ........................................................... (7,779,406) (18,820,545) ------------- ------------- Net decrease in net assets resulting from dividends to shareholders . (9,030,572) (21,699,650) ------------- ------------- ============================================================================================================================= Capital Share Net increase in net assets derived from capital share transactions .. 38,195,451 18,827,831 Transactions: ------------- ------------- ============================================================================================================================= Net Assets: Total increase in net assets ........................................ 45,547,634 37,191,378 Beginning of period ................................................. 422,019,688 384,828,310 ------------- ------------- End of period* ...................................................... $ 467,567,322 $ 422,019,688 ============= ============= ============================================================================================================================= * Accumulated distributions in excess of investment income--net ....... $ (376,052) $ (232,244) ============= ============= =============================================================================================================================
See Notes to Financial Statements. 6 & 7 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 FINANCIAL HIGHLIGHTS
Class A@@ ------------------------------------------------------------- The following per share data and ratios For the have been derived from information provided Six Months MERRILL LYNCH in the financial statements. Ended For the Year Ended December 31, AGGREGATE BOND June 30, ----------------------------------------------- INDEX FUND Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999 ================================================================================================================================ Per Share Net asset value, beginning of period ...... $ 10.96 $ 10.50 $ 10.31 $ 9.86 $ 10.61 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .................... .21+++ .52+++ .58 .61 .58 Realized and unrealized gain (loss) on investments from the Series--net ....... .17 .46 .19 .45 (.75) --------- --------- --------- --------- --------- Total from investment operations .......... .38 .98 .77 1.06 (.17) --------- --------- --------- --------- --------- Less dividends and distributions: Investment income--net .................. (.21) (.52) (.58) (.61) (.58) Realized gain on investments from the Series--net ......................... -- -- -- -- -- In excess of realized gain on investments from the Series--net .................... -- -- -- -- --+ --------- --------- --------- --------- --------- Total dividends and distributions ......... (.21) (.52) (.58) (.61) (.58) --------- --------- --------- --------- --------- Net asset value, end of period ............ $ 11.13 $ 10.96 $ 10.50 $ 10.31 $ 9.86 ========= ========= ========= ========= ========= ================================================================================================================================ Total Investment Based on net asset value per share ........ 3.53%@ 9.61% 7.60% 11.18% (1.50%) Return: ========= ========= ========= ========= ========= ================================================================================================================================ Ratios to Average Expenses, net of waiver++ ................. .60%* .59% .60% .63% .60% Net Assets: ========= ========= ========= ========= ========= Expenses++ ................................ .61%* .61% .71% .70% .62% ========= ========= ========= ========= ========= Investment income--net .................... 3.84%* 4.91% 5.50% 6.17% 5.81% ========= ========= ========= ========= ========= ================================================================================================================================ Supplemental Net assets, end of period (in thousands) .. $ 70,860 $ 61,029 $ 60,438 $ 65,339 $ 79,743 Data: ========= ========= ========= ========= ========= Portfolio turnover of the Series .......... 79.41% 112.18% 144.23% 43.24% 61.82% ========= ========= ========= ========= ========= ================================================================================================================================ Class I@@@ ------------------------------------------------------------- The following per share data and ratios For the have been derived from information provided Six Months in the financial statements. Ended For the Year Ended December 31, June 30, ----------------------------------------------- Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999 ================================================================================================================================ Per Share Net asset value, beginning of period ...... $ 10.95 $ 10.50 $ 10.31 $ 9.85 $ 10.61 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .................... .22+++ .55+++ .61 .64 .62 Realized and unrealized gain (loss) on investments from the Series--net ....... .19 .45 .19 .46 (.76) --------- --------- --------- --------- --------- Total from investment operations .......... .41 1.00 .80 1.10 (.14) --------- --------- --------- --------- --------- Less dividends and distributions: Investment income--net .................. (.23) (.55) (.61) (.64) (.62) Realized gain on investments from the Series--net ......................... -- -- -- -- -- In excess of realized gain on investments from the Series--net .................... -- -- -- -- --+ --------- --------- --------- --------- --------- Total dividends and distributions ......... (.23) (.55) (.61) (.64) (.62) --------- --------- --------- --------- --------- Net asset value, end of period ............ $ 11.13 $ 10.95 $ 10.50 $ 10.31 $ 9.85 ========= ========= ========= ========= ========= ================================================================================================================================ Total Investment Based on net asset value per share ........ 3.75%@ 9.78% 7.87% 11.57% (1.36%) Return: ========= ========= ========= ========= ========= ================================================================================================================================ Ratios to Average Expenses, net of waiver++ ................. .35%* .34% .35% .38% .35% Net Assets: ========= ========= ========= ========= ========= Expenses++ ................................ .36%* .36% .46% .45% .37% ========= ========= ========= ========= ========= Investment income--net .................... 4.10%* 5.16% 5.72% 6.41% 6.06% ========= ========= ========= ========= ========= ================================================================================================================================ Supplemental Net assets, end of period (in thousands) .. $ 396,707 $ 360,991 $ 324,390 $ 214,056 $ 324,254 Data: ========= ========= ========= ========= ========= Portfolio turnover of the Series .......... 79.41% 112.18% 144.23% 43.24% 61.82% ========= ========= ========= ========= ========= ================================================================================================================================
* Annualized. + Amount is less than $.01 per share. ++ Includes the Fund's share of the Series' allocated expenses. +++ Based on average shares outstanding. @ Aggregate total investment return. @@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares. @@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares. See Notes to Financial Statements. 8 & 9 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 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 amended, 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 conformity 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 percentage of the Series owned by the Fund at June 30, 2003 was 60.4%. The Fund offers two classes of shares. Effective April 14, 2003, Class A Shares were redesignated Class I Shares and Class D Shares were redesignated Class A Shares. The Fund's financial statements and financial highlights contained within this report reflect the new share class redesignation. Shares of Class A and Class I 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 A 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 -- The Fund records its investment in the Series at fair value. Valuation of securities held by the Series is discussed in Note 1a of the Series' Notes to Financial Statements, which are included elsewhere in this report. (b) Investment income and expenses -- The Fund records daily its proportionate share of the Series' income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses. (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 -- Prepaid registration fees are charged to expense as the related shares are issued. (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. (f) Investment transactions -- Investment transactions in the Series 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., Inc. ("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, 2003, FAM earned fees of $416,017, of which $16,414 was 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 A 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 A shareholders. Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co. 3. Capital Share Transactions: Net increase in net assets derived from capital share transactions were $38,195,451 and $18,827,831 for the six months ended June 30, 2003 and the year ended December 31, 2002, respectively. Transactions in capital shares for each class were as follows: -------------------------------------------------------------------------------- Class A Shares for the Six Months Dollar Ended June 30, 2003+ Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 1,867,383 $ 20,501,579 Shares issued to shareholders in reinvestment of dividends ........... 89,064 981,907 ------------ ------------ Total issued ........................... 1,956,447 21,483,486 Shares redeemed ........................ (1,162,172) (12,783,314) ------------ ------------ Net increase ........................... 794,275 $ 8,700,172 ============ ============ -------------------------------------------------------------------------------- + Effective April 14, 2003, Class D Shares were redesignated Class A Shares. -------------------------------------------------------------------------------- Class A Shares for the Year Dollar Ended December 31, 2002+ Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 1,746,539 $ 18,629,821 Shares issued to shareholders in reinvestment of dividends ........... 222,051 2,365,502 ------------ ------------ Total issued ........................... 1,968,590 20,995,323 Shares redeemed ........................ (2,153,732) (22,961,951) ------------ ------------ Net decrease ........................... (185,142) $ (1,966,628) ============ ============ -------------------------------------------------------------------------------- + Effective April 14, 2003, Class D Shares were redesignated Class A Shares. -------------------------------------------------------------------------------- Class I Shares for the Six Months Dollar Ended June 30, 2003+ Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 7,241,077 $ 79,645,760 Shares issued to shareholders in reinvestment of dividends ........... 513,035 5,650,397 ------------ ------------ Total issued ........................... 7,754,112 85,296,157 Shares redeemed ........................ (5,073,430) (55,800,878) ------------ ------------ Net increase ........................... 2,680,682 $ 29,495,279 ============ ============ -------------------------------------------------------------------------------- + Effective April 14, 2003, Class A Shares were redesignated Class I Shares. -------------------------------------------------------------------------------- Class I Shares for the Year Dollar Ended December 31, 2002+ Shares Amount -------------------------------------------------------------------------------- Shares sold ............................ 22,467,900 $ 237,667,287 Shares issued to shareholders in reinvestment of dividends ........... 1,471,997 15,676,326 ------------- ------------- Total issued ........................... 23,939,897 253,343,613 Shares redeemed ........................ (21,884,225) (232,549,154) ------------- ------------- Net increase ........................... 2,055,672 $ 20,794,459 ============= ============= -------------------------------------------------------------------------------- + Effective April 14, 2003, Class A Shares were redesignated Class I Shares. 4. Capital Loss Carryforward: On December 31, 2002, the Fund had a net capital loss carryforward of $3,872,833, all of which expires in 2008. This amount will be available to offset like amounts of any future taxable gains. 10 & 11 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (in U.S. dollars)
Master Aggregate Bond Index Series ---------------------------------------------------------------------------------------------------------- Face Interest Maturity Issue Amount Rate Date(s) Value =================================================================================================================================== U.S. Government & Fannie Mae $ 290,000 5.45 % 10/10/2003 $ 293,546 Agency Obligations-- 210,000 6.85 4/05/2004 219,152 33.3% 29,225,000 3.50 9/15/2004 30,050,314 3,000,000 3.875 3/15/2005 3,131,874 28,075,000 5.75 2/15/2008 32,032,677 13,980,000 6.625 11/15/2010 16,900,450 1,340,000 7.25 5/15/2030 1,766,007 ========================================================================================================== Financing Corp. 670,000 9.80 11/30/2017 1,048,035 ========================================================================================================== Freddie Mac 6,500,000 5.75 7/15/2003 6,511,986 1,245,000 7.18 6/27/2006 1,438,798 14,560,000 4.875 3/15/2007 15,965,258 8,655,000 6.75 9/15/2029 10,723,692 1,480,000 6.25 7/15/2032 1,741,405 ========================================================================================================== Tennessee Valley Authority, Series E 1,915,000 6.25 12/15/2017 2,288,538 ========================================================================================================== United States Treasury Bonds 765,000 8.75 11/15/2008 786,665 15,820,000 8.75 5/15/2017 23,679,946 250,000 8.875 8/15/2017 378,203 1,875,000 8.125 8/15/2019 2,711,792 7,800,000 8.50 2/15/2020 11,681,413 1,660,000 8.125 8/15/2021 2,427,362 5,490,000 6.25 8/15/2023 6,724,822 3,700,000 6.375 8/15/2027 4,634,972 830,000 5.375 2/15/2031 934,626 ========================================================================================================== United States Treasury Notes 4,875,000 5.25 5/15/2004 5,053,625 5,615,000 6.00 8/15/2004 5,924,263 7,815,000 5.875 11/15/2004 8,317,176 2,735,000 6.75 5/15/2005 3,012,025 25,125,000 5.75 11/15/2005 27,652,223 9,175,000 5.875 11/15/2005 10,124,401 595,000 3.25 8/15/2007 620,962 9,970,000 3.00 11/15/2007 10,283,895 2,050,000 5.75 8/15/2010 2,399,541 6,690,000 4.00 11/15/2012 6,961,520 =================================================================================================================================== Total Investments in U.S. Government & Agency Obligations (Cost--$242,258,390)--33.3% 258,421,164 =================================================================================================================================== U.S. Government Fannie Mae 574,204 5.50 6/01/2011-2/01/2014 599,503 Agency Mortgage- 2,023,442 6.00 2/01/2013-6/01/2015 2,116,261 Backed Obligations**-- 4,718,970 6.00 11/01/2032 4,906,015 35.2% 1,652,771 6.50 1/01/2013-5/01/2016 1,745,411 4,002,774 6.50 12/01/2025-1/01/2030 4,180,002 1,705,221 7.00 4/01/2027-3/01/2031 1,799,152 1,346,030 7.50 10/01/2027-5/01/2032 1,431,163 36,608 8.00 9/01/2015 39,289 2,469,651 8.00 11/01/2029-9/01/2031 2,660,091 78,414 8.50 5/01/2030-1/01/2031 84,346 154,709 9.50 7/01/2017 172,073 66,315 10.00 10/01/2018-5/01/2022 75,676 28,301 10.50 12/01/2016 32,007 ========================================================================================================== Freddie Mac--Gold Program 6,950,000 4.50 7/01/2018-9/01/2018 7,067,220 22,750,000 5.00 7/15/2018-9/15/2018 23,461,625 4,450,000 5.00 7/15/2033-9/15/2033 4,496,939 13,202,425 5.50 5/01/2017-7/15/2018 13,692,964 29,800,000 5.50 7/15/2033-9/15/2033 30,675,028 11,751,629 6.00 4/01/2016-7/15/2018 12,222,141 43,394,001 6.00 10/01/2032-4/01/2033 44,993,138 3,337,548 6.50 4/01/2015-5/01/2017 3,505,875 38,916,899 6.50 1/01/2026-9/01/2032 40,503,240 1,941,459 7.00 1/01/2011-7/01/2017 2,062,699 16,623,590 7.00 1/01/2020-7/15/2033 17,438,680 467,167 7.50 5/01/2007-4/01/2016 498,202 4,490,196 7.50 1/01/2023-9/01/2032 4,776,189 1,438,515 8.00 6/01/2024-3/01/2032 1,547,004 177,515 8.50 5/01/2028-8/01/2030 191,359 21,975 9.00 9/01/2014 24,131 382,501 9.50 2/01/2019 425,415 115,348 10.00 3/01/2010-9/01/2017 129,093 88,165 10.50 4/01/2016 98,763 35,958 11.00 9/01/2016-3/01/2018 40,856 11,622 11.50 8/01/2015 13,210 38,187 12.50 2/01/2014 45,008 ========================================================================================================== Government National Mortgage Corporation 13,300,000 5.50 7/15/2033-8/15/2033 13,822,816 8,600,750 6.00 4/20/2026-1/15/2033 9,019,353 178,471 6.50 2/15/2014-5/15/2014 189,641 10,600,162 6.50 4/15/2026-5/15/2032 11,130,308 92,128 7.00 4/15/2013 98,890 5,916,865 7.00 7/15/2027-10/15/2031 6,253,608 2,214,523 7.50 3/15/2024-11/15/2031 2,356,847 1,278,714 8.00 12/15/2022-6/15/2031 1,383,325 302,116 8.50 11/15/2017-3/15/2031 327,334 274,502 9.00 11/15/2016-11/15/2024 305,777 16,920 9.50 9/15/2021 19,079 =================================================================================================================================== Total U.S. Government Agency Mortgage-Backed Obligations (Cost--$268,677,265)--35.2% 272,656,746 ===================================================================================================================================
12 & 13 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master Aggregate Bond Index Series (continued) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Banking--2.8% A- A3 $ 125,000 Aristar Inc., 7.375% due 9/01/2004 $ 133,441 A- A2 465,000 BB&T Corporation, 6.50% due 8/01/2011 545,370 Bank of America Corp.: A+ Aa2 1,900,000 5.875% due 2/15/2009 2,161,068 A+ Aa2 410,000 4.875% due 9/15/2012 432,700 A+ Aa2 350,000 4.875% due 1/15/2013 369,216 A+ Aa3 325,000 The Bank of New York, 5.20% due 7/01/2007 356,857 Bank One Corp.: A Aa3 700,000 6.875% due 8/01/2006 797,381 A- A1 378,000 8% due 4/29/2027 496,490 A+ Aa2 90,000 Citicorp, 6.375% due 11/15/2008 103,463 A- A3 600,000 Comerica Inc., 4.80% due 5/01/2015 609,718 A+ A1 400,000 Deutsche Bank Financial, 7.50% due 4/25/2009 480,354 A Aa3 870,000 First Union Corporation, 7.55% due 8/18/2005 975,851 BB+ Baa3 300,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 315,392 FleetBoston Financial Corp.: A A1 765,000 7.25% due 9/15/2005 853,732 A A1 700,000 4.20% due 11/30/2007 736,270 A A1 750,000 3.85% due 2/15/2008 778,367 A+ A1 230,000 Golden West Financial Corporation, 4.75% due 10/01/2012 239,723 A A1 615,000 HSBC Holding PLC, 7.50% due 7/15/2009 749,431 MBNA America Bank NA: BBB+ Baa1 500,000 6.875% due 7/15/2004 (a) 525,769 BBB+ Baa1 25,000 7.75% due 9/15/2005 27,868 BBB+ Baa1 110,000 6.50% due 6/20/2006 121,361 BBB Baa2 545,000 7.125% due 11/15/2012 638,475 A- A3 500,000 M & T Bank, 3.85% due 4/01/2013 (b) 510,092 A+ Aa3 395,000 Marshall & Ilsley Bank, 4.125% due 9/04/2007 412,912 A+ A1 461,000 Mellon Bank NA, 7% due 3/15/2006 522,839 A+ Aa3 595,000 National City Bank of Indiana, 4% due 9/28/2007 619,385 A Aa3 113,000 NationsBank Corp., 6.60% due 5/15/2010 131,625 A- A2 350,000 Regions Financial Corporation, 6.375% due 5/15/2012 404,724 BBB- Baa3 450,000 Sovereign Bank, 5.125% due 3/15/2013 464,729 A+ Aa3 610,000 Suntrust Bank, 5.45% due 12/01/2017 669,026 A- A3 400,000 Synovus Financial, 4.875% due 2/15/2013 419,109 A Aa3 700,000 U.S. Bancorp, 1.269% due 9/16/2005 700,342 A+ Aa2 470,000 Wachovia Bank NA, 4.85% due 7/30/2007 507,858 A Aa3 1,050,000 Wachovia Corporation, 4.95% due 11/01/2006 1,143,258 A- A3 600,000 Washington Mutual Finance Corporation, 8.25% due 6/15/2005 669,760 Washington Mutual Inc.: BBB+ A3 600,000 7.50% due 8/15/2006 694,331 BBB Baa1 90,000 8.25% due 4/01/2010 113,355 A+ Aa2 250,000 Wells Fargo Bank, 6.45% due 2/01/2011 294,757 Wells Fargo & Co.: A+ Aa2 600,000 7.25% due 8/24/2005 670,307 A+ Aa2 400,000 5.125% due 2/15/2007 437,590 ----------- 21,834,296 =================================================================================================================================== Financial Services-- BBB+ A3 330,000 ACE INA Holdings, 8.30% due 8/15/2006 383,965 4.4% A+ A1 250,000 Allstate Corporation, 5.375% due 12/01/2006 273,895 A+ A1 400,000 American Express Corporation, 6.875% due 11/01/2005 445,814 AAA Aaa 500,000 American General Corporation, 7.50% due 7/15/2025 623,043 A+ A1 235,000 American General Finance, 5.875% due 7/14/2006 259,304 BBB+ Baa1 215,000 Avalonbay Communities, 6.625% due 9/15/2011 244,907 A A3 400,000 AXA Financial Inc., 7.75% due 8/01/2010 487,265 Bear Stearns Companies, Inc.: A A2 600,000 7.625% due 2/01/2005 656,469 A A2 250,000 6.875% due 10/01/2005 276,947 CIT Group Inc.: A A2 660,000 5.625% due 5/17/2004 681,765 A A2 450,000 6.50% due 2/07/2006 491,849 Capital One Bank: BBB- Baa2 420,000 6.875% due 2/01/2006 450,676 BBB- Baa2 600,000 4.875% due 5/15/2008 612,305 BB+ Baa3 450,000 6.50% due 6/13/2013 445,780 Citigroup Inc.: AA- Aa1 500,000 5.70% due 2/06/2004 513,415 AA- Aa1 2,655,000 5.75% due 5/10/2006 2,931,054 A+ Aa2 565,000 7.25% due 10/01/2010 684,563 AA- Aa1 125,000 6.50% due 1/18/2011 146,246 A+ Aa2 600,000 6.625% due 6/15/2032 693,329 Commercial Credit Co.: AA- Aa1 500,000 6.75% due 7/01/2007 573,327 AA- Aa1 450,000 10% due 5/15/2009 593,251 A A3 2,005,000 CountryWide Home Loans, Inc., 5.625% due 7/15/2009 2,229,201 Credit Suisse First Boston Inc.: A+ Aa3 1,000,000 5.875% due 8/01/2006 1,106,154 A+ Aa3 600,000 6.50% due 1/15/2012 688,534 BBB Baa3 530,000 Developers Divers Realty, 6.625% due 1/15/2008 575,168 BBB+ Baa1 750,000 Duke Realty Corporation, 5.25% due 1/15/2010 800,551 EOP Operating LP: BBB+ Baa1 200,000 6.75% due 2/15/2012 227,800 BBB+ Baa1 145,000 7.25% due 6/15/2028 162,206 BBB+ Baa1 25,000 7.50% due 4/19/2029 28,797
14 & 15 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master Aggregate Bond Index Series (continued) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Financial Services Goldman Sachs Group, Inc.: (concluded) A+ Aa3 $ 800,000 7.625% due 8/17/2005 $ 901,516 A+ Aa3 420,000 4.125% due 1/15/2008 441,358 A+ Aa3 890,000 6.875% due 1/15/2011 1,050,154 A+ Aa3 135,000 6.60% due 1/15/2012 156,867 A+ Aa3 250,000 6.125% due 2/15/2033 268,094 A- A3 400,000 Hartford Life Inc., 7.375% due 3/01/2031 473,753 BBB- Baa3 375,000 Highwoods Realty LP, 8% due 12/01/2003 384,708 International Lease Finance Corporation: AA- A1 650,000 4.375% due 12/15/2005 676,894 AA- A1 236,000 5.625% due 6/01/2007 256,660 A A3 470,000 John Hancock Financial Services, 5.625% due 12/01/2008 522,248 A A2 1,285,000 J. P. Morgan Chase & Company, 6.625% due 3/15/2012 1,482,465 Lehman Brothers Holdings, Inc.: A A2 800,000 6.625% due 4/01/2004 831,617 A A2 600,000 7% due 2/01/2008 699,470 A A2 245,000 7.875% due 8/15/2010 301,072 A A2 425,000 6.625% due 1/18/2012 498,260 BBB Baa2 500,000 Liberty Property LP, 7.25% due 3/15/2011 590,163 Marsh & McLennan Companies Inc.: AA- A2 210,000 6.625% due 6/15/2004 220,284 AA- A2 575,000 6.25% due 3/15/2012 655,434 A A2 400,000 MetLife Inc., 6.125% due 12/01/2011 455,944 A+ Aa3 750,000 Morgan Stanley, Dean Witter, 6.60% due 4/01/2012 866,539 AA- Aa3 400,000 New York Life Insurance, 5.875% due 5/15/2033 (a) 419,794 AA Aa3 265,000 Principal Life Global, 6.25% due 2/15/2012 (a) 299,768 A+ A1 375,000 Progressive Corporation, 6.25% due 12/01/2032 417,515 BBB+ Baa1 500,000 Prologis Trust, 7% due 10/01/2003 507,419 A- A3 440,000 Prudential Financial Inc., 3.75% due 5/01/2008 453,112 BBB Baa2 585,000 Shurgard Storage Centers, 5.875% due 3/15/2013 626,983 BBB Baa2 500,000 Simon Debartolo, 6.75% due 7/15/2004 523,607 AAA Aaa 150,000 SunAmerica Inc., 5.60% due 7/31/2097 140,568 A- A2 450,000 Travelers Property Casualty, 6.375% due 3/15/2033 491,826 ----------- 33,901,672 =================================================================================================================================== Financial Services-- Household Finance Corporation: Consumer--0.4% A A1 1,800,000 5.875% due 2/01/2009 2,006,766 A A1 750,000 7% due 5/15/2012 887,737 ----------- 2,894,503 =================================================================================================================================== Foreign Government AAA Aaa 2,000,000 Canada Government Bond, 5.25% due 11/05/2008 2,257,750 Obligations--1.9% BBB A3 500,000 People's Republic of China, 7.30% due 12/15/2008 605,838 BBB- Baa1 1,025,000 Petroleos Mexicanos, 8.85% due 9/15/2007 1,204,375 AA- Aa2 400,000 Province of British Columbia, 4.625% due 10/03/2006 432,213 AA- Aa2 1,000,000 Province of Manitoba, 5.50% due 10/01/2008 1,126,898 AA Aa2 750,000 Province of Ontario, 5.50% due 10/01/2008 847,122 A+ A1 900,000 Province of Quebec, 7.50% due 9/15/2029 1,199,492 A+ Aa3 603,000 Province of Saskatchewan, 8% due 7/15/2004 643,903 AAA Aaa 1,000,000 Republic of Finland, 5.875% due 2/27/2006 1,104,882 Republic of Italy: AA Aa2 700,000 5.25% due 4/05/2006 759,300 AA Aa2 1,050,000 4.375% due 10/25/2006 1,125,298 United Mexican States: BBB- Baa2 1,950,000 9.875% due 2/01/2010 2,500,875 BBB- Baa2 900,000 6.375% due 1/16/2013 954,000 ----------- 14,761,946 =================================================================================================================================== Industrial--Consumer BBB Baa1 60,000 Albertson's Inc., 7.50% due 2/15/2011 70,096 Goods--1.2% A+ A1 350,000 Anheuser-Busch Companies Inc., 6% due 11/01/2041 381,995 A A2 500,000 Brown-Forman Corporation, 3% due 3/15/2008 501,950 A A2 855,000 Coca-Cola Enterprises, 6.75% due 9/15/2028 1,012,842 Conagra Foods Inc.: BBB+ Baa1 200,000 7% due 10/01/2028 234,551 BBB+ Baa1 300,000 8.25% due 9/15/2030 402,484 A+ A2 140,000 Diageo Capital PLC, 3.50% due 11/19/2007 144,083 BBB+ Baa2 850,000 General Mills Inc., 6% due 2/15/2012 959,614 BBB Baa2 515,000 International Paper Company, 8.125% due 7/08/2005 574,169 BBB Baa2 567,000 Kellogg Company, 6% due 4/01/2006 625,072 AA- Aa2 294,000 Kimberly-Clark Corporation, 7.10% due 8/01/2007 344,120 BBB+ A3 155,000 Kraft Foods Inc., 4.625% due 11/01/2006 164,623 Kroger Company: BBB Baa3 160,000 7.625% due 9/15/2006 182,465 BBB Baa3 85,000 7.70% due 6/01/2029 102,335 BBB Baa3 250,000 7.50% due 4/01/2031 296,509 A- A3 500,000 Nabisco, Inc., 6.375% due 2/01/2005 529,971 A A1 92,000 Pepsi Bottling Holdings Inc., 5.625% due 2/17/2009 (a) 103,181 A A1 500,000 PepsiCo Inc., 4.50% due 9/15/2004 519,654 BB+ Ba1 270,000 RJ Reynolds Tobacco Holdings, 6.50% due 6/01/2007 270,474 BBB Baa2 300,000 Safeway Inc., 6.15% due 3/01/2006 324,784 BBB Baa2 290,000 Sappi Papier Holdings AG, 6.75% due 6/15/2012 (a) 331,197 A+ A3 120,000 Sara Lee Corporation, 6.25% due 9/15/2011 138,881 Sealed Air Corporation: BBB Baa3 400,000 5.375% due 4/15/2008 419,795 BBB Baa3 135,000 6.95% due 5/15/2009 (a) 149,124 BBB Baa3 390,000 SuperValu Inc., 7.50% due 5/15/2012 444,671 ----------- 9,228,640 ===================================================================================================================================
16 & 17 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master Aggregate Bond Index Series (continued) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Industrial--Energy-- Anadarko Finance Company: 1.6% BBB+ Baa1 $ 390,000 6.75% due 5/01/2011 $ 457,116 BBB+ Baa1 190,000 7.50% due 5/01/2031 238,676 Apache Corporation: A- A3 270,000 6.25% due 4/15/2012 314,384 A- A3 190,000 7.625% due 7/01/2019 236,774 AA+ Aa1 350,000 Atlantic Richfield, 5.90% due 4/15/2009 401,819 A- A3 550,000 Atmos Energy Corporation, 5.125% due 1/15/2013 584,289 BBB+ Baa1 330,000 Chevron Phillips Chemical Company, 5.375% due 6/15/2007 355,956 AA Aa2 150,000 ChevronTexaco Capital Company, 3.50% due 9/17/2007 155,883 A A2 325,000 Colonial Pipeline, 7.63% due 4/15/2032 (a) 424,441 Conoco Inc.: A- A3 800,000 5.90% due 4/15/2004 827,510 A- A3 320,000 6.35% due 4/15/2009 374,027 A- A3 75,000 6.95% due 4/15/2029 90,237 A- A3 1,400,000 ConocoPhillips, 4.75% due 10/15/2012 1,479,565 Consolidated Natural Gas: BBB+ A3 500,000 5.375% due 11/01/2006 542,068 BBB+ A3 75,000 6.25% due 11/01/2011 86,120 Duke Energy Corporation: A- A3 300,000 3.75% due 3/05/2008 (a) 308,799 BBB+ Baa1 550,000 6.25% due 1/15/2012 616,328 BBB Baa2 350,000 Enterprise Products Operations, 6.875% due 3/01/2033 (a) 396,407 Kinder Morgan Energy: BBB+ Baa1 840,000 6.75% due 3/15/2011 976,781 BBB Baa2 425,000 6.50% due 9/01/2012 487,177 A+ A1 350,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 370,257 A- Baa1 100,000 Murphy Oil Corporation, 6.375% due 5/01/2012 115,260 A- A3 225,000 Nabors Industries Inc., 5.375% due 8/15/2012 244,310 BBB Baa3 430,000 NiSource Finance Corporation, 7.625% due 11/15/2005 470,141 BBB- Baa3 450,000 Ocean Energy Inc., 7.25% due 10/01/2011 536,806 A- A3 650,000 Phillips Petroleum Company, 8.50% due 5/25/2005 732,191 AA Aa3 250,000 Texaco Capital Inc., 8.625% due 6/30/2010 330,486 BBB Baa3 300,000 Valero Energy Corporation, 6.875% due 4/15/2012 340,072 ----------- 12,493,880 =================================================================================================================================== Industrial-- BB+ Ba1 450,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 504,071 Manufacturing--3.7% A- A2 340,000 Alcan Inc., 6.45% due 3/15/2011 393,561 A- A2 400,000 Alcoa Inc., 6% due 1/15/2012 450,571 A+ A2 600,000 American Honda Finance, 1.548% due 10/03/2005 (a) 602,381 A A3 320,000 Baxter International Inc., 4.625% due 3/15/2015 (a) 324,460 A A3 200,000 Boeing Capital Corporation, 7.10% due 9/27/2005 220,603 A A2 265,000 Caterpillar Financial Services Corporation, 4.875% due 6/15/2007 287,417 Centex Corporation: BBB Baa2 390,000 7.875% due 2/01/2011 471,773 BBB Baa2 45,000 7.50% due 1/15/2012 53,494 A- A3 450,000 Cooper Industries Inc., 5.50% due 11/01/2009 499,985 DaimlerChrysler NA Holdings: BBB+ A3 1,370,000 6.40% due 5/15/2006 1,496,091 BBB+ A3 250,000 7.30% due 1/15/2012 281,948 BBB+ A3 310,000 8.50% due 1/18/2031 365,138 A- A3 635,000 Deere & Co., 7.85% due 5/15/2010 782,255 BBB- Baa2 500,000 Delphi Auto Systems Corporation, 6.55% due 6/15/2006 536,459 BBB- Baa3 270,000 Domtar Inc., 7.875% due 10/15/2011 329,683 A A2 335,000 Emerson Electric Company, 7.875% due 6/01/2005 373,589 BBB Baa1 1,600,000 Ford Motor Company, 7.45% due 7/16/2031 1,465,704 Ford Motor Credit Company: BBB A3 1,890,000 6.875% due 2/01/2006 2,004,534 BBB A3 200,000 7.25% due 10/25/2011 205,615 AAA Aaa 1,760,000 General Electric Capital Corporation, 6.75% due 3/15/2032 2,058,434 General Motors Acceptance Corp.: BBB A3 674,000 6.85% due 6/17/2004 701,091 BBB A3 692,000 7.75% due 1/19/2010 744,745 BBB A3 140,000 6.875% due 9/15/2011 140,467 BBB A3 970,000 7% due 2/01/2012 975,925 BBB A3 998,000 8% due 11/01/2031 979,203 AAA Aaa 400,000 General Electric Company, 5% due 2/01/2013 422,503 BBB+ Baa1 500,000 Hanson Australia Funding, 5.25% due 3/15/2013 512,181 BBB Baa2 1,000,000 Hertz Corp., 7% due 1/15/2028 835,722 A A2 205,000 Honeywell International, 6.125% due 11/01/2011 233,558 IBM Corporation: A+ A1 335,000 6.45% due 8/01/2007 381,524 A+ A1 200,000 4.75% due 11/29/2012 210,213 BBB- Ba1 550,000 IOS Capital LLC, 7.25% due 6/30/2008 537,625 A- A3 125,000 Kern River Funding Corporation, 4.893% due 4/30/2018 (a) 128,612 BBB- Baa3 200,000 Lennar Corporation, 5.95% due 3/01/2013 218,895 Lockheed Martin Corporation: BBB Baa2 300,000 7.25% due 5/15/2006 341,653 BBB Baa2 135,000 7.75% due 5/01/2026 168,432 BBB Baa2 350,000 8.50% due 12/01/2029 475,718 BB+ Baa3 250,000 MDC Holdings Inc., 5.50% due 5/15/2013 252,068 BBB Baa2 325,000 Martin Marietta Corp., 7.375% due 4/15/2013 393,672 Masco Corporation: BBB+ Baa1 365,000 6% due 5/03/2004 377,825 BBB+ Baa1 45,000 6.50% due 8/15/2032 49,945 Newell Rubbermaid Inc.: BBB+ Baa1 250,000 4.625% due 12/15/2009 264,902 BBB+ Baa1 300,000 4% due 5/01/2010 305,690 AA Aa3 350,000 Pitney Bowes Inc., 4.75% due 5/15/2018 357,093
18 & 19 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master Aggregate Bond Index Series (continued) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Industrial-- Pulte Homes Inc.: Manufacturing BBB- Baa3 $ 110,000 7.875% due 8/01/2011 $ 133,567 (concluded) BBB- Baa3 105,000 6.25% due 2/15/2013 116,484 Raytheon Company: BBB- Baa3 160,000 8.20% due 3/01/2006 184,601 BBB- Baa3 35,000 6.15% due 11/01/2008 39,575 BBB- Baa3 550,000 8.30% due 3/01/2010 675,689 BBB- Baa3 350,000 6.75% due 3/15/2018 403,346 A- A3 400,000 Science Applications International, 5.50% due 7/01/2033 (a) 375,998 A A2 225,000 Stanley Works, 4.90% due 11/01/2012 (a) 234,743 A- A3 870,000 Textron Financial Corporation, 2.75% due 6/01/2006 868,718 BBB- Baa3 400,000 Timken Company, 6.75% due 8/21/2006 445,841 BBB- Baa3 325,000 Toll Brothers Inc., 6.875% due 11/15/2012 (a) 372,466 BBB Baa2 310,000 Visteon Corp., 8.25% due 8/01/2010 336,849 BBB Baa2 740,000 Weyerhaeuser Company, 5.95% due 11/01/2008 827,942 ----------- 28,732,847 =================================================================================================================================== Industrial--Other-- AA Aa3 396,000 Abbott Laboratories, 5.625% due 7/01/2006 438,463 2.4% A+ A1 255,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 272,179 BBB Baa2 200,000 BRE Properties, 5.95% due 3/15/2007 219,137 BB+ Ba1 475,000 Bowater Canada Finance, 7.95% due 11/15/2011 503,767 BBB+ Baa2 1,075,000 Burlington Northern Santa Fe, 6.75% due 7/15/2011 1,258,659 BBB Baa2 435,000 CSX Corporation, 6.75% due 3/15/2011 506,454 AAA Aaa 1,140,000 Continental Airlines, 6.563% due 2/15/2012 1,247,827 A- A3 430,000 Dow Chemical, 5.75% due 11/15/2009 470,267 AA Aa3 600,000 Eli Lilly & Company, 7.125% due 6/01/2025 758,951 A A2 850,000 General Dynamics Corporation, 3% due 5/15/2008 855,353 BBB- Ba1 500,000 HCA Inc., 6.30% due 10/01/2012 511,179 BBB Baa2 500,000 Harris Corporation, 6.35% due 2/01/2028 540,755 BBB+ Baa2 350,000 Health Care Properties Investors Inc., 6.45% due 6/25/2012 380,825 BBB Baa2 700,000 ICI North America, 8.875% due 11/15/2006 826,457 A- Baa2 550,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 543,373 NR* A3 2,208,000 Morgan Stanley TRACERS, 5.838% due 3/01/2007 (a)(b)(c) 2,428,535 BBB Baa2 235,000 New Plan Excel Realty Trust, 5.875% due 6/15/2007 251,828 Norfolk Southern Corporation: BBB Baa1 575,000 6.75% due 2/15/2011 671,583 BBB Baa1 220,000 7.25% due 2/15/2031 262,732 BBB- Baa3 237,000 Northrop Grumman Corporation, 7.125% due 2/15/2011 283,907 AAA Aaa 850,000 Pfizer Inc., 5.625% due 2/01/2006 932,928 BBB+ Baa2 170,000 Placer Dome Inc., 6.375% due 3/01/2033 (a) 178,354 Praxair Inc.: A- A3 235,000 6.50% due 3/01/2008 272,476 A- A3 135,000 6.375% due 4/01/2012 157,232 BBB- Baa3 715,000 Rock-Tenn Company, 5.625% due 3/15/2013 744,485 A Baa1 400,000 Southwest Airlines Co., 8% due 3/01/2005 434,700 Tenet Healthcare Corporation: BB Ba3 250,000 7.375% due 2/01/2013 241,250 BB Ba3 170,000 6.875% due 11/15/2035 (f) 149,600 Union Pacific Corp.: BBB Baa3 150,000 6.34% due 11/25/2003 152,608 BBB Baa3 950,000 5.75% due 10/15/2007 1,054,585 A+ A2 625,000 United Technology Corporation, 6.35% due 3/01/2011 724,673 A- Baa1 100,000 Wellpoint Health Network, 6.375% due 6/15/2006 112,141 ----------- 18,387,263 =================================================================================================================================== Industrial-- BBB+ Baa1 1,675,000 AOL Time Warner Inc., 6.875% due 5/01/2012 1,912,207 Services--3.3% BBB- Baa3 600,000 Aramark Services Inc., 6.375% due 2/15/2008 659,496 A- A3 225,000 Carnival Corporation, 6.15% due 4/15/2008 248,223 BBB Baa1 950,000 Cendant Corporation, 6.875% due 8/15/2006 1,062,620 Citizens Communications Company: BBB Baa2 1,500,000 8.50% due 5/15/2006 1,739,717 BBB Baa2 275,000 7.625% due 8/15/2008 326,643 BBB- Baa3 400,000 Clear Channel Communications, 7.25% due 10/15/2027 456,328 BBB Baa3 450,000 Comcast Cable Communications, 8.875% due 5/01/2017 601,972 Comcast Corporation: BBB Baa3 550,000 5.85% due 1/15/2010 605,164 BBB Baa3 500,000 7.05% due 3/15/2033 555,324 BBB Baa2 350,000 Cox Communications Inc., 7.125% due 10/01/2012 417,947 Dayton Hudson Corp.: A+ A2 888,000 10% due 1/01/2011 1,223,541 A+ A2 100,000 6.75% due 1/01/2028 116,038 Federated Department Stores: BBB+ Baa1 25,000 6.625% due 9/01/2008 28,573 BBB+ Baa1 135,000 6.30% due 4/01/2009 152,828 BBB+ Baa1 270,000 6.625% due 4/01/2011 310,292 A+ A1 835,000 First Data Corporation, 6.375% due 12/15/2007 956,807 BBB+ Baa2 470,000 Fiserv Inc., 4% due 4/15/2008 (a) 484,007 A A2 515,000 Gannett Company Inc., 5.50% due 4/01/2007 566,528 A- A3 550,000 Hewlett-Packard Company, 3.625% due 3/15/2008 564,460 A- A3 235,000 Kohl's Corporation, 6.30% due 3/01/2011 272,287 Liberty Media Corporation: BBB- Baa3 810,000 7.875% due 7/15/2009 948,873 BBB- Baa3 500,000 5.70% due 5/15/2013 508,260 BBB+ Baa1 450,000 Limited Brands Inc., 6.125% due 12/01/2012 497,216 Lowe's Companies Inc.: A A3 215,000 6.875% due 2/15/2028 252,327 A A3 65,000 6.50% due 3/15/2029 73,714 BBB Ba1 360,000 Manor Care Inc., 6.25% due 5/01/2013 (a) 372,600 News America Inc.: BBB- Baa3 550,000 7.25% due 5/18/2018 655,114 BBB- Baa3 250,000 7.28% due 6/30/2028 283,385 A- A3 2,100,000 Reed Elsevier Capital, 6.125% due 8/01/2006 2,344,217
20 & 21 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Master Aggregate Bond Index Series (continued) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Industrial-- BBB- Ba2 $ 250,000 Rogers Cable Inc., 6.25% due 6/15/2013 (a) $ 249,375 Services BBB Baa1 500,000 Sears Discover Credit Corp., 9.14% due 3/13/2012 592,805 (concluded) BBB Baa1 205,000 Sears Roebuck Acceptance Corporation, 7% due 6/01/2032 229,302 BBB Baa3 200,000 Tele-Communications Inc., 9.80% due 2/01/2012 264,936 Time Warner Inc.: BBB+ Baa1 870,000 7.75% due 6/15/2005 955,231 BBB+ Baa1 352,000 6.875% due 6/15/2018 395,885 BBB- Baa3 715,000 USA Interactive, 7% due 1/15/2013 823,540 AAA Aaa 500,000 United Parcel Service, 8.375% due 4/01/2020 665,185 BB+ Baa3 500,000 Univision Communication Inc., 7.85% due 7/15/2011 595,141 A- A3 635,000 Viacom Inc., 7.75% due 6/01/2005 707,227 AA Aa2 450,000 Wal-Mart Stores, Inc., 6.875% due 8/10/2009 541,601 BBB Baa3 375,000 Waste Management Inc., 6.50% due 5/15/2004 383,804 ----------- 25,600,740 =================================================================================================================================== Utilities-- BBB Baa2 400,000 AT&T Corporation, 7.80% due 11/15/2011 457,245 Communications-- BBB Baa2 990,000 AT&T Wireless Services Inc., 8.75% due 3/01/2031 1,223,704 2.2% A A2 315,000 Alltel Corporation, 7% due 7/01/2012 382,346 A+ A1 800,000 Ameritech Capital Funding, 6.45% due 1/15/2018 929,884 A+ A1 459,000 BellSouth Corporation, 6% due 10/15/2011 524,545 A- Baa1 855,000 British Telecom PLC, 8.375% due 12/15/2010 1,081,301 BBB+ Baa2 400,000 CenturyTel Inc., 7.875% due 8/15/2012 504,812 Deutsche Telekom International Finance: BBB+ Baa3 1,400,000 8.25% due 6/15/2005 1,561,179 BBB+ Baa3 710,000 8.50% due 6/15/2010 872,149 BBB+ Baa3 300,000 8.75% due 6/15/2030 382,227 France Telecom: BBB Baa3 700,000 9.25% due 3/01/2011 880,996 BBB Baa3 500,000 10% due 3/01/2031 691,868 GTE Corporation: A+ A3 800,000 6.84% due 4/15/2018 945,055 A+ A3 220,000 6.94% due 4/15/2028 249,668 BBB+ Baa1 700,000 Koninklijke (KPN) NV, 8% due 10/01/2010 866,574 BBB Baa2 675,000 Motorola Inc., 7.625% due 11/15/2010 793,125 Sprint Capital Corporation: BBB- Baa3 1,925,000 8.375% due 3/15/2012 2,304,835 BBB- Baa3 300,000 6.90% due 5/01/2019 314,234 Verizon Global Funding Corporation: A+ A2 1,000,000 6.75% due 12/01/2005 1,115,861 A+ A2 650,000 7.375% due 9/01/2012 792,808 A+ A2 85,000 Verizon New York Inc., 6.875% due 4/01/2012 100,059 ----------- 16,974,475 =================================================================================================================================== Utilities--Gas & BBB+ Baa1 600,000 AGL Capital Corporation, 4.45% due 4/15/2013 600,906 Electric--1.9% A- Baa2 270,000 AmerenEnergy Generating, 7.95% due 6/01/2032 343,178 BBB Baa3 1,100,000 American Electric Power, 6.125% due 5/15/2006 1,205,767 BBB+ A2 500,000 Baltimore Gas & Electric, 5.20% due 6/15/2033 478,118 BBB Baa1 115,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 126,346 BBB+ Baa1 500,000 Commonwealth Edison Company, 6.95% due 7/15/2018 609,107 BBB Baa1 135,000 Conectiv Inc., .30% due 6/01/2005 140,626 Consolidated Edison Company of New York: NR* A1 275,000 4.875% due 2/01/2013 289,949 A A1 500,000 5.10% due 6/15/2033 475,700 BBB+ Baa1 595,000 Constellation Energy Group, 6.125% due 9/01/2009 669,155 Consumers Energy (a): BBB- Baa3 445,000 4.25% due 4/15/2008 460,165 BBB- Baa3 400,000 4% due 5/15/2010 398,714 Dominion Resources Inc.: BBB+ Baa1 481,000 8.125% due 6/15/2010 596,053 BBB+ Baa1 325,000 6.30% due 3/15/2033 343,222 BBB+ Baa2 475,000 Entergy Mississippi Inc., 5.15% due 2/01/2013 490,136 BBB+ Baa2 50,000 Exelon Corporation, 6.75% due 5/01/2011 57,849 BBB- Baa2 825,000 FirstEnergy Corp., 6.45% due 11/15/2011 905,322 A Aa3 470,000 Florida Power and Light, 6.875% due 12/01/2005 524,695 A- A2 100,000 FPL Group Capital Inc., 7.625% due 9/15/2006 115,535 A A2 160,000 Georgia Power Company, 5.125% due 11/15/2012 171,612 BBB- Baa3 510,000 MidAmerican Energy Holdings, 5.875% due 10/01/2012 559,327 BBB Baa2 200,000 New York State Electric & Gas, 5.75% due 5/01/2023 203,111 BBB Baa1 475,000 Oncor Electric Delivery, 6.375% due 5/01/2012 542,233 BBB A3 200,000 Ohio Power Company, 6.60% due 2/15/2033 (a) 223,221 BBB Baa1 200,000 Pepco Holdings Inc., 4% due 5/15/2010 199,908 BBB Baa2 560,000 Progress Energy Inc., 7.10% due 3/01/2011 651,452 A- A3 670,000 Public Service Electric & Gas, 5.125% due 9/01/2012 715,363 A- A1 170,000 South Carolina Electric & Gas, 6.70% due 2/01/2011 199,879 A+ A1 700,000 Southern California Gas Company, 4.80% due 10/01/2012 735,694 BBB+ Baa1 490,000 Southern Power Company, 6.25% due 7/15/2012 554,621 BBB Baa2 150,000 TGT Pipeline LLC, 5.20% due 6/01/2018 (a) 149,529 BBB+ Baa1 300,000 Texas Gas Transmission, 4.60% due 6/01/2015 (a) 299,169 A- A1 277,000 Union Electric Company, 5.25% due 9/01/2012 300,889 A- Aa3 250,000 Wisconsin Electric Power, 5.625% due 5/15/2033 258,412 ----------- 14,594,963 =================================================================================================================================== Yankee-- A A2 365,000 BHP Finance USA Limited, 6.42% due 3/01/2026 407,810 Corporate--2.2% A- A2 200,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 247,969 A- Baa3 730,000 Brascan Corporation, 5.75% due 3/01/2010 777,000 BBB+ Baa1 650,000 Burlington Resources Finance, 6.50% due 12/01/2011 759,503 BBB+ Baa1 500,000 Canadian National Railways, 6.375% due 10/15/2011 581,843 A- A2 120,000 Codelco Inc., 6.375% due 11/30/2012 (a) 132,162 A A2 535,000 Corp Andina de Fomento, 6.875% due 3/15/2012 609,065 A+ A1 1,000,000 Hydro-Quebec, 8.875% due 3/01/2026 1,491,645 Inter-American Development Bank: AAA Aaa 750,000 5.75% due 2/26/2008 857,553 AAA NR* 1,000,000 6.80% due 10/15/2025 1,241,250
22 & 23 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Master Aggregate Bond Index Series (concluded) ---------------------------------------------------------------------------------------------------------- S&P Moody's Face INDUSTRIES+ Ratings Ratings Amount Corporate Bonds & Notes Value =================================================================================================================================== Yankee-- International Bank for Reconstruction and Development: Corporate AAA Aaa $1,865,000 4.75% due 4/30/2004 $ 1,920,780 (concluded) AAA Aaa 250,000 3.50% due 10/22/2004 257,549 AAA Aaa 700,000 KFW International Finance, 4.75% due 1/24/2007 759,772 A- A3 550,000 Korea Development Bank, 4.25% due 11/13/2007 567,879 AA- A1 500,000 National Australia Bank Ltd., 8.60% due 5/19/2010 646,334 BBB- Baa3 1,165,000 Noranda Inc., 7% due 7/15/2005 1,233,187 A A2 950,000 Norsk Hydro A/S, 6.36% due 1/15/2009 1,093,942 Pemex Project Funding Master Trust: BBB- Baa1 905,000 9.125% due 10/13/2010 1,095,050 BBB- Baa1 400,000 7.375% due 12/15/2014 438,000 BBB- Baa1 40,000 8.625% due 2/01/2022 45,700 BBB+ Baa2 345,000 Potash Corporation of Saskatchewan, 7.75% due 5/31/2011 424,062 A+ A1 500,000 Unilever Capital Corporation, 7.125% due 11/01/2010 605,785 Vodafone Group PLC: A A2 530,000 7.75% due 2/15/2010 652,128 A A2 100,000 7.875% due 2/15/2030 128,823 A+ A1 350,000 Westpac Banking Corporation, 4.625% due 6/01/2018 347,557 ------------ 17,322,348 =================================================================================================================================== Total Investments in Corporate Bonds & Notes (Cost--$200,909,649)--28.0% 216,727,573 =================================================================================================================================== Short-Term Securities =================================================================================================================================== Repurchase Morgan Stanley & Co., Inc.: Agreements***-- 10,025,000 purchased on 6/30/2003 to yield 1.12% to 7/01/2003, 13.4% repurchase price $10,025,312, collaterized by FHLM, 6% due 10/01/2008 10,025,000 375,000 purchased on 6/30/2003 to yield 1.12% to 7/01/2003, repurchase price $375,012, collaterized by FHLM, 4.50% due 5/01/2013 375,000 93,600,000 purchased on 6/30/2003 to yield 1.12% to 7/01/2003, repurchase price $93,602,912, collaterized by FHLM, 5% due 2/01/2018 93,600,000 ------------ 104,000,000 =================================================================================================================================== Beneficial Interest/ Shares Held =================================================================================================================================== Other--3.4% $15,651,000 Merrill Lynch Liquidity Series, LLC Money Market Series (d)(e) 15,651,000 10,434,000 Merrill Lynch Premier Institutional Fund (d)(e) 10,434,000 ------------ 26,085,000 =================================================================================================================================== Total Investments in Short-Term Securities (Cost--$130,085,000)--16.8% 130,085,000 =================================================================================================================================== Total Investments (Cost--$841,930,304)--113.3% 877,890,483 Unrealized Appreciation on Swaps****--0.1% 479,230 Liabilities in Excess of Other Assets--(13.4%) (103,675,360) ------------ Net Assets--100.0% $774,694,353 ============ ===================================================================================================================================
+ For Fund compliance purposes, "Industries" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Series management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. * Not Rated. ** Mortgage-Backed Obligations are subject to principal paydowns as a result of prepayments or refinancing of the underlying mortgage instruments. As a result, the average life may be substantially less than the original maturity. *** Repurchase Agreements are fully collateralized by U.S. Government Agency Obligations. **** Swaps entered into as of June 30, 2003 were as follows: -------------------------------------------------------------------------- Notional Unrealized Amount Appreciation -------------------------------------------------------------------------- Receive a price return equal to Lehman Brothers CMBS Investment Grade Index Total Return and pay floating rate based on 1-month USD LIBOR, minus .40% 17,000,000 $479,230 Broker, Deutsche Bank AG Expires, October 2003 -------------------------------------------------------------------------- (a) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (b) Floating rate note. (c) Tradable Custodial Receipts (TRACERS). (d) Investments in companies considered to be an affiliate of the Series (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) are as follows: -------------------------------------------------------------------------- Net Dividend/Interest Affiliate Activity Income -------------------------------------------------------------------------- Merrill Lynch Liquidity Series, $15,347,574 $624 LLC Money Market Series Merrill Lynch Premier Institutional Fund 10,164,842 $324 -------------------------------------------------------------------------- (e) Security was purchased with the cash proceeds from securities loans. (f) Restricted securities as to the resale. The value of the Fund's investment in restricted securities was approximately $150,000, representing .02% of net assets: -------------------------------------------------------------------------- Acquisition Issue Date Cash Value -------------------------------------------------------------------------- Tenet Healthcare Corporation, 11/27/2002 $142,523 $149,600 6.875% due 11/15/2031 -------------------------------------------------------------------------- Total $142,523 $149,600 -------------------------------------------------------------------------- See Notes to Financial Statements. 24 & 25 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 STATEMENT OF ASSETS AND LIABILITIES MASTER AGGREGATE BOND INDEX SERIES As of June 30, 2003 ======================================================================================================================== Assets: Investments, at value (including securities loaned of $25,458,030) (identified cost--$841,930,304) .................................. $877,890,483 Unrealized appreciation on swaps--net ............................ 479,230 Receivables: Interest ....................................................... $ 7,666,903 Paydowns ....................................................... 1,311,847 Contributions .................................................. 1,094,420 Securities sold ................................................ 636,946 10,710,116 ----------- Prepaid expenses ................................................. 67,363 ------------ Total assets ..................................................... 889,147,192 ------------ ======================================================================================================================== Liabilities: Collateral on securities loaned, at value ........................ 26,085,000 Payables: Securities purchased ........................................... 84,268,711 Custodian bank ................................................. 3,631,956 Withdrawals .................................................... 452,526 Investment adviser ............................................. 6,145 Other affiliates ............................................... 4,279 88,363,617 ----------- Accrued expenses and other liabilities ........................... 4,222 ------------ Total liabilities ................................................ 114,452,839 ------------ ======================================================================================================================== Net Assets: Net assets ....................................................... $774,694,353 ============ ======================================================================================================================== Net Assets Investors' capital ............................................... $738,254,944 Consist of: Unrealized appreciation on investments--net ...................... 36,439,409 ------------ Net assets ....................................................... $774,694,353 ============ ========================================================================================================================
See Notes to Financial Statements. STATEMENT OF OPERATIONS MASTER AGGREGATE BOND INDEX SERIES For the Six Months Ended June 30, 2003 ========================================================================================================== Investment Income: Interest ............................................. $16,238,111 Interest income on swaps--net ........................ 102,612 Securities lending--net .............................. 948 ----------- Total income ......................................... 16,341,671 ----------- ========================================================================================================== Expenses: Professional fees .................................... $ 68,785 Accounting services .................................. 63,624 Custodian fees ....................................... 40,453 Investment advisory fees ............................. 36,868 Trustees' fees and expenses .......................... 3,834 Printing and shareholder reports ..................... 2,392 Other ................................................ 5,472 -------- Total expenses ....................................... 221,428 ----------- Investment income--net ............................... 16,120,243 ----------- ========================================================================================================== Realized & Realized gain from investments--net .................. 2,916,139 Unrealized Gain on Change in unrealized appreciation on investments--net 9,443,401 Investments -- Net: ----------- Total realized and unrealized gain on investments--net 12,359,540 ----------- Net Increase in Net Assets Resulting from Operations . $28,479,783 =========== ==========================================================================================================
See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the MASTER Months Ended Year Ended AGGREGATE BOND June 30, December 31, INDEX SERIES Increase (Decrease) in Net Assets: 2003 2002 =================================================================================================================== Operations: Investment income--net ..................................... $ 16,120,243 $ 28,432,807 Realized gain on investments--net .......................... 2,916,139 3,541,654 Change in unrealized appreciation on investments--net ...... 9,443,401 20,353,079 ------------- ------------- Net increase in net assets resulting from operations ....... 28,479,783 52,327,540 ------------- ------------- =================================================================================================================== Capital Proceeds from contributions ................................ 181,730,110 414,370,731 Transactions: Fair value of withdrawals .................................. (152,083,583) (216,281,419) ------------- ------------- Net increase in net assets derived from capital transactions 29,646,527 198,089,312 ------------- ------------- =================================================================================================================== Net Assets: Total increase in net assets ............................... 58,126,310 250,416,852 Beginning of period ........................................ 716,568,043 466,151,191 ------------- ------------- End of period .............................................. $ 774,694,353 $ 716,568,043 ============= ============= ===================================================================================================================
See Notes to Financial Statements. 26 & 27 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 FINANCIAL HIGHLIGHTS
For the Six For the Year Ended MASTER The following ratios have been derived Months Ended December 31, AGGREGATE BOND from information provided in the June 30, ----------------------------------------------------- INDEX SERIES financial statements. 2003 2002 2001 2000 1999 =================================================================================================================================== Total Investment 3.86%+ 10.13% 8.07% -- -- Return:** =========== =========== =========== =========== =========== =================================================================================================================================== Ratios to Average Expenses ............................... .06%* .08% .13% .14% .10% Net Assets: =========== =========== =========== =========== =========== Investment income--net ................. 4.37%* 5.37% 5.93% 6.62% 6.30% =========== =========== =========== =========== =========== =================================================================================================================================== Supplemental Net assets, end of period (in thousands) $ 774,694 $ 716,568 $ 466,151 $ 308,345 $ 406,148 Data: =========== =========== =========== =========== =========== Portfolio turnover ..................... 79.41% 112.18% 144.23% 43.24% 61.82% =========== =========== =========== =========== =========== ===================================================================================================================================
* Annualized. ** Total return is required to be disclosed for fiscal years beginning after December 15, 2000. + Aggregate total investment return. See Notes to Financial Statements. 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, as amended, and is organized as a Delaware statutory trust. The Declaration of Trust permits the Trustees to issue nontransferable interests in the Series, subject to certain limitations. The Series' financial statements are prepared in conformity 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 or the Nasdaq National Market are valued at the last sale price or official closing price as of the close of business on the day the securities are being valued, or lacking any sales, at the closing bid price for long positions, and at the last available ask price for short positions. Securities traded in the over-the-counter market are valued at the most recent bid prices as obtained from one or more dealers that make markets in the securities. Portfolio 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, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Short-term securities are valued at amortized cost, which approximates market value. 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). Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing price at the close of such exchanges. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees of the Trust, including valuations furnished by a pricing service retained by the Trust which may use a matrix system for valuations. Occasionally, events affecting the values of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the market on which such securities trade) and the close of business on the NYSE. If events (for example, company announcement, natural disasters, market volatility) occur during such periods that are expected to materially affect the value for such securities, those securities may be valued at their fair market value as determined in good faith by the Trust's Board of Trustees or by the investment adviser using a pricing service and/or procedures approved by the Board of Trustees of the Trust. (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 techniques to provide liquidity or as a proxy for a direct investment in securities underlying the Series' index. 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. 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 the 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 such, each investor in the Series is treated as owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Series. Therefore, no Federal income tax provision is required. It is intended that the Series' assets will be managed so an investor in the Series can satisfy the requirements of subchapter M of the Internal Revenue Code. (e) Security transactions and investment income -- Security transactions are accounted for on the date the securities are purchased or sold (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. The Series amortizes all premiums and discounts on debt securities. (f) Dollar rolls -- The Series may sell securities for delivery in the current month and simultaneously contract to 28 & 29 Merrill Lynch Aggregate Bond Index Fund, June 30, 2003 NOTES TO FINANCIAL STATEMENTS (concluded) MASTER AGGREGATE BOND INDEX SERIES repurchase substantially similar (same type, coupon and maturity) securities on a specific future date. As of June 30, 2003, no dollar rolls were in effect. (g) Securities lending -- The Series may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Series and any additional required collateral is delivered to the Series on the next business day. Where the Series receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Series typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Series receives cash collateral, it may invest such collateral and retain the amount earned on such investments, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Series may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Series could experience delays and costs in gaining access to the collateral. The Series also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. (h) Custodian bank -- The Series recorded an amount payable to the Custodian Bank reflecting an overnight overdraft which resulted from management estimates of available cash. 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. The Trust has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its affiliates. Pursuant to that order, the Series also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. MLIM, LLC may, on behalf of the Series, invest cash collateral received by the Series for such loans, among other things, in a private investment company managed by MLIM, LLC or in registered money market funds advised by FAM or its affiliates. For the six months ended June 30, 2003, MLIM, LLC received $463 in securities lending agent fees. Merrill Lynch Trust Company, an indirect, wholly-owned subsidiary of ML & Co., is the Series' custodian. For the six months ended June 30, 2003, the Series reimbursed FAM $7,765 for certain accounting services. 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, 2003 were $600,577,693 and $572,567,772, respectively. Net realized gains for the six months ended June 30, 2003 and net unrealized gains as of June 30, 2003 were as follows: -------------------------------------------------------------------------------- Realized Unrealized Gains Gains -------------------------------------------------------------------------------- Long-term investments ................ $ 2,916,139 $35,960,179 Swap contracts ....................... -- 479,230 ----------- ----------- Total ................................ $ 2,916,139 $36,439,409 =========== =========== -------------------------------------------------------------------------------- As of June 30, 2003, net unrealized appreciation for Federal income tax purposes aggregated $35,289,520, of which $35,860,798 related to appreciated securities and $571,278 related to depreciated securities. At June 30, 2003, the aggregate cost of investments for Federal income tax purposes was $842,600,963. 4. Short-Term Borrowings: The Series, along with certain other funds managed by FAM and its affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Series may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Series may borrow up to the maximum amount allowable under the Series' current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Series pays a commitment fee of .09% per annum based on the Series' pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement was renewed for one year under the same terms, except that the commitment was reduced from $1,000,000,000 to $500,000,000. The Series did not borrow under the credit agreement during the six months ended June 30, 2003. 30 & 31 [LOGO] Merrill Lynch Investment Managers 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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov. Merrill Lynch Index Funds, Inc. Box 9011 Princeton, NJ 08543-9011 [RECYCLED LOGO] Printed on post-consumer recycled paper #Index 1--6/03 Item 2 - Did registrant adopt a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party? If not, why not? Briefly describe any amendments or waivers that occurred during the period. State here if code of ethics/amendments/waivers are on website and give website address-. State here if fund will send code of ethics to shareholders without charge upon request-- N/A (annual requirement only and not required to be answered until the registrant's fiscal year-end on or after July 15, 2003) Item 3 - Did the registrant's board of directors determine that the registrant either: (i) has at least one audit committee financial expert serving on its audit committee; or (ii) does not have an audit committee financial expert serving on its audit committee? If yes, disclose name of financial expert and whether he/she is "independent," (fund may, but is not required, to disclose name/independence of more than one financial expert) If no, explain why not. -N/A (annual requirement only and not required to be answered until the registrant's fiscal year-end on or after July 15, 2003) Item 4 - Disclose annually only (not answered until December 15, 2003) (a) Audit Fees - Disclose aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. N/A. (b) Audit-Related Fees - Disclose aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (c) Tax Fees - Disclose aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (d) All Other Fees - Disclose aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A. (e)(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. N/A. (f) If greater than 50%, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. N/A. (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. N/A. (h) Disclose whether the registrant's audit committee has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. N/A. Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act, state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrant's audit committee in Section 3(a)(58)(B) of the Exchange Act, so state. If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act regarding an exemption from the listing standards for audit committees. N/A (Listed issuers must be in compliance with the new listing rules by the earlier of their first annual shareholders meeting after January 2004, or October 31, 2004 (annual requirement)) Item 6 - Reserved Item 7 - For closed-end funds that contain voting securities in their portfolio, describe the policies and procedures that it uses to determine how to vote proxies relating to those portfolio securities. N/A Item 8 -- Reserved Item 9(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. Item 9(b) -- There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10 - Exhibits 10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or amendments/waivers is on website or offered to shareholders upon request without charge. N/A. 10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act. Attached hereto. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Merrill Lynch Aggregate Bond Index Fund By: /s/ Terry K. Glenn ------------------------------- Terry K. Glenn, President of Merrill Lynch Aggregate Bond Index Fund Date: August 21, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Terry K. Glenn ------------------------------- Terry K. Glenn, President of Merrill Lynch Aggregate Bond Index Fund Date: August 21, 2003 By: /s/ Donald C. Burke ------------------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Aggregate Bond Index Fund Date: August 21, 2003 Attached hereto as a furnished exhibit are the certifications pursuant to Section 906 of the Sarbanes-Oxley Act.