E*TRADE INTERNATIONAL INDEX FUND
SEMIANNUAL REPORT
Dear E*TRADE Funds Shareholders,
We are writing to report the performance of the E*TRADE International Index Fund
(the "Fund") for the first half of 2000. We'd also like to take this opportunity
to thank you for investing in the Fund.
The investment objective of the Fund is to match as closely as practicable,
before fees and expenses, the performance of an international portfolio of
common stocks represented by the Morgan Stanley Capital International Europe,
Australasia, and Far East Free Index (the "EAFE Free Index" or the "Index").*
The EAFE Free Index is intended to represent broadly the performance of foreign
stock markets. The Index is a capitalization-weighted index and consists of
approximately 1100 securities listed on the stock exchanges of developed markets
of countries in Europe, Australasia, New Zealand, Hong Kong, Japan, Malaysia,
and Singapore. The EAFE Free Index may also include smaller-capitalization
companies. The Master Portfolio selects a sampling of securities in the Index
for investments in accordance with their capitalization, industry sector and
valuation, among other factors.
For the six month period ended June 30, 2000, the Fund returned -4.98%, and it
has returned a cumulative 10.92% since inception on October 22, 1999. In
comparison, the Index returned -4.06% for the six month period ended June 30,
2000. Since November 1,1999, the Fund has returned 7.28%, while the Index has
returned 8.18% over the same period. ** The investment return and principal
value of an investment in the Fund will fluctuate, and your shares, when
redeemed, may be worth more or less than their original cost.
The Fund can be affected by the risks of foreign investing, including changes in
currency exchange rates and the costs of converting currencies, foreign
government controls on foreign investment, repatriation of capital, currency and
exchange; foreign taxes, inadequate supervision and regulation of foreign
markets, volatility from lack of liquidity, different settlement practices or
delayed settlement in some markets, difficulty in obtaining complete and
accurate information about foreign comparisons, less strict accounting, auditing
and financial reporting standards than those in the U.S. political, economic and
social instability, and difficulty enforcing legal rights outside the United
States.
Rising interest rates, both in the U.S. and overseas, put a damper on equities
worldwide in the first half of the year. Markets that performed well during the
first quarter did so mainly due to continued strong growth in the
telecommunications and technology sectors. However, this trend reversed in the
second quarter as investors fled "new economy" telecommunications and technology
companies for value-oriented "old economy" companies.
Not surprisingly, two of EAFE's best performing countries for the first quarter
were the home countries of cellular-phone darlings Ericsson and Nokia. Sweden
was the best performer for the quarter, up 17%, largely due to a 39% return for
Ericsson, which represents about half of Sweden's index. Finland
contributed11.60%, thanks to a 23% return for Nokia, which makes up 73% of the
local index. The UK declined 5.54% amid interest rate hikes by the Bank of
England and fears of further tightening in the U.S. Japan's lackluster
performance of 0.87% for the quarter was characterized by two themes. First, the
euphoria surrounding technology stocks propelled the sector higher, led by
companies such as internet-related Softbank, which gained 52% in February alone.
The second factor was contracted GDP figures, coupled with rising interest rates
in the U.S. and abroad, which tempered these returns and resulted in a
relatively flat overall return for the quarter.
During the second quarter, twelve of the twenty countries comprising the Index
posted losses. Reversing the first quarter's trend, telecom and other "new
economy" stocks registered the most significant declines. Japan, which at 26.9%
represents the largest component of EAFE, fell 6.19% for the quarter, due
largely to Sony's 32% plunge. Nippon Telephone and Telegraph also contributed to
the loss, dropping 14%. UK, the second largest EAFE country, dropped 6.54%,
largely due to British Telecom's loss of 27%. Germany, the fourth largest
country in EAFE, fell 29%. Deutsche Telekom, which represents 25% of Germany's
index, lost 11.76% for the quarter.
You should remember that past performance is no guarantee of future returns and
the Fund may not be able to duplicate its performance. The Fund's unaudited
financial statements for the period ended June 30, 2000 are provided below. We
hope you will find them useful for evaluating and monitoring your investment.
Thank you again for your continued participation in the E*TRADE International
Index Fund.
Sincerely,E*TRADE Funds
*The EAFE Index is the exclusive property of Morgan Stanley Capital
International Inc. ("MSCI"). Morgan Stanley Capital International is a
servicemark of MSCI. MSCI does not sponsor the Fund, nor is it affiliated in any
way with the E*TRADE Group, Inc. "Morgan Stanley Capital International Europe,
Australasia, Far East Free Index(R)", "EAFE Free Index(R)", and "EAFE(R)" are
trademarks of MSCI. The Fund is not sponsored, endorsed, sold, or promoted by
the EAFE Free Index or MSCI and neither the EAFE Free Index nor MSCI make any
representation or warranty, express or implied, regarding the advisability of
investing in the Fund.
** The Fund began operations on October 22, 1999. Index Comparisons began on
November 1, 1999.
<PAGE>
INTERNATIONAL INDEX MASTER PORTFOLIO
JUNE 30, 2000 (Unaudited)
Schedule of Investments
SECURITY SHARES VALUE
----------------------------------------------------------------------------
COMMON STOCKS--94.61%
AUSTRALIA--2.44%
----------------------------------------------------------------------------
AMP Ltd. 11,687 118,770
Boral Ltd. + 71,979 90,362
Brambles Industries Ltd. 1,699 52,140
Broken Hill Proprietary Co. Ltd. 12,867 151,916
Coca-Cola Amatil Ltd. 20,876 40,560
Cochlear Ltd. 1,233 21,197
Coles Myer Ltd. 12,062 46,249
Commonwealth Bank of Australia 9,859 163,197
Computershare Ltd. 5,287 27,149
Gandel Retail Trust 30,252 19,531
Lend Lease Corp. Ltd. 3,501 44,595
National Australia Bank Ltd. 9,288 154,900
News Corp. Ltd. 14,697 202,075
Orica Ltd. 12,833 58,135
Rio Tinto Ltd. 3,595 59,356
Santos Ltd. 18,862 57,393
Smith (Howard) Ltd. 12,782 62,351
Southcorp Ltd. 13,279 38,262
TABCORP Holdings Ltd. 7,813 44,838
Telstra Corp Ltd. 55,984 226,909
Wesfarmers Ltd. 5,793 46,058
Westpac Banking Corp. Ltd. 11,045 79,563
WMC Ltd. 12,094 54,029
Woolworths Ltd. 13,395 49,366
----------------------------------------------------------------------------
1,908,901
----------------------------------------------------------------------------
AUSTRIA--0.15%
----------------------------------------------------------------------------
Bank Austria AG 1,142 55,629
OMV AG 677 58,820
----------------------------------------------------------------------------
114,449
----------------------------------------------------------------------------
BELGIUM--0.70%
----------------------------------------------------------------------------
Colruyt NV 784 33,220
Delhaize "Le Lion" SA 770 46,058
Dolmen Computer Applications NV + 64 1,253
Electrabel SA 292 72,178
Fortis "B" 4,572 133,049
Groupe Bruxelles Lambert SA 226 56,425
KBC Bancassurance Holding NV 2,194 96,567
PetroFina SA 1 549
Solvay SA 803 54,050
UCB SA 1,499 55,072
----------------------------------------------------------------------------
548,421
----------------------------------------------------------------------------
<PAGE>
----------------------------------------------------------------------------
DENMARK--0.79%
----------------------------------------------------------------------------
A/S Dampskibsselskabet Svendborg "B" 6 88,680
D/S 1912 "B" 8 84,969
Den Danske Bank Group 500 60,144
Nordic Baltic Holding AB + 8,626 62,918
Novo-Nordisk A/S "B" 538 91,565
Tele Danmark A/S 1,600 107,696
Vestas Wind Systems A/S 144A 3,290 120,829
----------------------------------------------------------------------------
616,801
----------------------------------------------------------------------------
FINLAND--2.94%
----------------------------------------------------------------------------
Nokia OYJ 37,124 1,894,497
Pohjola Group Insurance Corp. "B" 623 22,020
Sonera Group OYJ 6,460 294,508
Tietoenator OYJ 771 25,727
UPM-Kymmene OYJ 2,700 67,024
----------------------------------------------------------------------------
2,303,776
----------------------------------------------------------------------------
FRANCE--10.67%
----------------------------------------------------------------------------
Accor SA 1,871 76,688
Air Liquide 708 92,389
Alcatel SA 9,016 591,374
Aventis SA 5,809 424,005
AXA UAP 2,875 452,911
Banque National de Paris 3,426 329,715
Bouygues SA + 244 163,072
Canal Plus 925 155,434
Cap Gemini SA 951 167,521
Carrefour Supermarche SA 5,246 358,619
Compagnie de Saint Gobain 694 93,824
Compagnie Generale des Etablissements
Michelin "B" 1,523 48,872
Dassault Systemes SA 892 83,205
Etablissements Economiques du Casino
Guichard-Perrachon 746 69,088
France Telecom SA 7,852 1,097,521
Groupe Danone 1,062 140,939
Lafarge SA 892 69,324
Lagardere S.C.A 991 75,693
L'OREAL + 490 424,321
LVMH (Louis Vuitton Moet Hennessy) + 716 295,249
Pechiney SA "A" 1,184 49,400
Pernod Ricard 1,657 90,176
Pinault-Printemps-Redoute SA 845 187,735
PSA Peugeot Citroen 375 75,258
Publicis SA 81 31,785
Sagem SA 81 94,967
Sanofi-Synthelabo SA 5,337 254,266
Schneider SA 1,307 91,094
Societe Generale "A" 3,076 185,020
Sodexho Alliance SA 319 57,868
STMicroelectronics NV 6,475 408,014
Suez Lyonnaise des Eaux SA 1,338 234,417
Thomson CSF 1,339 52,747
Total SA - Series B 5,694 873,081
<PAGE>
Usinor SA 2,549 31,102
Valeo SA 873 46,676
Vivendi 4,375 386,168
----------------------------------------------------------------------------
8,359,538
----------------------------------------------------------------------------
GERMANY--7.99%
----------------------------------------------------------------------------
Allianz AG 1,799 646,334
BASF AG 4,650 188,684
Bayer AG 5,300 202,914
Beiersdorf AG 894 74,259
Continental AG 2,228 37,439
DaimlerChrysler AG 7,896 411,841
Deutsche Bank AG - Registered Shares 4,688 385,821
Deutsche Lufthansa AG 3,128 73,019
Deutsche Telekom AG 23,399 1,335,949
Dresdner Bank AG 3,850 158,427
EM TV & Merchandising AG 1,078 63,658
Fresenius Medical Care AG 787 62,756
Heidelberger Zement AG 710 43,384
HypoVereinsbank 3,050 199,472
Karstadt AG 1,318 34,353
Linde AG 1,562 62,785
MAN AG 1,448 43,769
Merck KGaA 1,873 57,224
Metro AG 2,681 94,683
Muenchener Rueckversicherungs-
Gesellschaf 1,273 398,652
Preussag AG 1,815 58,571
RWE AG 3,898 132,304
SAP AG 1,473 217,141
Schering AG 1,767 96,246
Siemens AG 4,516 681,244
Thyssen Krupp AG 4,605 74,963
Veba AG 5,626 271,258
Volkswagen AG 3,021 114,478
WCM Beteiligungs & Grundbesi AG 1,587 37,259
----------------------------------------------------------------------------
6,258,887
----------------------------------------------------------------------------
HONG KONG--1.96%
----------------------------------------------------------------------------
Cathay Pacific Airways Ltd. 31,000 57,462
CLP Holdings Ltd. 16,500 76,832
Esprit Holdings Ltd. 16,000 16,624
Hang Seng Bank Ltd 15,100 143,337
Henderson Land Development Co. Ltd. 15,000 65,998
Hong Kong & China Gas Co. Ltd. 49,060 55,065
Hong Kong Telecommunications Ltd. 90,400 198,880
Hutchison Whampoa Ltd. 29,700 373,365
Johnson Electric Holdings Ltd. 8,000 75,684
Li & Fung Ltd. 12,000 60,034
Pacific Century Cyberworks Ltd. + 40,000 79,020
Sun Hung Kai Properties Ltd. 21,000 150,853
Swire Pacific Ltd. "A" 18,500 108,216
Television Broadcasts Ltd. 4,000 26,682
Wharf Holdings Ltd. 27,000 48,316
----------------------------------------------------------------------------
1,536,368
----------------------------------------------------------------------------
<PAGE>
IRELAND--0.37%
----------------------------------------------------------------------------
Allied Irish Banks PLC 8,668 77,627
CRH PLC 3,725 67,395
Eircom PLC 17,419 46,566
Irish Life & Permanent PLC 5,332 45,255
Kerry Group PLC 3,985 51,098
----------------------------------------------------------------------------
287,941
----------------------------------------------------------------------------
ITALY--4.14%
----------------------------------------------------------------------------
Assicurazioni Generali SpA 8,594 294,565
Banca di Roma SpA 64,474 79,161
Banca Intesa SpA 39,543 177,066
Benetton Group SpA 23,233 48,578
Beni Stabili SpA 6,022 3,231
Enel SpA 52,366 231,987
ENI SpA 64,554 372,883
Fiat SpA 3,781 98,118
Mediaset SpA 8,790 134,277
Mediobanca Banca SpA 9,411 97,040
Olivetti SpA + 39,777 144,693
Pirelli SpA 24,078 63,332
Riunione Adriatica di Sicurta SpA 7,600 83,446
San Paolo - IMI SpA 10,593 188,014
Telecom Italia Mobile SpA 51,099 522,022
Telecom Italia Mobile SpA Rnc 14,238 71,640
Telecom Italia SpA 28,635 393,688
Telecom Italia SpA Rnc 7,464 49,527
Unicredito Italiano SpA 39,134 187,190
----------------------------------------------------------------------------
3,240,458
----------------------------------------------------------------------------
JAPAN--25.43%
----------------------------------------------------------------------------
Acom Co. Ltd. 1,200 100,815
Advantest Corp. 800 178,196
Ajinomoto Co. Inc. 6,000 76,854
Asahi Bank Ltd. 23,000 96,614
Asahi Breweries Ltd. 6,000 71,712
Asahi Chemical Industry Co. Ltd. 13,000 91,829
Asahi Glass Co. Ltd. 11,000 122,769
Bank of Tokyo-Mitsubishi Ltd. 37,000 446,405
Bank of Yokohama Ltd. 11,000 49,211
Benesse Corporation 800 55,380
Bridgestone Corp. 7,000 148,010
Canon Inc. 7,000 348,104
Casio Computer Co. Ltd. 5,000 56,039
Central Japan Railway Co. 15 84,766
Chugai Pharmaceutical Co. Ltd. 3,000 56,652
Dai Nippon Printing Co. Ltd. 6,000 105,618
Daiichi Pharmaceutical Co. Ltd. 4,000 101,342
Daikin Industries Ltd. 3,000 69,649
Daiwa Bank Ltd. 17,000 44,032
Daiwa House Industry Co. Ltd. 7,000 51,029
Daiwa Securities Co. Ltd. 11,000 145,044
Denso Corp. 7,000 170,096
East Japan Railway Co. 28 162,449
Ebara Corporation 5,000 67,671
<PAGE>
Eisai Co. Ltd. 3,000 96,068
Fanuc Ltd. 1,900 193,087
Fuji Bank Ltd. 26,000 197,371
Fuji Photo Film Co. 4,000 163,504
Fujitsu Ltd. 15,000 518,484
Furukawa Electric Co. Ltd. 6,000 125,171
Hirose Electric Co. Ltd. 500 77,749
Hitachi Ltd. 26,000 374,665
Honda Motor Co. Ltd. 8,000 272,004
Hoya Corp. 1,000 89,475
Industrial Bank of Japan Ltd. 21,000 159,020
Itochu Corp. + 12,000 60,467
Ito-Yokado Co. Ltd. 3,000 180,269
Japan Airlines Co. Ltd. 19,000 72,116
Japan Tobacco Inc. 15 131,528
Joyo Bank Ltd. 12,000 46,112
Jusco Co. Ltd. 3,000 56,793
Kaneka Corp. 4,000 44,040
Kansai Electric Power Co. Inc. 5,600 100,106
Kao Corp. 4,000 122,063
Kawasaki Steel Corp. 33,000 47,243
Keihin Electric Express Railway 14,000 52,611
Kinden Corp. 12,000 75,272
Kinki Nippon Railway Co. Ltd. 19,000 76,948
Kirin Brewery Co. Ltd. 8,000 99,835
Komatsu Ltd. 12,000 84,313
Konami Company Ltd. 1,100 69,414
Kubota Corp. 17,000 61,644
Kuraray Co. Ltd. 8,000 91,622
Kyocera Corp. 1,400 237,212
Kyowa Hakko Kogyo Co. Ltd. 4,000 39,068
Marubeni Corp. + 13,000 44,690
Marui Co. Ltd. 4,000 76,478
Matsushita Electric Industrial Co. Ltd. 15,000 388,509
Minebea Co. Ltd. 5,000 62,633
Mitsubishi Chemical Corp. 19,000 77,843
Mitsubishi Corp. 12,000 108,388
Mitsubishi Electric Corp. 17,000 183,809
Mitsubishi Estate Co. Ltd. 11,000 129,296
Mitsubishi Heavy Industries Ltd. 30,000 132,801
Mitsubishi Rayon Co. 18,000 54,994
Mitsubishi Trust & Banking Corp. 11,000 85,265
Mitsui & Co. Ltd. 12,000 91,547
Mitsui Fudosan Co. Ltd. 8,000 86,650
Mitsui Marine & Fire Insurance Co. Ltd. 11,000 52,837
Murata Manufacturing Co. Ltd. 2,000 286,696
NEC Corp. 13,000 407,723
NGK Insulators Ltd. 6,000 74,255
Nidec Corp. 600 51,990
Nikon Corp. 3,000 111,043
Nintendo Co. Ltd. 1,100 191,872
Nippon COMSYS Corp. 2,000 42,477
Nippon Express Co. Ltd. 10,000 61,314
Nippon Mitsubishi Oil Corp. 17,000 77,814
Nippon Paper Industries Co. 10,000 68,189
<PAGE>
Nippon Sheet Glass Co. Ltd. 4,000 55,531
Nippon Steel Corp. 54,000 113,416
Nippon Telegraph & Telephone Corp. 97 1,288,156
Nippon Yusen Kabushiki Kaisha 15,000 72,051
Nissan Motor Co. Ltd. + 32,000 188,368
Nitto Denko Corp. 2,000 77,043
Nomura Securities Co. Ltd. 15,000 366,612
NSK Ltd. 6,000 52,555
Oji Paper Co. Ltd. 11,000 75,629
Olympus Optical Co. Ltd. 4,000 71,618
Omron Corp. 3,000 81,375
Oriental Land Co. Ltd. 1,000 102,001
Orix Corp. 720 106,127
Osaka Gas Co. 22,000 63,197
Pioneer Electronic Corp. 2,000 77,796
Promise Co. Ltd. 1,000 78,926
Rohm Co. Ltd. 900 262,774
Sakura Bank Ltd. 31,000 214,015
Sankyo Co. Ltd. 4,000 90,228
Sanyo Electric Co. Ltd. 17,000 152,748
Secom Co. Ltd. 2,000 145,985
Sekisui House Ltd. 8,000 73,916
Sharp Corp. 8,000 141,276
Shin-Etsu Chemical Co. Ltd. 3,000 152,013
Shionogi & Co. Ltd. 3,000 56,934
Shiseido Co. 5,000 77,231
Shizuoka Bank Ltd. 7,000 59,336
Skylark Co. 1,000 39,463
SMC Corp. 600 112,738
Softbank Corp. 2,500 339,063
Sony Corp. 6,800 634,048
Sumitomo Bank Ltd. (The) 25,000 306,098
Sumitomo Chemical Co. Ltd. 16,000 96,142
Sumitomo Corp. 9,000 101,126
Sumitomo Electric Industries 7,000 119,859
Sumitomo Marine & Fire Insurance Co. Ltd. 10,000 58,112
Taisho Pharmaceutical Co. Ltd. 3,000 107,370
Taiyo Yuden Co. Ltd. 1,000 62,538
Takara Shuzo Co. 2,000 49,823
Takeda Chemical Industries 7,000 458,865
Takefuji Corp. 1,200 144,780
Teijin Ltd. 12,000 58,432
Terumo Corp. 2,000 67,624
Tobu Railway Co. Ltd. 17,000 48,515
Toho Co. Ltd. 200 34,019
Tohoku Electric Power Co. Inc. 2,800 37,711
Tokai Bank Ltd. 19,000 93,590
Tokio Marine & Fire Insurance Co. Ltd. 11,000 126,809
Tokyo Electric Power Co. Inc. 8,800 214,250
Tokyo Electronics Ltd. 1,000 136,755
Tokyo Gas Co. 25,000 70,168
Tokyu Corp. 14,000 69,093
Toppan Printing Co. Ltd. 6,000 63,405
Toray Industries Inc. 17,000 68,848
Toshiba Corp. 24,000 270,571
<PAGE>
Toyo Seikan Kaisha Ltd. 3,000 55,946
Toyota Motor Corp. 29,000 1,319,236
Trans Cosmos Inc. 200 29,988
Uni-Charm Corp. 800 48,373
Wacoal Corp. 5,000 50,860
Yamanouchi Pharmaceutical Co. Ltd. 3,000 163,598
Yamato Transport Co. Ltd. 4,000 99,270
----------------------------------------------------------------------------
19,918,616
----------------------------------------------------------------------------
NETHERLANDS--5.14%
----------------------------------------------------------------------------
ABN AMRO Holding NV 11,138 272,870
Aegon NV 10,148 361,103
Akzo Nobel NV 2,364 100,438
ASM Lithography Holding NV + 3,138 134,881
Elsevier NV 5,957 72,174
Getronics NV 2,670 41,170
Heineken NV 2,337 142,243
ING Groep NV 7,314 494,402
Koninklijike Philips Electronics NV 10,409 490,939
Koninklijke Ahold NV 6,081 178,995
Royal Dutch Petroleum Co. 16,415 1,020,266
Royal KPN NV 6,976 312,038
TNT Post Group NV 3,591 96,856
Unilever NV 4,134 189,651
VOPAK 2,403 52,768
Wolters Kluwer NV 2,391 63,691
----------------------------------------------------------------------------
4,024,485
----------------------------------------------------------------------------
NEW ZEALAND--0.10%
----------------------------------------------------------------------------
Lion Nathan Ltd. 35,635 79,438
----------------------------------------------------------------------------
79,438
----------------------------------------------------------------------------
NORWAY--0.31%
----------------------------------------------------------------------------
Bergesen DY "A" 2,734 56,072
Norsk Hydro ASA 2,715 113,896
Orkla As A-Aksjer 3,612 68,607
----------------------------------------------------------------------------
238,575
----------------------------------------------------------------------------
PORTUGAL--0.45%
----------------------------------------------------------------------------
Banco Comercial Portugues SA "R" 9,868 51,347
Banco Espirito Santo e Comercial de Lisboa SA 1,726 42,351
Brisa-Auto Estradas de Portugal SA 4,522 38,943
EDP - Electricidade de Portugal SA 4,559 82,789
Portugal Telecom 9,108 102,264
Sonae SGPS SA 17,080 36,080
----------------------------------------------------------------------------
353,774
----------------------------------------------------------------------------
SINGAPORE--0.84%
----------------------------------------------------------------------------
Chartered Semiconductor Manufacturing + 8,000 69,928
City Developments Ltd. 12,000 46,541
DBS Group Holdings Ltd. 10,652 136,888
DBS Land Ltd. 33,000 42,791
Oversea-Chinese Banking Corp Ltd. - Ordinary Shares 11,350 78,186
Singapore Airlines Ltd. 9,000 89,088
<PAGE>
Singapore Press Holdings Ltd. 4,000 62,518
Singapore Telecommunications Ltd. 46,000 67,367
United Overseas Bank Ltd. 10,392 67,976
----------------------------------------------------------------------------
661,283
----------------------------------------------------------------------------
SPAIN--2.72%
----------------------------------------------------------------------------
Autopistas Concesion + 5,772 2,480
Autopistas Concesionaria Espanola SA 5,772 50,204
Banco Bilbao Vizcaya SA 23,653 353,421
Banco Santander Central Hispano SA 30,724 324,138
Corporacion Financiere Alba + 1,406 37,050
Endesa SA 7,371 142,791
Fomento de Construcciones y Contratas SA 2,289 43,272
Gas Natural SDG SA 3,900 70,003
Grupo Dragados SA 10,404 74,598
Iberdrola SA 7,322 94,375
Repsol SA 9,518 189,471
Sociedad General de Aguas de Barcelona SA 2,780 37,159
Tabacalera SA "A" 4,570 70,204
Telefonica SA + 24,769 532,088
Union Electrica Fenosa SA 2,719 49,194
Zardoya Otis SA 6,733 59,655
----------------------------------------------------------------------------
2,130,103
----------------------------------------------------------------------------
SWEDEN--3.44%
----------------------------------------------------------------------------
Atlas Copco AB "B" 2,219 42,770
Drott AB 4,750 51,162
Electrolux AB "B" 3,394 52,526
ForeningsSparbanken AB 4,950 72,398
Hennes & Mauritz AB 6,051 126,234
NetCom AB "B" + 900 66,429
Nordic Baltic Holding AB 21,357 161,025
Sandvik AB 2,295 48,138
Securitas AB "B" 2,965 62,863
Skandia Forsakrings AB 11,320 299,043
Skandinaviska Enskilda Banken "A" 6,300 74,643
Skanska AB "B" 1,588 56,264
Svenska Cellulosa AB "B" 2,325 44,154
Svenska Handelsbanken AB "B" 5,900 85,624
Swedish Match AB 13,328 41,102
Telefonakfiebolaget Ericsson AB 60,008 1,187,234
Telia AB + 10,600 99,750
Volvo AB "B" 3,602 78,207
WM-Data AB 7,355 40,444
----------------------------------------------------------------------------
2,690,010
----------------------------------------------------------------------------
SWITZERLAND--5.44%
----------------------------------------------------------------------------
ABB Ltd. 2,243 268,456
Adecco SA 140 118,944
Alusuisse Lonza Group AG + 102 66,464
Credit Suisse Group 2,138 425,280
Gebruder Sulzer AG + 65 43,231
Givaudan - Foreign Registered + 63 19,174
Holderbank Financiere Glarus AG 134 43,781
Holderbank Financiere Glarus AG "B" 51 62,525
<PAGE>
Nestle SA 289 578,407
Novartis AG - Registered 544 861,677
Roche Holding AG 51 496,448
Roche Holding AG-Genusschein 12 126,926
Schindler Holding AG 28 42,909
Schweizerische Rueckversicherungs-Gesellschaft 100 203,819
Swatch Grap AG 57 72,466
Swisscom AG 558 193,257
Union Bank of Switzerbank 3,244 475,260
Zurich Allied AG 330 163,043
----------------------------------------------------------------------------
4,262,067
----------------------------------------------------------------------------
UNITED KINGDOM--18.59%
----------------------------------------------------------------------------
Abbey National PLC 10,532 126,257
Allied Zurich PLC 11,530 136,733
AMVESCAP PLC 5,511 88,644
Anglian Water PLC 6,542 60,555
Arm Holdings PLC + 7,615 81,813
BAA PLC 9,421 75,768
Barclays PLC 11,485 286,341
Bass PLC 8,258 93,106
BG Group PLC 25,767 166,957
Blue Circle Industries PLC 7,627 49,361
BOC Group PLC 3,826 55,155
Boots Co. PLC 8,188 62,497
BP Amoco PLC 173,728 1,671,368
British Aerospace PLC 22,004 137,567
British Airways PLC 10,196 58,793
British American Tobacco PLC 21,132 141,415
British Sky Broadcasting Group PLC + 13,940 273,301
British Telecommunications PLC 49,095 636,222
Burmah Castrol PLC 2,563 64,794
Cadbury Schweppes PLC 15,528 102,263
Canary Wharf Finance PLC + 8,119 45,647
Capita Group PLC 1,859 45,615
Carlton Communications PLC 5,870 75,713
Centrica PLC 29,385 98,322
CGU PLC 16,552 276,286
Compass Group PLC 5,363 70,842
Corus Group PLC 30,263 44,314
Diageo PLC 24,066 216,558
Dixons Group PLC 15,509 63,306
Electrocomponents PLC 4,340 44,454
EMI Group PLC 6,945 63,232
GKN PLC "B" 5,919 75,716
Glaxo Wellcome PLC 26,976 788,813
Granada Group PLC 14,330 143,518
Great Universal Stores PLC 9,242 59,603
Halifax PLC 16,658 160,260
Hanson PLC 7,221 51,172
Hays PLC 12,846 71,832
HSBC Holdings PLC 63,929 732,901
Imperial Chemical Industries PLC 7,273 57,886
Invensys PLC 27,902 105,004
J Sainsbury PLC 16,140 73,476
<PAGE>
Kingfisher PLC 11,570 105,605
Ladbroke Group PLC 15,154 53,350
Land Securities PLC 4,627 55,468
Legal & General Group PLC 36,494 85,560
Lloyds TSB Group PLC 41,720 395,043
Logica PLC 3,049 72,362
Marconi PLC 19,382 252,937
Marks & Spencer PLC 23,054 81,249
Misys PLC 4,645 39,331
National Grid Group PLC 10,190 80,561
National Power PLC 9,209 58,832
Nycomed Amersham PLC "A" 5,977 59,498
Pearson PLC 4,418 140,786
Peninsular & Oriental Steam Navigation Co. PLC 7,949 68,272
Prudential Corp. PLC 13,373 196,435
Psion PLC 3,830 37,138
Railtrack Group PLC 4,674 72,805
Reed International PLC 9,589 83,667
Rentokil Initial PLC 24,807 56,466
Reuters Group PLC 10,427 178,319
Rio Tinto PLC 9,297 152,364
Royal Bank of Scotland Group PLC 19,389 325,406
Sage Group PLC 9,623 78,123
Schroders PLC 2,562 46,186
Scottish Power PLC 12,685 107,793
Sema Group PLC 3,602 51,379
Smith & Nephew Associated 14,249 52,758
SmithKline Beecham PLC 42,128 552,968
Smiths Industries PLC 4,444 57,995
Tesco PLC 48,782 152,122
Thames Water PLC 4,017 52,117
3i Group PLC 3,979 82,056
Unigate PLC 13,995 61,586
Unilever PLC 21,405 129,924
United Utilities PLC 5,079 50,405
Vodafone Group PLC ADR 465,708 1,886,863
Williams PLC 9,227 53,906
Wolseley PLC 7,972 42,944
WPP Group PLC 5,720 83,760
Zeneca Group PLC 13,449 629,593
----------------------------------------------------------------------------
14,557,312
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $66,238,347) 74,091,203
----------------------------------------------------------------------------
Security Shares Value
----------------------------------------------------------------------------
PREFERRED STOCKS--0.46%
AUSTRALIA--0.23%
----------------------------------------------------------------------------
News Corp. Ltd. 15,039 181,289
----------------------------------------------------------------------------
181,289
----------------------------------------------------------------------------
GERMANY--0.23%
----------------------------------------------------------------------------
<PAGE>
SAP AG - Vorzug 954 176,429
----------------------------------------------------------------------------
176,429
----------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost: $273,296) 357,718
----------------------------------------------------------------------------
Security Principal Value
----------------------------------------------------------------------------
SHORT TERM INSTRUMENTS--4.61%
UNITED STATES--4.61%
----------------------------------------------------------------------------
U.S. Treasury Bills
5.61%, 08/03/00 ++ 2,227,000 2,215,428
5.67%, 07/13/00 ++ 1,401,000 1,398,176
----------------------------------------------------------------------------
3,613,604
----------------------------------------------------------------------------
TOTAL SHORT TERM INSTRUMENTS
(Cost: $3,614,271) 3,613,604
----------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 99.68%
(Cost $70,125,914) 78,062,525
----------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.32% 254,045
----------------------------------------------------------------------------
NET ASSETS -- 100.00% $78,316,570
============================================================================
--------------------------------------------------------------------------------
+ Non-income earning securities.
++These U.S. Treasury Bills are held in a segregated account in connection with
the Master Portfolio holdings of FTSE 100 Index, Nikkei 300 Index and Euro 50
Index future contracts. See Note 1.
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE INTERNATIONAL INDEX FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments:
In International Index Master Portfolio ("Master Portfolio"),
at market value (Note 1) $9,176,820
Receivables:
Due from E*TRADE Asset Management, Inc. (Note 2) 3,276
----------
Total Assets 9,180,096
----------
LIABILITIES
Payables:
Accrued administration fee (Note 2) 13,192
Distribution to shareholders 50,233
----------
Total Liabilities 63,425
----------
NET ASSETS $9,116,671
==========
Net assets consist of:
Paid-in capital 9,098,388
Distributions in excess of net investment income (10,318)
Undistributed net realized gain on investments 13,982
Net unrealized appreciation of investments 14,619
----------
NET ASSETS $9,116,671
==========
Shares outstanding 828,755
==========
Net asset value and offering price per share $ 11.00
==========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE INTERNATIONAL INDEX FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO
Dividends $ 79,612
Interest 9,805
Expenses (10,453)
---------
Net investment income allocated from Master Portfolio 78,964
---------
FUND EXPENSES (Note 2)
Advisory Fees 835
Administration fees 11,690
Trustee fees 412
---------
Total fund expenses 12,937
---------
Less:
Waived Trustee fees (Note 2) (412)
---------
Total Net Expenses 12,525
---------
Net investment income 66,439
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
ALLOCATED FROM MASTER PORTFOLIO
Net realized gain on investments 20,619
Net realized loss on sale of futures contracts (14,349)
Net change in unrealized depreciation of investments (401,896)
Net change in unrealized depreciation of future contr (20,621)
---------
Net loss on investments and future contracts allocated
from International Index Master Portfolio
Master Portfolio (416,247)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(349,808)
=========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE INTERNATIONAL INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period October
22, 1999
For the Six Month (commencement of
Ended June 30, 2000 operations) through
(Unaudited) December 31, 1999
------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 66,439 $ 1,231
Net realized gain 6,270 5,236
Net change in unrealized appreciation (depreciation) (422,517) 437,136
---------- ----------
Net increase (decrease) in net assets resulting from operations (349,808) 443,603
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (73,490) (2,022)
---------- ----------
Total distributions to shareholders (73,490) (2,022)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 6,236,980 5,758,515
Net asset value of shares issued in reinvestment of
dividends and distributions 24,193 0
Cost of shares redeemed (net of redemption fees of
$10,443 and $838, respectively) (2,619,981) (301,319)
---------- ----------
Net increase in net assets resulting from capital share transactions 3,641,192 5,457,196
---------- ----------
Increase in net assets 3,217,894 5,898,777
NET ASSETS:
Beginning of period 5,898,777 0
---------- ----------
End of period (including distributions in excess of net investment
income of $10,443 and $3,267) $9,116,671 $5,898,777
========== ==========
SHARES ISSUED AND REDEEMED:
Shares sold 556,527 532,825
Shares issued in reinvestment of dividends and distributions 2,122 0
Shares redeemed (235,420) (27,299)
---------- ----------
Net increase in shares outstanding 323,229 505,526
========== ==========
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
E*TRADE INTERNATIONAL INDEX FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SIX OCT. 22, 1999
MONTHS ENDED (COMMENCEMENT
JUN. 30, 2000 OF OPERATIONS) TO
(UNAUDITED) ++ DEC. 31, 1999 ++
----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.67 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.00***
Net realized and unrealized gain (loss) on investments (0.67) 1.67
-------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.59) 1.67
-------- --------
LESS DISTRIBUTIONS:
From net investment income (0.09) (0.00)***
-------- --------
TOTAL DISTRIBUTIONS (0.09) (0.00)***
-------- --------
REDEMPTION FEES ADDED TO PAID-IN-CAPITAL 0.01 0.00***
-------- --------
NET ASSET VALUE, END OF PERIOD $ 11.00 $ 11.67
======== ========
TOTAL RETURN (4.98)%** 16.74%*
======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 9,117 $ 5,899
Ratio of expenses to average net assets + 0.55%+++ 0.55%+++
Ratio of net investment income to average net assets + 1.59% 0.24%
Portfolio turnover rate 1 33.00% 39.00%
<FN>
--------------------------------------------------------------------------------
* For the period October 22, 1999 (commencement of operations) to December
31, 1999 and not indicative of a full year's operating results or future
returns.
** For the six months ended June 30, 2000 and not indicative of a full year's
operating results or future returns.
*** Rounds to less than $0.01.
+ Annualized.
++ Per share amounts and ratios reflect income and expenses assuming inclusion
of the Fund's proportionate share of the income and expenses of the
International Index Master Portfolio.
+++ The Investment Adviser has voluntarily agreed to pay the non-affiliated
Trustee expenses for the Fund for the period January 1, 2000 through May 9,
2000. Even though such action had been taken, total annualized operating
expenses as a percentage of average net assets would have remained
unchanged.
1 Represents the Portfolio turnover rate of the corresponding Master
Portfolio.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE INTERNATIONAL INDEX FUND
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
E*TRADE International Index Fund (the "Fund") is a diversified series
of E*TRADE Funds (the "Trust"), an open-end series management investment
company registered under the Investment Company Act of 1940, as amended.
The Trust is organized as a Delaware business trust and was formed on
November 4, 1998. As of June 30, 2000 the Trust offered eight series: the
E*TRADE Bond Index Fund, the E*TRADE E-Commerce Index Fund, the E*TRADE
Extended Market Index Fund, the E*TRADE Global Titans Index Fund, the
E*TRADE International Index Fund, the E*TRADE Premier Money Market Fund,
the E*TRADE S&P 500 Index Fund and the E*TRADE Technology Index Fund. These
financial statements contain the E*TRADE International Index Fund.
The Fund's investment objective is to match as closely as practicable,
before fees and expenses, the performance of an international portfolio of
common stocks represented by the Morgan Stanley Capital International
Europe, Australasia, and Far East Free Index (the "EAFE Free Index"). *
* Morgan Stanley Capital International Inc., ("MSCI") does not sponsor
the Fund, nor is it affiliated in any way with the E*TRADE Group, Inc.
"Morgan Stanley Capital International Europe, Australasia, Far East Free
Index (TM)", "EAFE Free Index (TM)", and "EAFE (TM)" are trademarks of
MSCI. The Fund is not sponsored, endorsed, sold, or promoted by the EAFE
Free Index or MSCI and neither the EAFE Free Index nor MSCI make any
representation or warranty, express or implied, regarding the advisability
of investing in the Fund. The EAFE Free Index is the exclusive property of
MSCI, and Morgan Stanley Capital International is a service mark of MSCI.
The following is a summary of significant accounting policies which are
consistently followed by the MIP in the preparation of its financial
statements, and which are in conformity with generally accepted accounting
principles for investment companies. The preparation of financial
statements in conformity with accounting principles accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF ACCOUNTING
The Fund uses the accrual method of accounting for financial reporting
purposes.
INVESTMENT POLICY AND SECURITY VALUATION
The Fund is a "feeder" fund in a "master-feeder" structure. Instead of
investing directly in individual securities, a feeder fund, which is
offered to the public, invests all of its assets in a master portfolio that
has substantially the same investment objective as the feeder fund. It is
the master portfolio that actually invests in the individual securities.
The Fund seeks to achieve its investment objective by investing all of its
assets in the International Index Master Portfolio (the "Master
Portfolio"), a separate series of the Master Investment Portfolio ("MIP"),
a registered open-end management investment company. The value of the
Fund's investment in the Master Portfolio reflects the Fund's interest in
the net assets of that Master Portfolio. As of June 30, 2000, the value of
the Fund's investment was 12% of the outstanding interests of the Master
Portfolio.
<PAGE>
The Fund's investment in the Master Portfolio is valued at the net
asset value of the Master Portfolio's shares held by the Fund. The equity
securities of the Master Portfolio are valued at the last reported sale
price on the primary securities exchange or national securities market on
which such securities are traded. Securities not listed on an exchange or
national securities market, or securities in which there was no last
reported sales price, are valued at the most recent bid prices. Debt
securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in those securities or by an independent pricing source.
U.S. Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Any securities, restricted securities or other
assets for which market quotations are not readily available, are valued at
fair value as determined in good faith in accordance with policies approved
by MIP's Board of Trustees.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for by the Master Portfolio on the
date the securities are purchased or sold (trade date). Revenue is
recognized by the Master Portfolio as follows: dividend income is recorded
on the ex-dividend date and interest income is recognized on a daily
accrual basis. Realized gains and losses are reported on the basis of
identified cost of securities delivered. Original issue discount and
discount on securities purchased are accreted as interest income using a
constant yield to maturity method. Premiums on securities purchased are
amortized as a reduction in interest income using a constant yield to
maturity method. All net investment income and realized and unrealized
capital gains and losses of the Master Portfolio are allocated as required
by the Internal Revenue Code of 1986, as amended (the "Code").
The performance of the Fund is directly affected by the performance of
the Master Portfolio. The financial statements of the Master Portfolio,
including the Portfolio of Investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income of the Fund
are declared and distributed quarterly. Dividends to shareholders from any
net realized capital gains are declared and distributed annually, generally
in December. Such distributions to shareholders are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, market discount, losses deferred to wash
sales and excise tax regulations. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications to
paid-in capital and may impact net investment income per share.
Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the following
year.
FEDERAL INCOME TAXES
The Fund is treated as a separate entity from each other series of the
Trust for federal income tax purposes. The Fund intends to qualify as a
regulated investment company under Subchapter M of the Code. If so
qualified, the Fund must distribute annually all of its investment company
taxable income and any net capital gains (taking into account capital loss
carryforwards) sufficient to relieve it from all, or substantially all,
federal income and excise taxes. Accordingly, no provision for federal
taxes was required at June 30, 2000.
<PAGE>
For the year ended December 31, 1999, the Fund has elected to defer
$2,873 of capital losses attributable to Post-October losses.
REDEMPTION FEES
For redemptions made after September 30, 2000, shares held in the Fund
for less than four months are subject to a redemption fee of 1.00%,
calculated as a percentage of redemption proceeds. For shares held in the
Fund that are redeemed before October 1, 2000 and within four months from
the date of purchase, the redemption fee is 0.50%. The fee, which is
retained by the Fund, is accounted for as an addition to paid-in capital.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
E*TRADE Asset Management, Inc. (the "Investment Advisor"), a wholly
owned subsidiary of E*TRADE Group, Inc. ("E*TRADE Group"), serves as the
investment advisor for the Fund pursuant to an investment advisory
agreement ("Advisory Agreement"). For its service as investment advisor,
the Investment Advisor is paid by the Fund at an annual rate of 0.02% of
the Fund's average daily net assets.
Pursuant to an investment advisory contract with the Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment advisory
services in connection with the management of the Master Portfolio's
assets. For its services, BGFA receives a monthly advisory fee from the
Master Portfolio at an annual rate equal to 0.15% of the first $1 billion,
and 0.10% thereafter of the Master Portfolio's average daily net assets.
The Fund records daily its proportionate share of the Master Portfolio's
advisory fees, described above, in addition to income, expenses and
realized and unrealized gains and losses.
The Investment Advisor also provides administrative services to the
Fund, pursuant to an administrative services agreement ("Administrative
Agreement"). Services provided by the Investment Advisor acting as
administrator include, but are not limited to: coordinating the services
performed by the transfer and dividend disbursing agent, custodian,
sub-administrator, shareholder servicing agent, independent auditors and
legal counsel; preparing and supervising the preparation of periodic
reports to the Fund's shareholders; generally supervising regulatory
compliance matters; providing, at its own expense, the services of its
personnel to serve as officers of the Trust; monitoring and reviewing the
Fund's contracted services and expenditures; and reporting to the Board of
Trustees concerning its activities pursuant to the Administrative
Agreement. The Fund pays the Investment Advisor a monthly fee calculated at
an annual rate of 0.28% of its average daily net assets for its services as
administrator of the Fund.
The Fund's investment in the Master Portfolio is subject to an
administrative fee of 0.10% of the first $1 billion, and 0.07% thereafter,
of its average daily net assets to Barclays Global Investors, N.A. and
Stephens, Inc., the Master Portfolio's co-administrator. Such
administrative fees are recorded at the Master Portfolio level.
PFPC Inc. ("PFPC") serves as the transfer agent and dividend disbursing
agent for the Fund. Investors Bank & Trust Company ("IBT") serves as
sub-administrator, accounting services agent and custodian for the Fund.
E*TRADE Securities, Inc., a wholly owned subsidiary of E*TRADE Group,
serves as the shareholder servicing agent (the "Shareholder Servicing
Agent") for the Fund. The Shareholder Servicing Agent provides personal
services to the Fund's shareholders and maintains the Fund's shareholder
accounts. E*TRADE Securities, Inc. also serves as the principal underwriter
of the Fund. Such services were provided at no cost to the Fund.
Subject to a limitation of 0.0049% of the Fund's average daily net
assets, the Fund records Trustee fees and expenses and certain other direct
expenses of the Fund. The Investment Advisor voluntarily
<PAGE>
agreed to reimburse such expenses for the six months ended June 30, 2000.
Effective May 9, 2000, the trustees fees and expenses are no longer a
direct expense of the Fund, but rather those expenses are paid by the
Investment Advisor pursuant to the Administrative Agreement.
3. PORTFOLIO SECURITIES LOANED
As of June 30, 2000, the Master Portfolio had loaned securities which
were collateralized by money market mutual funds. The Master Portfolio
receives transaction fees for providing services in connection with the
securities lending program. The risks to the Master Portfolio of securities
lending are that the borrower may not provide additional collateral when
required or return the securities when due.
<PAGE>
INTERNATIONAL INDEX MASTER PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments at market value (Cost: $70,125,914) (Note 1) $78,062,525
Cash 835
Foreign currency, at value (Cost: $218,335) 221,579
Receivables:
Dividends 146,191
Due from broker - variation margin 140,542
Unrealized gain on foreign currency exchange contracts 32,739
-----------
Total Assets 78,604,411
-----------
LIABILITIES
Payables:
Investment securities purchased 157,013
Due to BGI Stephens (Note 2) 65,471
Unrealized loss on foreign currency exchange contracts 65,357
-----------
Total Liabilities 287,841
-----------
NET ASSETS $78,316,570
===========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
INTERNATIONAL INDEX MASTER PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME
Dividends (Net of foreign withholding tax of $85,590) $ 666,870
Interest 84,779
-----------
Total investment income 751,649
-----------
EXPENSES (NOTE 2)
Advisory fees 53,559
Administration fees 35,706
-----------
Total expenses 89,265
-----------
Net investment income 662,384
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sale of investments 196,724
Net realized loss on sale of futures contracts (29,595)
Net realized loss on foreign currency transactions (89,931)
Net change in unrealized appreciation (depreciation) of investments (3,739,615)
Net change in unrealized appreciation (depreciation) of futures contracts (198,100)
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies 1,110
-----------
Net loss on investments (3,859,407)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,197,023)
===========
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
INTERNATIONAL INDEX MASTER PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, 2000 For the Period Ended
(Unaudited) December 31, 1999*
------------------ --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 662,384 $ 106,126
Net realized gain 77,198 32,307
Net change in unrealized appreciation (depreciation) (3,936,605) 11,799,108
------------ -----------
Net increase (decrease) in net assets resulting from operations (3,197,023) 11,937,541
------------ -----------
Interestholder transactions:
Contributions 29,738,204 54,039,755
Withdrawals (11,847,264) (2,354,643)
------------ -----------
Net increase in net assets resulting from interestholder transactions 17,890,940 51,685,112
------------ -----------
Increase in net assets 14,693,917 63,622,653
NET ASSETS:
Beginning of period 63,622,653 --
------------ -----------
End of period $ 78,316,570 $63,622,653
============ ===========
<FN>
--------------------------------------------------------------------------------
* Period from October 1, 1999 (commencement of operations) to December 31, 1999.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
INTERNATIONAL INDEX MASTER PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Master Investment Portfolio ("MIP") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. MIP was organized on October 20, 1993 as a Delaware business
trust pursuant to an Agreement and Declaration of Trust dated May 14, 1993, and
had no operations prior to March 1, 1994. MIP currently issues the following
separate portfolios: Asset Allocation, Bond Index, Extended Index, International
Index, LifePath Income, LifePath 2010, LifePath 2020, LifePath 2030, LifePath
2040, Money Market, S&P 500 Index and U.S. Equity Index Master Portfolios.
These financial statements relate to the International Index Master
Portfolio (the "Master Portfolio").
The following is a summary of significant accounting policies which are
consistently followed by the MIP in the preparation of its financial statements,
and which are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATION
The equity securities of the Master Portfolio are valued at the last
reported sales price on the primary securities exchange or national securities
market on which such securities are traded. Securities not listed on an exchange
or national securities market, or securities in which there was no last reported
sales price, are valued at the most recent bid prices. U.S. Government
obligations are valued at the last reported bid price. Debt securities maturing
in 60 days or less are valued at amortized cost, which approximates market
value. Any securities, restricted securities or other assets for which market
quotations are not readily available, are valued at fair value as determined in
good faith in accordance with policies approved by MIP's Board of Trustees.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the ex-dividend
date, and interest income is recognized on a daily accrual basis. Realized gains
or losses are reported on the basis of identified cost of securities delivered.
Original issue discount and discount on securities purchased are accreted as
interest income using a constant yield to maturity method. Premiums on
securities purchased are amortized as a reduction in interest income using a
constant yield to maturity method.
The accounting records of the Master Portfolio are maintained in U.S.
dollars. Investment securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollars at the prevailing rates of
exchange at the end of each day. Purchases and sales of securities, income
receipts and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective date of the transactions.
FEDERAL INCOME TAXES
MIP believes that the Master Portfolio has and will continue to be operated
in a manner so as to qualify it as a partnership for federal income tax
purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (if any). However, each
investor in the Master Portfolio will be taxed on its distributive share of the
Master Portfolio's taxable income in determining its federal income tax
liability. As a partnership for federal income tax purposes, the Master
Portfolio will be deemed to have
<PAGE>
"passed through" to interestholders any interest, dividends, gains or losses for
such purposes. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualifications not within the control of the Master Portfolio (e.g.,
distributing at least 90% of the regulated investment company's "investment
company taxable income" annually).
FUTURES CONTRACTS
The Master Portfolio may purchase long futures contracts to gain exposure
to market changes as this may be more efficient or cost effective than actually
buying the securities. A futures contract is an agreement between two parties to
buy and sell a security at a set price on a future date and is exchange traded.
Upon entering into a futures contract, the Master Portfolio is required to
pledge to the broker an amount of cash, U.S. Government securities or other
high-quality debt securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the Master Portfolio 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 Master Portfolio as unrealized gains
or losses. When the contract is closed, the Master Portfolio records a 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. Pursuant to regulations
and/or published positions of the Securities and Exchange Commission, the Master
Portfolio is required to segregate cash, U.S. Government securities or high
quality, liquid debt instruments in connection with long futures transactions in
an amount generally equal to the entire futures contract amount. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities.
As of June 30, 2000 the Master Portfolio had the following open long
futures contracts outstanding:
NET UNREALIZED
NUMBER OF EXPIRATION NOTIONAL APPRECIATION
CONTRACTS TYPE DATE CONTRACT VALUE (DEPRECIATION)
----------------------------------------------------------------------------
10 FTSE 100 Index 09/15/00 $ 964,643 $(18,928)
36 NIKKEI 300 Index 09/07/00 1,063,980 19,355
31 EURO 50 Index 09/15/00 1,538,176 (42,754)
=========
$(42,327)
=========
The Master Portfolio has pledged to brokers U.S. Treasury Bills for initial
margin requirements with a par value of $3,628,000.
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell
such securities at a specified price and time ("repurchase agreements") are
treated as collateralized financing transactions and are recorded at their
contracted resale amounts. These repurchase agreements, if any, are detailed in
the Master Portfolio's Schedule of Investments. The advisor to the Master
Portfolio may pool the Master Portfolio's cash and invest in repurchase
agreements entered into by the other Master Portfolios. The Master Portfolio's
prospectus requires that the cash investments be fully collateralized based on
values that are marked to market daily. The collateral is generally held by an
agent bank under a tri-party agreement. It is the advisor's responsibility to
value collateral daily and to obtain additional collateral as necessary to
maintain the value at equal to or greater than the repurchase price. As of June
30, 2000 the Master Portfolio had no outstanding repurchase agreements.
FORWARD FOREIGN CURRENCY CONTRACTS
<PAGE>
A forward foreign currency exchange contract is an agreement to pay or
receive specific amounts of a currency at a future date in exchange for another
currency at an agreed upon exchange rate. The Master Portfolio may use forward
foreign currency exchange contracts to hedge certain foreign currency assets and
liabilities. Contracts are recorded at market value and marked to market daily.
Risks of entering into forward foreign currency exchange contracts include the
possibility that there may be an illiquid market and that a change in the value
of the contracts may not correlate with changes in the value of the underlying
securities. The amount at risk for such forward foreign currency exchange
contracts may exceed the amount reflected in the financial statements. As of
June 30, 2000, the Master Portfolio had the following open forward foreign
currency exchange contracts outstanding:
<TABLE>
<CAPTION>
FOREIGN NET UNREALIZED
EXCHANGE CURRENCY GAIN
CURRENCY DATE COST/PROCEEDS U.S DOLLAR VALUE (LOSS)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASE CONTRACTS
British Pound Sterling 08/03/00 $1,756,901 $1,732,993 $(23,908)
Euro Dollar 08/03/00 2,048,405 2,081,144 32,739
Japanese Yen 08/03/00 1,684,256 1,679,739 (4,517)
Swedish Krona 08/03/00 107,661 107,432 (229)
----------
NET UNREALIZED GAIN ON
PURCHASE
CONTRACTS $ 4,085
----------
SALE CONTRACTS
British Pound Sterling 08/03/00 $788,000 $805,096 $(17,096)
Euro Dollar 08/03/00 579,000 595,655 (16,655)
Japanese Yen 08/03/00 620,000 621,240 (1,240)
Swedish Krona 08/03/00 105,720 107,432 (1,712)
--------
NET UNREALIZED LOSS ON
SALE CONTRACTS $(36,703)
----------
NET UNREALIZED GAIN ON FORWARD
FOREIGN CURRENCY CONTRACTS $(32,618)
========
</TABLE>
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Contract with the Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment guidance and policy
direction in connection with the management of the Master Portfolio's assets.
BGFA is entitled to receive 0.15% of the average daily net assets of the Master
Portfolio as compensation for advisory services. BGFA is an indirect subsidiary
of Barclays Bank PLC.
<PAGE>
Investors Bank & Trust Company ("IBT") serves as the custodian to the
Master Portfolio. IBT will not be entitled to receive fees for its custodial
services so long as it is entitled to receive a separate fee from Barclays
Global Investors, N.A. ("BGI") for its services as Sub-Administrator of the
Master Portfolio.
Stephens Inc. ("Stephens"), is the sponsor and placement agent for the
Master Portfolio.
The MIP has entered into administration services arrangements with BGI and
Stephens, as co-administrators, who have agreed jointly to provide general
administration services to the Master Portfolio such as managing and
coordinating third-party service relationships. BGI and Stephens are entitled to
receive a fee at an annual rate of 0.10% of the first $1 billion, and 0.07%
thereafter, of the average daily net assets of the Master Portfolio. BGI and
Stephens may delegate certain of their administration duties to
sub-administrators.
Certain officers and trustees of MIP are also officers of Stephens. As of
June 30, 2000 these officers of Stephens collectively owned less than 1% of the
Master Portfolio's outstanding beneficial interests.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for
the Master Portfolio for the six months ended June 30, 2000 were as follows:
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $ --
Sales proceeds --
OTHER SECURITIES:
Purchases at cost $ 41,187,053
Sales proceeds 22,896,338
At June 30, 2000, the Master Portfolio's aggregate unrealized appreciation
and depreciation based on cost for federal income tax purposes was as follows:
TAX UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
-----------------------------------------------------------------------
$70,125,914 $12,371,620 $(4,435,009) $7,936,611
4. FINANCIAL HIGHLIGHTS
The ratios of expenses to average net assets, net investment income to
average net assets and portfolio turnover rates, excluding short-term securities
for the Master Portfolio are as follows:
SIX FOR THE
MONTHS ENDED PERIOD ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999*
-------------------------------------------------------------------------------
Ratio of expenses to average net assets + 0.25% 0.25%
Ratio of net investment income to average net
assets+ 1.85% 0.82%
<PAGE>
Portfolio turnover rate 33% 39%
--------------------------------------------------------------------------------
* Period from March 1, 1999 (commencement of operations) to December 31, 1999.
+ Annualized for period of less than one year.
