E*TRADE S&P 500 INDEX FUND
SEMIANNUAL REPORT
Dear E*TRADE Funds Shareholders,
We're writing to report the performance of the E*Trade S&P 500 Index Fund (the
"Fund") for the first half of 2000. We'd also like to take this opportunity to
thank all of you for your investment in the Fund.
The investment objective of the Fund is to provide investment results that
attempt to match the total returns of the stocks making up the Standard & Poor's
500 Composite Stock Price Index (the "Index"). For the six-month period ended
June 30, 2000, the Fund returned -0.62%, gaining 6.84% for the past year and a
cumulative 18.57% since inception on February 17, 1999. The S&P 500 Index, on
the other hand, returned -0.43% in the first half of 2000 and 7.25% for the past
year. Since March 1, 1999, the Fund has returned 18.80%, while the Index has
returned 19.40%.
After completing its five-year run of annual returns exceeding 20%, the Index
stumbled during the first half of 2000. The Index endured a volatile market
environment, created by inflation worries and three interest rate increases by
the Federal Reserve, to finish the half with a decline of 0.43%.
Equity markets began the year on a negative note as high GDP figures sparked
interest-rate fears. Large-cap stocks were hit particularly hard. For example,
the Index lost 5.02% for the month of January. The Federal Reserve raised rates
twice during the first quarter, on February 2 and again on March 21. In response
to interest-rate concerns and uncertainty about the growth of the economy,
investors began to shun high-flying new economy stocks and returned to more
value-oriented old economy stocks. After falling in January and February, the
Index rebounded 9.78% in March, returning 2.29% for the first quarter.
The trend toward market volatility continued into the second quarter. On April
3, a court ruled against Microsoft in an antitrust lawsuit, causing the stock to
plunge 14.47% for the day and triggering a sell-off among technology stocks. The
sell-off continued with the release of higher-than-expected economic figures in
<PAGE>
mid-April. A widely anticipated 0.50% interest rate increase on May 16, combined
with suggestions of further hikes, sent prices lower. Finally, in June, relief
came in the form of lower-than-expected numbers for both the consumer price
index and the producer price index. The Federal Reserve left rates unchanged,
and the Index recovered 2.47% for the month, finishing the quarter down 2.66%.
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 S&P 500 Index
Fund.
Sincerely,
E*TRADE Funds
* "Standard & Poor'sTM," "S&PTM", "S&P 500TM", "Standard & Poor's 500(R)," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by E*TRADE Asset Management, Inc. for use in connection with
the Fund. The Fund is not sponsored, endorsed, sold, or promoted by Standard
& Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund.
** The Fund began operations on February 17,1999. Index Comparisons began on
March 1, 1999.
<PAGE>
S&P 500 INDEX MASTER PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
SCHEDULE OF INVESTMENTS
SECURITY SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS--96.53%
ADVERTISING--0.25%
--------------------------------------------------------------------------------
Interpublic Group of Companies Inc. 88,983 3,826,269
Omnicom Group Inc. 52,409 4,667,677
Young & Rubicam Inc. 21,250 1,215,234
--------------------------------------------------------------------------------
9,709,180
--------------------------------------------------------------------------------
AEROSPACE / DEFENSE--0.99%
--------------------------------------------------------------------------------
Boeing Co. 267,657 11,191,408
General Dynamics Corp. 59,166 3,091,423
Goodrich (B.F.) Co. 31,653 1,078,180
Honeywell International Inc. 235,506 7,933,608
Lockheed Martin Corp. 118,063 2,929,438
Northrop Grumman Corp. 20,579 1,363,359
Raytheon Co. "B" 100,313 1,931,025
United Technologies Corp. 138,858 8,175,265
--------------------------------------------------------------------------------
37,693,706
--------------------------------------------------------------------------------
AIRLINES--0.17%
--------------------------------------------------------------------------------
AMR Corp.+ 44,117 1,166,343
Delta Air Lines Inc. 36,167 1,828,694
Southwest Airlines Co. 146,387 2,772,204
US Airways Group Inc.+ 19,665 766,935
--------------------------------------------------------------------------------
6,534,176
--------------------------------------------------------------------------------
APPAREL--0.13%
--------------------------------------------------------------------------------
Liz Claiborne Inc. 16,121 568,265
Nike Inc. "B" 80,682 3,212,152
Reebok International Ltd.+ 16,696 266,093
Russell Corp. 9,607 192,140
VF Corp. 33,740 803,434
--------------------------------------------------------------------------------
5,042,084
--------------------------------------------------------------------------------
AUTO MANUFACTURERS--0.68%
--------------------------------------------------------------------------------
Ford Motor Co. 355,660 15,293,380
General Motors Corp. "A" 157,839 9,164,527
Navistar International Corp.+ 18,266 567,388
PACCAR Inc. 22,623 897,850
--------------------------------------------------------------------------------
25,923,145
--------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT--0.18%
--------------------------------------------------------------------------------
Cooper Tire & Rubber Co. 21,817 242,714
Dana Corp. 44,980 953,014
Delphi Automotive Systems Corp. 166,161 2,419,720
Goodyear Tire & Rubber Co. 46,125 922,500
<PAGE>
TRW Inc. 36,427 1,580,021
Visteon Corp.+ 46,568 564,634
--------------------------------------------------------------------------------
6,682,603
--------------------------------------------------------------------------------
BANKS--4.37%
--------------------------------------------------------------------------------
Amsouth Bancorp 115,902 1,825,457
Bank of America Corp. 488,955 21,025,065
Bank of New York Co. Inc. 217,656 10,121,004
Bank One Corp. 338,401 8,988,777
BB&T Corp. 102,884 2,456,356
Charter One Financial Inc. 61,800 1,421,400
Chase Manhattan Corp. 364,952 16,810,602
Comerica Inc. 46,138 2,070,443
Fifth Third Bancorp 91,408 5,781,556
First Union Corp. 289,342 7,179,298
Firstar Corp. 286,181 6,027,687
FleetBoston Financial Corp. 265,918 9,041,212
Golden West Financial Corp. 46,604 1,902,026
Huntington Bancshares Inc. 65,477 1,035,355
KeyCorp 128,259 2,260,565
Mellon Financial Corp. 144,933 5,280,996
Morgan (J.P.) & Co. Inc. 47,939 5,279,282
National City Corp. 178,864 3,051,867
Northern Trust Corp. 65,596 4,267,840
Old Kent Financial Corp. 40,530 1,084,177
PNC Bank Corp. 85,645 4,014,609
Regions Financial Corp. 65,133 1,294,518
SouthTrust Corp. 49,639 1,123,082
State Street Corp. 47,492 5,037,120
Summit Bancorp 51,906 1,278,185
SunTrust Banks Inc. 89,242 4,077,244
Synovus Financial Corp. 83,331 1,468,709
U.S. Bancorp 221,809 4,269,823
Union Planters Corp. 39,895 1,114,567
Wachovia Corp. 59,690 3,238,182
Washington Mutual Inc. 161,622 4,666,835
Wells Fargo & Company 475,374 18,420,742
--------------------------------------------------------------------------------
166,914,581
--------------------------------------------------------------------------------
BEVERAGES--1.95%
--------------------------------------------------------------------------------
Anheuser-Busch Companies Inc. 133,274 9,953,902
Brown-Forman Corp. "B" 20,210 1,086,287
Coca-Cola Co. 730,291 41,946,089
Coca-Cola Enterprises 124,098 2,024,349
Coors (Adolph) Company "B" 10,832 655,336
PepsiCo Inc. 425,204 18,895,003
--------------------------------------------------------------------------------
74,560,966
--------------------------------------------------------------------------------
BIOTECHNOLOGY--0.63%
--------------------------------------------------------------------------------
Amgen Inc.+ 302,912 21,279,568
Biogen Inc.+ 43,850 2,828,325
--------------------------------------------------------------------------------
24,107,893
--------------------------------------------------------------------------------
BUILDING MATERIALS--0.11%
--------------------------------------------------------------------------------
Armstrong Holdings Inc. 11,893 182,112
<PAGE>
Masco Corp. 132,383 2,391,168
Owens Corning 16,386 151,570
Vulcan Materials Co. 29,770 1,270,807
--------------------------------------------------------------------------------
3,995,657
--------------------------------------------------------------------------------
CHEMICALS--0.86%
--------------------------------------------------------------------------------
Air Products & Chemicals Inc. 67,659 2,084,743
Ashland Inc. 20,837 730,597
Dow Chemical Co. 199,424 6,020,112
Du Pont (E.I.) de Nemours 309,057 13,521,244
Eastman Chemical Co. 22,582 1,078,290
Engelhard Corp. 37,703 643,307
Grace (W.R.) & Company+ 19,928 241,627
Great Lakes Chemical Corp. 16,041 505,291
Hercules Inc. 31,616 444,600
Praxair Inc. 46,501 1,740,881
Rohm & Haas Co. "A" 64,196 2,214,762
Sherwin-Williams Co. 48,277 1,022,869
Sigma-Aldrich Corp. 25,191 736,837
Union Carbide Corp. 39,767 1,968,466
--------------------------------------------------------------------------------
32,953,626
--------------------------------------------------------------------------------
COMMERCIAL SERVICES--0.48%
--------------------------------------------------------------------------------
Block (H & R) Inc. 28,977 938,130
Cendant Corp.+ 212,779 2,978,906
Convergys Corp.+ 45,200 2,344,750
Deluxe Corp. 21,374 503,625
Donnelley (R.R.) & Sons Co. 35,965 811,460
Dun & Bradstreet Corp. 47,696 1,365,298
Ecolab Inc. 38,220 1,492,969
Equifax Inc. 41,646 1,093,207
McKesson HBOC Inc. 83,116 1,740,241
Paychex Inc. 109,551 4,601,142
Quintiles Transnational Corp.+ 34,000 480,250
--------------------------------------------------------------------------------
18,349,978
--------------------------------------------------------------------------------
COMPUTERS--11.17%
--------------------------------------------------------------------------------
Adaptec Inc.+ 30,700 698,425
Apple Computer Inc.+ 95,992 5,027,581
Cabletron Systems+ 53,807 1,358,627
Ceridian Corp.+ 42,803 1,029,947
Cisco Systems Inc.+ 2,052,472 130,460,252
Compaq Computer Corp. 500,962 12,805,841
Computer Sciences Corp.+ 49,381 3,688,143
Dell Computer Corp.+ 759,796 37,467,440
Electronic Data Systems Corp. 137,448 5,669,730
EMC Corporation+ 640,258 49,259,850
Gateway Inc.+ 94,998 5,391,136
Hewlett-Packard Co. 295,134 36,854,858
International Business Machines Corp. 523,099 57,312,034
Lexmark International Group Inc. "A"+ 38,175 2,567,269
NCR Corp.+ 28,050 1,092,197
Network Appliance Inc.+ 89,850 7,232,925
Sapient Corp.+ 17,300 1,850,019
Seagate Technology Inc.+ 67,076 3,689,180
<PAGE>
Sun Microsystems Inc.+ 468,086 42,566,571
3Com Corp.+ 103,468 5,962,344
Unisys Corp.+ 91,975 1,339,386
Veritas Software Corp.+ 115,309 13,031,716
--------------------------------------------------------------------------------
426,355,471
--------------------------------------------------------------------------------
COSMETICS / PERSONAL CARE--1.49%
--------------------------------------------------------------------------------
Alberto-Culver Co. "B" 16,427 502,050
Avon Products Inc. 70,093 3,119,138
Colgate-Palmolive Co. 170,134 10,186,773
Gillette Co. 307,983 10,760,156
International Flavors & Fragrances Inc. 30,348 916,130
Kimberly-Clark Corp. 163,941 9,406,115
Procter & Gamble Co. 385,931 22,094,550
--------------------------------------------------------------------------------
56,984,912
--------------------------------------------------------------------------------
DISTRIBUTION / WHOLESALE--0.16%
--------------------------------------------------------------------------------
Costco Wholesale Corp.+ 131,776 4,348,608
Genuine Parts Co. 52,188 1,043,760
Grainger (W.W.) Inc. 27,673 852,674
--------------------------------------------------------------------------------
6,245,042
--------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.12%
--------------------------------------------------------------------------------
American Express Co. 394,141 20,544,600
Associates First Capital Corp. 214,910 4,795,179
Bear Stearns Companies Inc. 32,599 1,356,933
Capital One Financial Corp. 57,740 2,576,648
Citigroup Inc. 995,704 59,991,166
Countrywide Credit Industries Inc. 33,474 1,014,681
Federal Home Loan Mortgage Corporation 205,111 8,306,995
Federal National Mortgage Association 297,183 15,509,238
Franklin Resources Inc. 71,881 2,183,385
Household International Inc. 139,616 5,802,790
Lehman Brothers Holdings Inc. 35,675 3,373,517
MBNA Corp. 236,525 6,415,741
Merrill Lynch & Co. Inc. 114,437 13,160,255
Morgan Stanley Dean Witter & Co. 333,984 27,804,168
Paine Webber Group Inc. 43,004 1,956,682
Price (T. Rowe) Associates 35,650 1,515,125
Providian Financial Corp. 42,059 3,785,310
Schwab (Charles) Corp. 401,777 13,509,752
SLM Holding Corp. 46,234 1,730,885
--------------------------------------------------------------------------------
195,333,050
--------------------------------------------------------------------------------
ELECTRIC--1.58%
--------------------------------------------------------------------------------
AES Corp.+ 125,810 5,740,081
Ameren Corp. 40,466 1,365,727
American Electric Power Inc. 94,948 2,812,835
Cinergy Corp. 46,911 1,193,299
CMS Energy Corp. 32,343 715,589
Consolidated Edison Inc. 62,520 1,852,155
Constellation Energy Group Inc. 44,110 1,436,332
CP&L Energy Inc. 47,126 1,505,087
Dominion Resources Inc. 70,218 3,010,597
DTE Energy Co. 42,110 1,286,987
<PAGE>
Duke Energy Corp. 108,456 6,114,207
Edison International 98,024 2,009,492
Entergy Corp. 67,882 1,845,542
FirstEnergy Corp. 68,161 1,593,263
Florida Progress Corp. 29,108 1,364,438
FPL Group Inc. 52,606 2,603,997
GPU Inc. 35,807 969,027
New Century Energies Inc. 34,343 1,030,290
Niagara Mohawk Holdings Inc.+ 50,880 709,140
Northern States Power Co. 46,395 936,599
PECO Energy Co. 50,048 2,017,560
PG&E Corp. 113,712 2,800,158
Pinnacle West Capital Corp. 25,000 846,875
PP & L Resources Inc. 42,577 934,033
Public Service Enterprise Group Inc. 63,813 2,209,525
Reliant Energy Inc. 87,234 2,578,855
Southern Co. 191,400 4,462,013
TXU Corporation 77,811 2,295,424
Unicom Corp. 52,448 2,029,082
--------------------------------------------------------------------------------
60,268,209
--------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.33%
--------------------------------------------------------------------------------
American Power Conversion Corp.+ 57,200 2,334,475
Emerson Electric Co. 125,932 7,603,145
Molex Inc. 57,850 2,784,031
--------------------------------------------------------------------------------
12,721,651
--------------------------------------------------------------------------------
ELECTRONICS--1.44%
--------------------------------------------------------------------------------
Agilent Technologies Inc.+ 133,393 9,837,734
Analog Devices Inc.+ 104,380 7,932,880
Johnson Controls Inc. 25,308 1,298,617
Linear Technology Corp. 91,800 5,869,462
Maxim Integrated Products Inc.+ 83,400 5,665,987
Millipore Corp. 13,625 1,026,984
Parker Hannifin Corp. 33,031 1,131,312
PE Corp. (Biosystems Group) 61,422 4,046,174
PerkinElmer Inc. 14,448 955,374
Sanmina Corp.+ 43,750 3,740,625
Solectron Corp.+ 175,954 7,368,074
Tektronix Inc. 14,210 1,051,540
Teradyne Inc.+ 51,090 3,755,115
Thermo Electron Corp.+ 46,003 968,938
Thomas & Betts Corp. 17,143 327,860
--------------------------------------------------------------------------------
54,976,676
--------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION--0.02%
--------------------------------------------------------------------------------
Fluor Corp. 22,558 713,407
--------------------------------------------------------------------------------
713,407
--------------------------------------------------------------------------------
ENTERTAINMENT--0.02%
--------------------------------------------------------------------------------
Harrah's Entertainment Inc.+ 36,015 754,064
--------------------------------------------------------------------------------
754,064
--------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL--0.11%
--------------------------------------------------------------------------------
<PAGE>
Allied Waste Industries Inc.+ 55,715 557,150
Waste Management Inc. 183,268 3,482,092
--------------------------------------------------------------------------------
4,039,242
--------------------------------------------------------------------------------
FOOD--1.86%
--------------------------------------------------------------------------------
Albertson's Inc. 124,976 4,155,452
Archer-Daniels-Midland Co. 177,683 1,743,514
Bestfoods 80,962 5,606,618
Campbell Soup Co. 124,661 3,630,752
ConAgra Inc. 145,231 2,768,466
General Mills Inc. 86,036 3,290,877
Great Atlantic & Pacific Tea Co. 11,288 187,663
Heinz (H.J.) Co. 103,902 4,545,713
Hershey Foods Corp. 40,435 1,968,679
Kellogg Co. 119,649 3,559,558
Kroger Co.+ 246,360 5,435,318
Nabisco Group Holdings Corp. "A" 96,363 2,499,415
Quaker Oats Co. 38,658 2,904,182
Ralston Purina Co. 90,546 1,805,261
Safeway Inc.+ 146,509 6,611,219
Sara Lee Corp. 256,527 4,954,178
Super Value Inc. 38,779 739,225
Sysco Corp. 98,312 4,141,393
Unilever NV 168,689 7,253,627
Winn-Dixie Stores Inc. 42,658 610,543
Wrigley William Jr. Co. 33,637 2,697,267
--------------------------------------------------------------------------------
71,108,920
--------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER--0.37%
--------------------------------------------------------------------------------
Boise Cascade Corp. 16,843 435,813
Fort James Corp. 60,728 1,404,335
Georgia-Pacific Corp. 50,289 1,320,086
International Paper Co. 142,526 4,249,056
Louisiana-Pacific Corp. 30,771 334,635
Mead Corp. 30,346 766,236
Potlatch Corp. 8,471 280,602
Temple-Inland Inc. 15,437 648,354
Westvaco Corp. 29,713 737,254
Weyerhaeuser Co. 68,695 2,953,885
Willamette Industries Inc. 32,672 890,312
--------------------------------------------------------------------------------
14,020,568
--------------------------------------------------------------------------------
GAS--0.07%
--------------------------------------------------------------------------------
Eastern Enterprises 8,032 506,016
NICOR Inc. 13,745 448,431
ONEOK Inc. 8,584 222,648
Peoples Energy Corp. 10,459 338,610
Sempra Energy 60,279 1,024,743
--------------------------------------------------------------------------------
2,540,448
--------------------------------------------------------------------------------
HAND / MACHINE TOOLS--0.05%
--------------------------------------------------------------------------------
Black & Decker Corp. 25,127 987,805
Snap-On Inc. 17,253 459,361
Stanley Works (The) 25,902 615,172
--------------------------------------------------------------------------------
2,062,338
--------------------------------------------------------------------------------
<PAGE>
HEALTH CARE--2.54%
--------------------------------------------------------------------------------
Allergan Inc. 38,250 2,849,625
Bard (C.R.) Inc. 14,878 716,004
Bausch & Lomb Inc. 15,621 1,208,675
Baxter International Inc. 85,621 6,020,227
Becton Dickinson & Co. 74,461 2,136,100
Biomet Inc. 34,868 1,340,239
Boston Scientific Corp.+ 120,321 2,639,542
Guidant Corp.+ 90,411 4,475,344
HCA - The Healthcare Company 164,536 4,997,781
Healthsouth Corp.+ 113,709 817,283
Humana Inc.+ 49,704 242,307
Johnson & Johnson 410,347 41,804,101
Mallinckrodt Group Inc. 19,824 861,105
Manor Care Inc.+ 30,186 211,302
Medtronic Inc. 353,156 17,591,583
St. Jude Medical Inc.+ 24,753 1,135,544
Tenet Healthcare Corp. 92,273 2,491,371
UnitedHealth Group Inc. 47,903 4,107,682
Wellpoint Health Networks Inc.+ 18,355 1,329,590
--------------------------------------------------------------------------------
96,975,405
--------------------------------------------------------------------------------
HOLDING COMPANIES-DIVERSIFIED--0.20%
--------------------------------------------------------------------------------
Seagram Co. Ltd. 128,787 7,469,646
--------------------------------------------------------------------------------
7,469,646
--------------------------------------------------------------------------------
HOME BUILDERS--0.03%
--------------------------------------------------------------------------------
Centex Corp. 17,515 411,602
Kaufman & Broad Home Corp. 14,179 280,921
Pulte Corp. 12,137 262,463
--------------------------------------------------------------------------------
954,986
--------------------------------------------------------------------------------
HOME FURNISHINGS--0.07%
--------------------------------------------------------------------------------
Leggett & Platt Inc. 58,000 957,000
Maytag Corp. 23,111 852,218
Whirlpool Corp. 21,581 1,006,214
--------------------------------------------------------------------------------
2,815,432
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS / WARES--0.24%
--------------------------------------------------------------------------------
American Greetings Corp. "A" 19,020 361,380
Avery Dennison Corp. 33,083 2,220,696
Clorox Co. 69,302 3,105,596
Fortune Brands Inc. 46,748 1,078,126
Newell Rubbermaid Inc. 78,590 2,023,693
Tupperware Corp. 17,021 374,462
--------------------------------------------------------------------------------
9,163,953
--------------------------------------------------------------------------------
INSURANCE--2.84%
--------------------------------------------------------------------------------
Aetna Inc. 41,589 2,669,494
AFLAC Inc. 78,282 3,596,079
Allstate Corp. 219,699 4,888,303
American General Corp. 73,323 4,472,703
American International Group 454,825 53,441,938
AON Corp. 75,472 2,344,334
<PAGE>
Chubb Corp. 51,669 3,177,643
CIGNA Corp. 48,077 4,495,199
Cincinnati Financial Corp. 47,444 1,491,521
Conseco Inc. 95,946 935,473
Hartford Financial Services Group Inc. 63,362 3,544,312
Jefferson-Pilot Corp. 30,464 1,719,312
Lincoln National Corp. 56,547 2,042,760
Loews Corp. 29,113 1,746,780
Marsh & McLennan Companies Inc. 79,585 8,311,659
MBIA Inc. 29,039 1,399,317
MGIC Investment Corp. 31,231 1,421,010
Progressive Corporation 21,575 1,596,550
SAFECO Corp. 37,622 747,737
St. Paul Companies Inc. 62,543 2,134,280
Torchmark Corp. 37,786 932,842
UNUMProvident Corp. 70,960 1,423,635
--------------------------------------------------------------------------------
108,532,881
--------------------------------------------------------------------------------
IRON / STEEL--0.05%
--------------------------------------------------------------------------------
Allegheny Technologies Inc. 24,570 442,260
Bethlehem Steel Corp.+ 39,001 138,941
Nucor Corp. 25,074 832,143
USX-U.S. Steel Group Inc. 26,033 483,238
--------------------------------------------------------------------------------
1,896,582
--------------------------------------------------------------------------------
LEISURE TIME--0.22%
--------------------------------------------------------------------------------
Brunswick Corp. 25,932 429,499
Carnival Corp. "A" 178,339 3,477,610
Harley-Davidson Inc. 89,600 3,449,600
Sabre Holdings Corp. 38,105 1,085,993
--------------------------------------------------------------------------------
8,442,702
--------------------------------------------------------------------------------
LODGING--0.09%
--------------------------------------------------------------------------------
Hilton Hotels Corp. 108,662 1,018,706
Marriott International Inc. 70,733 2,550,809
--------------------------------------------------------------------------------
3,569,515
--------------------------------------------------------------------------------
MACHINERY--0.34%
--------------------------------------------------------------------------------
Briggs & Stratton Corp. 6,622 226,803
Caterpillar Inc. 102,878 3,484,992
Cummins Engine Company Inc. 12,200 332,450
Deere & Co. 69,077 2,555,849
Dover Corp. 59,863 2,428,193
Ingersoll-Rand Co. 47,786 1,923,387
McDermott International Inc. 17,706 156,034
Rockwell International Corp. 55,445 1,746,517
--------------------------------------------------------------------------------
12,854,225
--------------------------------------------------------------------------------
MANUFACTURERS--6.08%
--------------------------------------------------------------------------------
Cooper Industries Inc. 27,520 896,120
Corning Inc. 81,353 21,955,141
Crane Co. 17,843 433,808
Danaher Corp. 41,806 2,066,784
Eastman Kodak Co. 91,441 5,440,740
Eaton Corp. 21,496 1,440,232
<PAGE>
FMC Corp.+ 8,992 521,536
General Electric Co. 2,919,108 154,712,724
Illinois Tool Works Inc. 88,936 5,069,352
ITT Industries Inc. 25,973 788,930
Minnesota Mining & Manufacturing Co. 116,771 9,633,608
National Service Industries Inc. 11,998 233,961
Pall Corp. 36,449 674,307
Polaroid Corp. 13,220 238,786
PPG Industries Inc. 51,394 2,277,397
Textron Inc. 42,584 2,312,844
Tyco International Ltd. 498,078 23,596,445
--------------------------------------------------------------------------------
232,292,715
--------------------------------------------------------------------------------
MEDIA--3.14%
--------------------------------------------------------------------------------
Clear Channel Communications Inc.+ 100,045 7,503,375
Comcast Corp. "A"+ 264,908 10,728,774
Disney (Walt) Co. 613,024 23,792,994
Dow Jones & Co. Inc. 26,136 1,914,462
Gannett Co. Inc. 78,630 4,703,057
Harcourt General Inc. 21,181 1,151,717
Knight Ridder Inc. 22,948 1,220,547
McGraw-Hill Companies Inc. 57,345 3,096,630
Meredith Corp. 14,947 504,461
New York Times Co. "A" 50,154 1,981,083
Time Warner Inc. 388,170 29,500,920
Tribune Co. 91,032 3,186,120
Viacom Inc. "B"+ 449,923 30,679,125
--------------------------------------------------------------------------------
119,963,265
--------------------------------------------------------------------------------
METAL FABRICATE / HARDWARE--0.02%
--------------------------------------------------------------------------------
Timken Co. 17,951 334,337
Worthington Industries Inc. 25,390 266,595
--------------------------------------------------------------------------------
600,932
--------------------------------------------------------------------------------
METALS-DIVERSIFIED--0.30%
--------------------------------------------------------------------------------
Alcan Aluminium Ltd. 64,565 2,001,515
Alcoa Inc. 254,914 7,392,506
Freeport-McMoRan Copper & Gold Inc.+ 47,174 436,360
Inco Ltd.+ 53,637 824,669
Phelps Dodge Corp. 23,201 862,787
--------------------------------------------------------------------------------
11,517,837
--------------------------------------------------------------------------------
MINING--0.12%
--------------------------------------------------------------------------------
Barrick Gold Corp. 116,748 2,123,354
Homestake Mining Company 76,835 528,241
Newmont Mining Corp. 49,505 1,070,546
Placer Dome Inc. 96,556 923,317
--------------------------------------------------------------------------------
4,645,458
--------------------------------------------------------------------------------
OFFICE / BUSINESS EQUIPMENT--0.19%
--------------------------------------------------------------------------------
Pitney Bowes Inc. 76,003 3,040,120
Xerox Corp. 196,566 4,078,745
--------------------------------------------------------------------------------
7,118,865
--------------------------------------------------------------------------------
OIL & GAS PRODUCERS--4.74%
--------------------------------------------------------------------------------
<PAGE>
Amerada Hess Corp. 26,691 1,648,169
Anadarko Petroleum Corp. 37,795 1,863,766
Apache Corp. 33,597 1,975,924
Burlington Resources Inc. 63,478 2,428,034
Chevron Corp. 192,401 16,318,010
Coastal Corp. 63,110 3,841,821
Conoco Inc. 184,185 4,524,044
Exxon Mobil Corp. 1,027,075 80,625,388
Kerr-McGee Corp. 27,824 1,639,877
Occidental Petroleum Corp. 108,734 2,290,210
Phillips Petroleum Co. 74,887 3,795,835
Rowan Companies Inc.+ 27,675 840,628
Royal Dutch Petroleum Co. 632,674 38,948,993
Sunoco Inc. 26,137 769,408
Texaco Inc. 162,900 8,674,425
Tosco Corp. 42,650 1,207,528
Transocean Sedco Forex Inc. 62,068 3,316,759
Union Pacific Resources Group 74,333 1,635,326
Unocal Corp. 71,663 2,373,837
USX-Marathon Group Inc. 91,977 2,305,174
--------------------------------------------------------------------------------
181,023,156
--------------------------------------------------------------------------------
OIL & GAS SERVICES--0.57%
--------------------------------------------------------------------------------
Baker Hughes Inc. 97,458 3,118,656
Halliburton Co. 131,018 6,182,412
Schlumberger Ltd. 167,942 12,532,672
--------------------------------------------------------------------------------
21,833,740
--------------------------------------------------------------------------------
PACKAGING & CONTAINERS--0.09%
--------------------------------------------------------------------------------
Ball Corp. 8,780 282,606
Bemis Co. 15,708 528,182
Crown Cork & Seal Co. Inc. 37,841 567,615
Owens-Illinois Inc.+ 43,219 505,122
Pactiv Corp.+ 49,825 392,372
Sealed Air Corp.+ 24,657 1,291,410
--------------------------------------------------------------------------------
3,567,307
--------------------------------------------------------------------------------
PHARMACEUTICALS--8.02%
--------------------------------------------------------------------------------
Abbott Laboratories 457,120 20,370,410
ALZA Corp.+ 30,289 1,790,837
American Home Products Corp. 384,853 22,610,114
Bristol-Myers Squibb Co. 581,988 33,900,801
Cardinal Health Inc. 81,252 6,012,648
Lilly (Eli) and Company 333,194 33,277,751
MedImmune Inc.+ 61,600 4,558,400
Merck & Co. Inc. 678,408 51,983,013
Pfizer Inc. 1,857,192 89,145,204
Pharmacia & Upjohn Inc. 374,555 19,359,812
Schering-Plough Corp. 431,964 21,814,182
Watson Pharmaceutical Inc.+ 28,471 1,530,316
--------------------------------------------------------------------------------
306,353,488
--------------------------------------------------------------------------------
PIPELINES--0.64%
--------------------------------------------------------------------------------
Columbia Energy Group 23,772 1,560,038
EL Paso Energy Corp. 68,257 3,476,841
<PAGE>
Enron Corp. 215,970 13,930,065
Williams Companies Inc. 130,360 5,434,383
--------------------------------------------------------------------------------
24,401,327
--------------------------------------------------------------------------------
RETAIL--5.29%
--------------------------------------------------------------------------------
AutoZone Inc.+ 39,456 868,023
Bed Bath & Beyond Inc.+ 41,400 1,500,750
Best Buy Co. Inc.+ 60,298 3,813,849
Circuit City Stores Inc. 59,963 1,990,022
Consolidated Stores Corp.+ 32,652 391,824
CVS Corp. 115,144 4,605,760
Darden Restaurants Inc. 36,480 592,800
Dillards Inc. "A" 27,622 338,370
Dollar General Corp. 97,130 1,894,035
Federated Department Stores Inc.+ 63,117 2,130,199
Gap Inc. 251,098 7,846,813
Home Depot Inc. 682,641 34,089,385
Kmart Corp.+ 141,959 967,096
Kohls Corp.+ 96,218 5,352,126
Limited Inc. 126,776 2,741,531
Longs Drug Stores Inc. 11,654 253,475
Lowe's Companies Inc. 112,790 4,631,439
May Department Stores Co. 98,073 2,353,752
McDonald's Corp. 394,268 12,986,202
Nordstrom Inc. 39,715 958,124
Office Depot Inc.+ 93,299 583,119
Penney (J.C.) Company Inc. 76,999 1,419,669
RadioShack Corp. 55,075 2,609,178
Rite Aid Corp. 76,381 501,250
Sears, Roebuck and Co. 104,024 3,393,783
Staples Inc.+ 142,879 2,196,765
Starbucks Corp.+ 54,200 2,069,763
Target Corporation 134,574 7,805,292
Tiffany & Co. 21,400 1,444,500
TJX Companies Inc. 88,503 1,659,431
Toys R Us Inc.+ 63,825 929,452
Tricon Global Restaurants Inc.+ 43,482 1,228,367
Walgreen Co. 297,328 9,570,245
Wal-Mart Stores Inc. 1,315,010 75,777,451
Wendy's International Inc. 33,543 597,485
--------------------------------------------------------------------------------
202,091,325
--------------------------------------------------------------------------------
SEMICONDUCTORS--6.15%
--------------------------------------------------------------------------------
Advanced Micro Devices Inc.+ 45,227 3,493,786
Altera Corp.+ 58,700 5,983,731
Applied Materials Inc.+ 238,236 21,590,138
Conexant Systems Inc.+ 64,150 3,119,294
Intel Corp. 988,115 132,098,624
KLA-Tencor Corp.+ 54,896 3,214,847
LSI Logic Corp.+ 90,558 4,901,452
Micron Technology Inc.+ 163,751 14,420,343
National Semiconductor Corp.+ 52,131 2,958,434
Novellus Systems Inc.+ 38,500 2,177,656
Texas Instruments Inc. 482,776 33,160,677
Xilinx Inc.+ 94,800 7,826,925
<PAGE>
--------------------------------------------------------------------------------
234,945,907
--------------------------------------------------------------------------------
SOFTWARE--7.90%
--------------------------------------------------------------------------------
Adobe Systems Inc. 35,326 4,592,380
America Online Inc.+ 677,842 35,756,166
Autodesk Inc. 17,182 596,001
Automatic Data Processing 185,107 9,914,794
BMC Software Inc.+ 72,084 2,629,942
Citrix Systems Inc.+ 54,640 1,034,745
Computer Associates International Inc. 173,596 8,885,945
Compuware Corp.+ 106,345 1,103,329
First Data Corp. 121,623 6,035,541
IMS Health Inc. 87,683 1,578,294
Mercury Interactive Corp.+ 23,500 2,273,625
Microsoft Corp.+ 1,552,674 124,213,920
Novell Inc.+ 97,214 899,230
Oracle Corp.+ 837,472 70,399,990
Parametric Technology Corp.+ 81,453 895,983
PeopleSoft Inc.+ 81,410 1,363,618
Siebel Systems Inc.+ 58,850 9,625,653
Yahoo! Inc.+ 160,330 19,860,879
--------------------------------------------------------------------------------
301,660,035
--------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT--4.54%
--------------------------------------------------------------------------------
ADC Telecommunications Inc.+ 99,502 8,345,723
Andrew Corp.+ 23,767 797,680
Comverse Technology Inc.+ 45,050 4,189,650
Lucent Technologies Inc. 960,833 56,929,355
Motorola Inc. 634,980 18,454,106
Nortel Networks Corp. 873,984 59,649,408
QUALCOMM Inc.+ 218,596 13,115,760
Scientific-Atlanta Inc. 46,946 3,497,477
Tellabs Inc.+ 120,813 8,268,140
--------------------------------------------------------------------------------
173,247,299
--------------------------------------------------------------------------------
TELECOMMUNICATIONS--0.96%
--------------------------------------------------------------------------------
Global Crossing Ltd.+ 260,199 6,846,486
Nextel Communications Inc. "A"+ 223,764 13,691,560
Sprint Corp. (PCS Group)+ 270,013 16,065,774
--------------------------------------------------------------------------------
36,603,820
--------------------------------------------------------------------------------
TELEPHONE--5.62%
--------------------------------------------------------------------------------
Alltel Corp. 93,034 5,762,293
AT&T Corp. 1,107,175 35,014,417
Bell Atlantic Corp. 456,085 23,174,819
BellSouth Corp. 555,119 23,661,947
CenturyTel Inc. 41,419 1,190,796
GTE Corp. 284,015 17,679,934
SBC Communications Inc. 1,003,688 43,409,506
Sprint Corp. (FON Group) 258,680 13,192,680
US West Communications Inc. 149,780 12,843,635
WorldCom Inc.+ 844,758 38,753,273
--------------------------------------------------------------------------------
214,683,300
--------------------------------------------------------------------------------
TEXTILES--0.00%
--------------------------------------------------------------------------------
<PAGE>
Springs Industries Inc. "A" 5,242 168,727
--------------------------------------------------------------------------------
168,727
--------------------------------------------------------------------------------
TOBACCO--0.49%
--------------------------------------------------------------------------------
Philip Morris Companies Inc. 674,720 17,922,250
UST Inc. 47,906 703,619
--------------------------------------------------------------------------------
18,625,869
--------------------------------------------------------------------------------
TOYS / GAMES / HOBBIES--0.06%
--------------------------------------------------------------------------------
Hasbro Inc. 50,812 765,356
Mattel Inc. 125,622 1,656,640
--------------------------------------------------------------------------------
2,421,996
--------------------------------------------------------------------------------
TRANSPORTATION--0.39%
--------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 126,334 2,897,786
CSX Corp. 64,427 1,365,047
FedEx Corp.+ 85,557 3,251,166
Kansas City Southern Industries Inc. 32,841 2,912,586
Norfolk Southern Corp. 113,050 1,681,619
Union Pacific Corp. 73,080 2,717,663
--------------------------------------------------------------------------------
14,825,867
--------------------------------------------------------------------------------
TRUCKING & LEASING--0.01%
--------------------------------------------------------------------------------
Ryder System Inc. 17,510 331,596
--------------------------------------------------------------------------------
331,596
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $2,696,343,153) 3,686,190,751
--------------------------------------------------------------------------------
Security Principal Value
--------------------------------------------------------------------------------
SHORT TERM INSTRUMENTS--2.71%
--------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation Discount Note
6.42%, 07/05/00++ 18,395,703 18,395,703
Goldman Sachs Financial Square Prime Obligation Fund
6.57%, 07/03/00++ 56,944,870 56,944,870
Short Term Investment Company Liquid Assets Portfolio
6.67%, 07/03/00++ 20,300,000 20,300,000
U.S. Treasury Bills
5.47%*, 09/21/00+++ 8,150,000 8,047,310
--------------------------------------------------------------------------------
TOTAL SHORT TERM INSTRUMENTS
(Cost: $103,688,397) 103,687,883
--------------------------------------------------------------------------------
Security Principal Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--3.09%
--------------------------------------------------------------------------------
Morgan Stanley Tri Party Repurchase Agreement, dated
06/30/00, due 07/03/00, with a maturity value of
$118,102,909 and an effective yield of 6.30% 118,040,937 118,040,937
<PAGE>
--------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost: $118,040,937) 118,040,937
--------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 102.33%
(Cost $2,918,072,487) 3,907,919,571
--------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (2.33%) (89,114,415)
--------------------------------------------------------------------------------
NET ASSETS -- 100.00% $3,818,805,156
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
+ Non-income earning securities.
++ Represents investment of collateral received from
securities lending transactions. See Note 4.
+++ These U.S. Treasury Bills are held in segregated
accounts in connection with the Master Portfolio's
holdings of S&P 500 Index futures contracts. See Note 1.
* Yield to Maturity.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
E*TRADE S&P 500 INDEX FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
Investments:
<S> <C>
In S&P 500 Master Portfolio ("Master Portfolio"),at market value (Note 1) $ 58,829,794
----------------
Total Assets 58,829,794
----------------
LIABILITIES
Payables:
Accrued administration fee (Note 2) 61,258
Distribution to shareholders 140,641
Due to E*TRADE Asset Management, Inc. (Note 2) 4,444
----------------
Total Liabilities 206,343
----------------
NET ASSETS $ 58,623,451
================
NET ASSETS CONSIST OF:
Paid-in capital 54,502,663
Distributions in excess of net investment income (12,338)
Undistributed net realized gain on investments 9,377,929
Net unrealized depreciation of investments (5,244,803)
----------------
NET ASSETS $ 58,623,451
================
Shares outstanding 5,010,013
================
Net asset value and offering price per share $ 11.70
================
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE S&P 500 INDEX FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIO
<S> <C>
Dividends $ 291,641
Interest 46,898
Expenses (13,106)
-----------
Net investment income allocated from Master Portfolio 325,433
-----------
FUND EXPENSES (Note 2)
Administration fees 65,010
Advisory fees 5,206
Trustee fees 2,568
-----------
Total fund expenses 72,784
-----------
Less:
Waived Trustee fees (Note 2) (2,568)
-----------
Total Net Expenses 70,216
-----------
Net investment income 255,217
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIO
Net realized gain on investments 9,261,533
Net realized gain on sale of futures contracts 42,438
Net change in unrealized depreciation of investments (9,486,281)
Net change in unrealized depreciation of future
contracts and foreign currency exchange contracts (137,749)
-----------
Net loss on investments and future contracts allocated from
S&P 500 Master Portfolio Master Portfolio (320,059)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (64,842)
===========
</TABLE>
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
E*TRADE S&P 500 INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period February
17, 1999
For the Six Months (commencement of
Ended June 30, 2000 operations) through
(Unaudited) December 31, 1999
------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 255,217 $ 273,024
Net realized gain 9,303,971 110,407
Net change in unrealized appreciation (depreciation) (9,624,030) 4,379,227
------------------- ------------------------
Net increase (decrease) in net assets resulting from operations (64,842) 4,762,658
------------------- ------------------------
Distributions to shareholders:
From net investment income (269,577) (271,224)
------------------- ------------------------
From net realized gain on sale of investments 0 (35,715)
------------------- ------------------------
Total distributions to shareholders (269,577) (306,939)
------------------- ------------------------
Capital share transactions:
Proceeds from shares sold 29,240,215 59,029,508
Net asset value of shares issued in reinvestment of dividends and distributions 255,191 148,331
Cost of shares redeemed (net of redemption fees of $13,300 and $0, respectively) (17,443,329) (16,727,765)
------------------- ------------------------
Net increase in net assets resulting from capital share transactions 12,052,077 42,450,074
------------------- ------------------------
Increase in net assets 11,717,658 46,905,793
NET ASSETS:
Beginning of period 46,905,793 0
------------------- ------------------------
End of period (including distributions in excess of net investment income and
undistributed net investment income of $12,338 and $2,022) $ 58,623,451 $ 46,905,793
=================== ========================
SHARES ISSUED AND REDEEMED:
Shares sold 2,540,196 5,467,772
Shares issued in reinvestment of dividends and distributions 21,433 14,032
Shares redeemed (1,515,025) (1,518,395)
------------------- -----------------------
Net increase in shares outstanding 1,046,604 3,963,409
=================== ========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
E*Trade S&P 500 Index Fund
<TABLE>
<CAPTION>
Period From
Six Feb. 17, 1999
Months Ended (Commencement
Jun. 30, 2000 of Operations) to
(Unaudited)++ Dec. 31, 1999++
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $11.83 $10.00
------------- -----------------
Income from investment operations:
Net investment income 0.05 0.09
Net realized and unrealized gain (loss) on investments (0.12) 1.84
------------- -----------------
Total from investment operations (0.07) 1.93
------------- -----------------
Less distributions:
From net investment income (0.06) (0.09)
From net realized gains 0.00 (0.01)
------------- -----------------
Total distributions (0.06) (0.10)
------------- -----------------
Redemption fees added to paid-in-capital 0.00 *** 0.00
------------- -----------------
Net asset value, end of period $11.70 $11.83
============= =================
Total return (0.62)%** 19.31%*
============= =================
Ratios/Supplemental data:
Net assets, end of period (000s) $58,623 $46,906
Ratio of expenses to average net assets+ 0.32%+++ 0.32%+++
Ratio of net investment income to average net assets+ 0.98% 1.14%
Portfolio turnover rate 1 4.00% 7.00%
<FN>
* For the period February 17, 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 income and expenses of the S&P 500
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 S&P 500 INDEX FUND
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
E*TRADE S&P 500 Index (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 S&P 500 Index Fund.
The Fund's investment objective is to provide investment results that
attempt to match the total return of the stocks making up the Standard &
Poor's 500 Composite Stock Price Index. *
* "Standard & Poor's(TM)," "S&P(TM)" "S&P 500(TM)", "Standard & Poor's
500(TM)", and "500(TM)" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed for use by E*TRADE Asset Management, Inc. for use in
connection with the Fund. The Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the Fund.
The following is a summary of significant accounting policies which
are consistently followed by the Fund 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 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.
PRINCPLES 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 S&P 500 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
the Master Portfolio. As of June 30, 2000, the value of the Fund's
investment in the Master Portfolio was 1.54% of the outstanding interests
of the Master Portfolio.
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.
REDEMPTION FEES
For redemptions made after September 30, 2000 shares held in the Fund
for less than four months are subject to a 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%. Prior to January 21, 2000, shares
held less than four months were subject to a fee equal to $24.95. 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 a fee 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 is entitled to receive a fee from the Master
Portfolio at a annual rate equal to 0.05% of the average daily net assets
of the Master Portfolio. 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 0.25% of its average daily net assets for its services as
administrator of the Fund.
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 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 cash, money market mutual funds and repurchase
agreements. 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. The value of the securities on loan and the value of the related
collateral are disclosed in the Master Portfolio's financial statements.
<PAGE>
S&P 500 INDEX MASTER PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments at market value (Cost: $2,918,072,487) (Note 1) $3,907,919,571
Receivables:
Investment securities sold 7,197,840
Dividends and interest 3,288,834
Due from broker - variation margin 1,029,524
Prepaid expenses 236
--------------
Total Assets 3,919,436,005
--------------
LIABILITIES
Payables:
Investment securities purchased 4,249,206
Collateral for securities loaned (Note 4) 95,640,573
Due to Bank 2,314
Due to BGI (Note 2) 738,756
--------------
Total Liabilities 100,630,849
--------------
NET ASSETS $3,818,805,156
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
S&P 500 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 $122,278) $ 24,183,203
Interest (Includes securities lending income of $90,107) 3,984,961
-------------
Total investment income 28,168,164
-------------
EXPENSES (NOTE 2)
Advisory fees 1,091,905
-------------
Total expenses 1,091,905
-------------
Net investment income 27,076,259
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sale of investments 650,038,851
Net realized gain on sale of futures contracts 2,644,903
Net change in unrealized appreciation (depreciation) of investments (701,744,471)
Net change in unrealized appreciation (depreciation) of futures contracts (12,365,227)
-------------
Net loss on investments (61,425,944)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (34,349,685)
=============
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
S&P 500 Index Master Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 2000 For the Period Ended For the Year Ended
(Unaudited) December 31, 1999* February 28, 1999
------------------------ -------------------- ------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $27,076,259 $ 52,303,458 $ 43,674,276
Net realized gain 652,683,754 170,279,517 181,973,840
Net change in unrealized appreciation (depreciation) (714,109,698) 562,095,831 250,798,350
-------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations (34,349,685) 784,678,806 476,446,466
-------------- --------------- ---------------
Interestholder transactions:
Contributions 1,043,786,832 355,753,442 2,288,411,987
Withdrawals (2,018,157,017) - (1,431,828,889)
-------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from interestholder transactions (974,370,185) 355,753,442 856,583,098
-------------- --------------- ---------------
Increase (decrease) in net assets (1,008,719,870) 1,140,432,248 1,333,029,564
-------------- --------------- ---------------
NET ASSETS:
Beginning of period 4,827,525,026 3,687,092,778 2,354,063,214
-------------- --------------- ---------------
End of period $3,818,805,156 $ 4,827,525,026 $ 3,687,092,778
============== =============== ===============
<FN>
* For the ten months ended December 31, 1999. The Master Portfolio changed its
fiscal year end from February 28 to December 31.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
S&P 500 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 S&P 500 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. 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 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.
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 "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:
<TABLE>
<CAPTION>
Number of Expiration Notional Net Unrealized
Contracts Type Date Contract Value (Depreciation)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
346 S&P 500 Index 09/15/00 $ 126,990,650 $ (2,492,652)
</TABLE>
The Master Portfolio has pledged to brokers U.S. Treasury Bills for
initial margin requirements with a par value of $8,150,000.
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.
The repurchase agreement entered into on June 30, 2000 by the Master
Portfolio is fully collateralized by U.S. Government obligations with rates from
4.875% to 5.75%, maturity dates of 11/15/00 to 3/31/01 and an aggregate market
value of $120,411,574.
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 0.05% of the average daily net assets of the Master
Portfolio as compensation for advisory services. BGFA is an indirect subsidiary
of Barclays Bank PLC.
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 SubAdministrator 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 not
entitled to compensation for providing administration services to 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 $ 166,532,696
Sales proceeds 1,076,048,259
At June 30, 2000 the Master Portfolio's aggregate unrealized appreciation
and depreciation based on cost for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
Tax Unrealized Unrealized Net Unrealized
Cost Appreciation Depreciation Appreciation
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,918,072,487 $ 1,241,324,604 $ (251,477,520) $ 989,847,084
</TABLE>
4. PORTFOLIO SECURITIES LOANED
As of June 30, 2000, the Master Portfolio had loaned securities which were
collateralized by U.S. Government Agency obligations and money market mutual
funds. The Master Portfolio receives transaction fees for providing services in
connection with the securities lending program. The risk to the Master Portfolio
of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due. The value of the
securities on loan at June 30, 2000 was $92,268,933 and the value of the related
collateral was $95,640,573.
5. 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 were as follows:
Six Months For the For the
Ended Period Ended Year Ended
June 30, 2000 December 31, February 28,
(Unaudited) 1999 * 1999
--------------------------------------------------------------------------------
Ratio of expenses to average net
assets + 0.05% 0.05% 0.05%
Ratio of net investment income to
average net assets + 1.24% 1.44% 1.61%
Portfolio turnover rate 4% 7% 11%
--------------------------------------------------------------------------------
* For the ten months ended December 31,1999. The Master Portfolio changed
its fiscal year-end from February 28 to December 31.
+ Annualized for the period of less than one year.
