The E*TRADE Bond Index Fund commenced operations on August 13, 1999. This annual
report contains audited financial statements for a period of less than six
months and, therefore, does not contain an analysis of the results of operations
for the period ended December 31, 1999. Relying on financial statements
reporting operating results for such a period is subject to inherent limitations
resulting from the shortness of the period. 1
<PAGE>
MASTER INVESTMENT PORTFOLIO--BOND INDEX
MASTER PORTFOLIO--DECEMBER 31, 1999
Portfolio of Investments
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS & NOTES--30.16%
AEROSPACE / DEFENSE--1.04%
2,800,000 Raytheon Co 5.95% 03/15/01 2,761,503
1,000,000 Raytheon Co 7.38% 07/15/25 864,220
1,000,000 United Technologies Corp 6.63% 11/15/04 978,610
------------
$4,604,333
AUTO MANUFACTURERS--0.91%
1,500,000 Chrysler Corp 7.45% 03/01/27 1,456,089
1,000,000 Ford Motor Co 7.25% 10/01/08 985,732
1,500,000 Ford Motor Co 8.88% 04/01/06 1,606,360
------------
$4,048,181
AUTO PARTS & EQUIPMENT--0.41%
1,000,000 Delphi Automotive Systems Corp 6.50% 05/01/09 909,872
1,000,000 Goodyear Tire & Rubber Co 6.63% 12/01/06 935,503
------------
$1,845,375
BANKS--4.05%
500,000 ABN Amro Bank NV 7.30% 12/01/26 456,279
1,000,000 Bank of New York Co Inc 6.50% 12/01/03 969,276
1,000,000 Bank One Corp 8.10% 03/01/02 1,017,743
1,870,000 BankAmerica Corp 6.25% 04/01/08 1,720,000
1,000,000 Chase Manhattan Corp 5.75% 04/15/04 946,695
1,000,000 Dresdner Bank AG 6.63% 09/15/05 954,492
500,000 First Union Corp 6.63% 07/15/05 479,686
1,500,000 KeyCorp 6.75% 03/15/06 1,436,391
3,500,000 KFW International Finance Inc 7.63% 02/15/04 3,580,843
250,000 KFW International Finance Inc 8.00% 02/15/10 263,977
1,000,000 Korea Development Bank 7.38% 09/17/04 981,839
500,000 Skandinaviska Enskilda 6.88% 02/15/09 462,820
1,200,000 Swiss Bank Corp 7.38% 07/15/15 1,151,563
4,000,000 Westdeutsche NY 6.05% 01/15/09 3,577,540
------------
$17,999,144
BEVERAGES--0.92%
1,500,000 Anheuser-Busch Companies 9.00% 12/01/09 1,675,315
1,000,000 Coca-Cola Enterprises 8.00% 09/15/22 1,006,282
1,000,000 Diageo PLC 6.13% 08/15/05 946,108
500,000 J Seagram & Sons 7.50% 12/15/18 472,541
------------
$4,100,246
CHEMICALS--0.23%
500,000 Dow Chemical Co 8.63% 04/01/06 527,218
500,000 ICI Wilmington 8.75% 05/01/01 509,524
------------
$1,036,742
COMMERCIAL SERVICES--0.17%
1,000,000 Service Corp International 6.00% 12/15/05 743,191
COSMETICS / PERSONAL CARE--0.22%
1,000,000 Procter & Gamble Co 6.88% 09/15/09 977,869
DIVERSIFIED FINANCIAL SERVICES--7.20%
2,500,000 Associates Corp NA 6.25% 11/01/08 2,303,360
1,000,000 Associates Corp NA 6.95% 11/01/18 925,652
1,000,000 AT&T Capital Corp 6.25% 05/15/01 989,514
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1,000,000 CIT Group Holdings 6.63% 06/15/05 965,372
1,000,000 Citigroup Inc 7.88% 05/15/25 1,003,818
1,000,000 Countrywide Funding Corp 6.88% 09/15/05 969,087
2,000,000 First Union Capital Corp 8.04% 12/01/26 1,859,078
3,400,000 Ford Motor Credit Co 6.50% 02/28/02 3,367,996
3,500,000 General Motors Acceptance Corp 5.80% 04/09/01 3,461,724
1,000,000 General Motors Acceptance Corp 7.13% 05/01/03 996,564
2,000,000 Household Finance Corp 6.00% 05/01/04 1,899,078
1,000,000 Household Finance Corp 6.70% 06/15/02 987,032
2,500,000 Lehman Brothers Inc 7.63% 06/01/06 2,469,757
1,000,000 Mellon Capital II 8.00% 01/15/27 940,602
3,000,000 Mellon Financial 6.00% 03/01/04 2,862,543
4,000,000 Merrill Lynch & Co Inc 6.00% 02/17/09 3,585,396
1,000,000 Merrill Lynch & Co Inc 6.38% 10/15/08 921,966
1,500,000 Morgan Stanley Group Inc 6.70% 05/01/01 1,498,313
------------
$32,006,852
ELECTRIC--2.44%
2,000,000 Duke Energy Corp 6.00% 12/01/28 1,574,154
1,000,000 Enersis SA 7.40% 12/01/16 870,792
4,000,000 Houston Lighting & Power Co 6.50% 04/21/03 3,906,836
756,098 Niagra Mohawk Power 7.38% 07/01/03 753,095
529,268 Niagra Mohawk Power 7.63% 10/01/05 529,999
1,500,000 Northern States Power Co 6.50% 03/01/28 1,279,197
1,000,000 Texas Utilities Co 6.38% 01/01/08 911,974
1,000,000 Virginia Electric & Power Co 7.38% 07/01/02 1,002,385
------------
$10,828,432
FOOD--0.54%
500,000 Archer-Daniels-Midland Co 8.38% 04/15/17 528,658
1,000,000 Fred Meyer Inc 7.45% 03/01/08 971,367
1,000,000 Kroger Co 7.00% 05/01/18 890,811
------------
$2,390,836
HEALTH CARE--0.45%
1,000,000 Baxter International Inc 7.63% 11/15/02 1,012,695
1,000,000 Becton Dickinson & Co 7.15% 10/01/09 971,185
------------
$1,983,880
INSURANCE--0.21%
1,000,000 Aetna Services Inc 7.13% 08/15/06 959,504
MANUFACTURERS--0.57%
3,000,000 Tyco International Group 6.88% 01/15/29 2,555,040
MEDIA--2.85%
2,000,000 Comcast Cable Communications 8.38% 05/01/07 2,067,354
2,000,000 Disney (Walt) Co 5.13% 12/15/03 1,871,194
500,000 Disney (Walt) Co 6.75% 03/30/06 488,713
2,500,000 Time Warner Entertainment 8.38% 03/15/23 2,607,173
2,000,000 Time Warner Entertainment 9.63% 05/01/02 2,105,236
3,500,000 Viacom Inc 7.75% 06/01/05 3,538,035
------------
$12,677,705
MULTI-NATIONAL--0.48%
500,000 African Development Bank 7.75% 12/15/01 509,530
1,000,000 Inter-American Development Bank 5.75% 02/26/08 918,131
200,000 Inter-American Development Bank 8.40% 09/01/09 217,477
450,000 Inter-American Development Bank 8.50% 03/15/11 495,644
------------
$2,140,782
OIL & GAS PRODUCERS--1.10%
1,000,000 Amoco Canada 7.25% 12/01/02 1,005,860
2,000,000 Conoco Inc 5.90% 04/15/04 1,912,600
1,120,000 Kerr-McGee Corp 6.63% 10/15/07 1,026,778
1,000,000 Phillips 66 Capital Trust II 8.00% 01/15/37 945,752
------------
$4,890,990
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
PHARMACEUTICALS--0.22%
1,000,000 American Home Products Corp 6.50% 10/15/02 987,090
REAL ESTATE--0.22%
1,000,000 EOP Operating LP 6.38% 02/15/03 963,255
REITS--0.42%
1,000,000 Avalon Bay Communities 7.50% 08/01/09 953,724
1,000,000 Prologis Trust 7.10% 04/15/08 925,585
------------
$1,879,309
RETAIL--1.41%
2,000,000 Penney (J C) Co Inc 8.25% 08/15/22 1,779,520
1,500,000 Saks Inc 7.50% 12/01/10 1,368,510
1,000,000 Wal-Mart Stores Inc 7.25% 06/01/13 983,673
2,000,000 Wal-Mart Stores Inc 8.50% 09/15/24 2,119,344
------------
$6,251,047
TELECOMMUNICATION EQUIPMENT--0.55%
2,500,000 Motorola Inc 7.50% 05/15/25 2,433,963
TELECOMMUNICATIONS--0.29%
250,000 Bell Telephone Canada 9.50% 10/15/10 283,680
1,000,000 Cable & Wireless Communications 6.63% 03/06/05 990,293
------------
$1,273,973
TELEPHONE--2.23%
1,500,000 AT&T Corp 6.00% 03/15/09 1,351,875
500,000 New York Telephone Co 6.00% 04/15/08 450,741
2,305,000 New York Telephone Co 7.00% 12/01/33 1,979,995
4,000,000 Sprint Capital Corp 6.13% 11/15/08 3,626,416
1,000,000 US West Communications 6.38% 10/15/02 982,204
1,500,000 Worldcom Inc 7.55% 04/01/04 1,519,638
------------
$9,910,869
TOBACCO--0.10%
500,000 Imperial Tobacco Group PLC 7.13% 04/01/09 451,717
TRANSPORTATION--0.93%
1,300,000 Canadian National Railway Co 6.45% 07/15/00 1,197,040
1,000,000 Norfolk Southern Corp 7.80% 05/15/27 976,376
1,000,000 Stagecoach Holdings PLC 8.63% 11/15/09 1,001,250
1,000,000 Union Pacific Corp 6.79% 11/09/07 943,760
------------
$4,118,426
------------
TOTAL CORPORATE BONDS & NOTES
- VALUE $134,058,751
- COST $143,226,413
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS & NOTES++--2.42%
1,000,000 British Columbia (Province of) 6.50% 01/15/26 885,630
1,000,000 Chile (Republic of) 6.88% 04/28/09 926,946
2,000,000 Corp Andina De Fomento 7.75% 03/01/04 2,000,384
2,000,000 Hydro Quebec 8.40% 01/15/22 2,115,220
1,200,000 New Brunswick 7.63% 06/29/04 1,218,768
750,000 Ontario (Province of) 7.63% 06/22/04 765,097
2,300,000 Ontario (Province of) 7.75% 06/04/02 2,339,560
500,000 Victoria (Province of) 8.45% 10/01/01 514,012
------------
TOTAL FOREIGN GOVERNMENT BONDS & NOTES
- VALUE $10,765,617
- COST $11,316,145
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES--14.04%
5,500,000 Federal Home Loan Bank 5.02% 02/11/02 5,331,562
1,500,000 Federal Home Loan Bank 5.40% 01/15/03 1,447,340
1,000,000 Federal Home Loan Bank 5.50% 01/21/03 967,355
2,500,000 Federal Home Loan Bank 6.09% 06/02/06 2,383,593
5,000,000 Federal Home Loan Mortgage Corporation 5.00% 01/15/04 4,675,700
3,400,000 Federal Home Loan Mortgage Corporation 5.13% 10/15/08 2,971,801
3,000,000 Federal Home Loan Mortgage Corporation 5.25% 02/16/01 2,960,889
2,000,000 Federal Home Loan Mortgage Corporation 5.38% 03/01/01 1,975,288
1,000,000 Federal Home Loan Mortgage Corporation 5.50% 05/15/02 975,370
1,000,000 Federal Home Loan Mortgage Corporation 5.63% 02/20/04 952,178
1,000,000 Federal Home Loan Mortgage Corporation 5.75% 07/15/03 967,533
500,000 Federal Home Loan Mortgage Corporation 5.75% 03/15/09 455,564
3,500,000 Federal Home Loan Mortgage Corporation 5.90% 05/04/04 3,355,135
1,000,000 Federal Home Loan Mortgage Corporation 6.13% 08/15/03 978,185
1,000,000 Federal Home Loan Mortgage Corporation 6.30% 06/01/04 969,431
1,000,000 Federal National Mortgage Association 0.00% 06/01/17 282,963
2,104,000 Federal National Mortgage Association 5.13% 02/13/04 1,974,139
1,000,000 Federal National Mortgage Association 5.25% 01/15/09 880,552
1,000,000 Federal National Mortgage Association 5.38% 03/15/02 975,733
2,000,000 Federal National Mortgage Association 5.38% 01/16/01 1,979,760
1,000,000 Federal National Mortgage Association 5.75% 06/15/05 949,313
3,500,000 Federal National Mortgage Association 5.75% 02/15/08 3,222,597
600,000 Federal National Mortgage Association 5.88% 04/23/04 573,496
1,000,000 Federal National Mortgage Association 6.09% 09/27/27 857,493
5,000,000 Federal National Mortgage Association 6.26% 02/25/09 4,639,850
394,000 Federal National Mortgage Association 6.38% 06/15/09 375,449
1,000,000 Federal National Mortgage Association 6.45% 02/14/02 993,242
1,400,000 Federal National Mortgage Association 6.80% 01/10/03 1,403,986
3,000,000 Federal National Mortgage Association 7.55% 04/22/02 3,058,797
2,150,000 Financing Corp 8.60% 09/26/19 2,446,304
500,000 Financing Corp 9.65% 11/02/18 621,049
1,285,000 Financing Corp 9.80% 04/06/18 1,609,460
500,000 Tennessee Valley Authority 6.13% 07/15/03 484,915
2,600,000 Tennessee Valley Authority 6.25% 12/15/17 2,347,922
1,500,000 Tennessee Valley Authority 6.88% 12/15/43 1,344,375
------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
- VALUE $62,388,319
- COST $65,326,331
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES--50.34%
700,000 U.S. Treasury Bonds 5.25% 02/15/29 579,032
2,800,000 U.S. Treasury Bonds 5.50% 08/15/28 2,389,626
1,200,000 U.S. Treasury Bonds 6.00% 02/15/26 1,097,626
1,600,000 U.S. Treasury Bonds 6.13% 11/15/27 1,488,000
800,000 U.S. Treasury Bonds 6.13% 08/15/29 762,750
1,500,000 U.S. Treasury Bonds 6.50% 11/15/26 1,462,032
1,000,000 U.S. Treasury Bonds 6.63% 02/15/27 990,313
5,200,000 U.S. Treasury Bonds 7.13% 02/15/23 5,414,500
4,100,000 U.S. Treasury Bonds 7.25% 05/15/16 4,285,783
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
500,000 U.S. Treasury Bonds 7.50% 11/15/16 534,844
500,000 U.S. Treasury Bonds 7.63% 02/15/07 509,062
7,300,000 U.S. Treasury Bonds 7.63% 02/15/25 8,089,312
2,500,000 U.S. Treasury Bonds 7.88% 02/15/21 2,793,750
7,100,000 U.S. Treasury Bonds 8.00% 11/15/21 8,054,062
9,250,000 U.S. Treasury Bonds 8.13% 08/15/19 10,539,219
300,000 U.S. Treasury Bonds 8.25% 05/15/05 302,531
1,600,000 U.S. Treasury Bonds 8.75% 05/15/17 1,910,000
3,100,000 U.S. Treasury Bonds 8.75% 05/15/20 3,751,970
2,100,000 U.S. Treasury Bonds 8.75% 08/15/20 2,544,282
1,000,000 U.S. Treasury Bonds 9.13% 05/15/09 1,091,563
1,500,000 U.S. Treasury Bonds 9.13% 05/15/18 1,858,594
2,300,000 U.S. Treasury Bonds 9.38% 02/15/06 2,624,875
2,100,000 U.S. Treasury Bonds 0.38% 11/15/12 2,551,500
2,250,000 U.S. Treasury Bonds 1.25% 02/15/15 3,179,531
500,000 U.S. Treasury Bonds 1.75% 11/15/14 676,094
1,100,000 U.S. Treasury Bonds 2.00% 08/15/13 1,468,157
500,000 U.S. Treasury Bonds 2.75% 11/15/10 646,250
2,000,000 U.S. Treasury Bonds 3.25% 05/15/14 2,881,876
10,000,000 U.S. Treasury Notes 4.50% 01/31/01 9,834,380
5,500,000 U.S. Treasury Notes 4.63% 12/31/00 5,420,937
8,700,000 U.S. Treasury Notes 4.75% 11/15/08 7,675,036
500,000 U.S. Treasury Notes 5.25% 05/31/01 493,750
1,000,000 U.S. Treasury Notes 5.50% 07/31/01 989,688
2,000,000 U.S. Treasury Notes 5.50% 08/31/01 1,976,250
2,100,000 U.S. Treasury Notes 5.50% 01/31/03 2,050,125
1,450,000 U.S. Treasury Notes 5.50% 05/31/03 1,411,031
1,200,000 U.S. Treasury Notes 5.50% 02/15/08 1,124,250
500,000 U.S. Treasury Notes 5.50% 05/15/09 465,781
1,000,000 U.S. Treasury Notes 5.63% 02/28/01 994,063
3,300,000 U.S. Treasury Notes 5.63% 05/15/08 3,104,062
1,600,000 U.S. Treasury Notes 5.75% 11/30/02 1,575,501
1,000,000 U.S. Treasury Notes 5.75% 04/30/03 981,563
8,000,000 U.S. Treasury Notes 5.75% 08/15/03 7,832,504
850,000 U.S. Treasury Notes 5.88% 11/30/01 844,688
1,700,000 U.S. Treasury Notes 5.88% 09/30/02 1,681,938
1,000,000 U.S. Treasury Notes 5.88% 02/15/04 983,438
2,500,000 U.S. Treasury Notes 5.88% 11/15/05 2,427,345
1,600,000 U.S. Treasury Notes 6.00% 08/15/09 1,550,000
1,200,000 U.S. Treasury Notes 6.13% 12/31/01 1,197,376
3,300,000 U.S. Treasury Notes 6.13% 08/15/07 3,216,470
2,800,000 U.S. Treasury Notes 6.25% 10/31/01 2,800,000
1,000,000 U.S. Treasury Notes 6.25% 01/31/02 1,000,000
7,000,000 U.S. Treasury Notes 6.25% 02/28/02 6,997,816
3,000,000 U.S. Treasury Notes 6.25% 06/30/02 2,998,125
10,800,000 U.S. Treasury Notes 6.25% 02/15/03 10,766,250
8,700,000 U.S. Treasury Notes 6.38% 03/31/01 8,719,036
2,000,000 U.S. Treasury Notes 6.38% 09/30/01 2,003,750
4,700,000 U.S. Treasury Notes 6.38% 08/15/02 4,708,813
2,250,000 U.S. Treasury Notes 6.50% 05/31/01 2,259,142
3,000,000 U.S. Treasury Notes 6.50% 05/15/05 3,000,939
3,000,000 U.S. Treasury Notes 6.50% 08/15/05 3,000,000
1,400,000 U.S. Treasury Notes 6.50% 10/15/06 1,396,063
2,000,000 U.S. Treasury Notes 6.63% 06/30/01 2,011,876
3,000,000 U.S. Treasury Notes 6.88% 05/15/06 3,052,500
1,900,000 U.S. Treasury Notes 7.00% 07/15/06 1,946,313
11,050,000 U.S. Treasury Notes 7.25% 08/15/04 11,402,219
8,200,000 U.S. Treasury Notes 7.50% 11/15/01 8,379,375
3,000,000 U.S. Treasury Notes 7.50% 05/15/02 3,079,689
1,300,000 U.S. Treasury Notes 7.50% 02/15/05 1,356,063
4,300,000 U.S. Treasury Notes 7.88% 08/15/01 4,404,813
3,000,000 U.S. Treasury Notes 7.88% 11/15/04 3,173,439
2,900,000 U.S. Treasury Notes 8.00% 05/15/01 2,966,158
------------
TOTAL U.S. TREASURY SECURITIES
- VALUE $223,729,689
- COST $235,125,106
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<S> <C> <C> <C>
SHORT TERM INSTRUMENTS--8.20%
CASH EQUIVALENTS--6.86%
18,785,950 Goldman Sachs Financial
Square Prime Obligation Fund + 5.40% 01/03/00 18,785,950
11,700,000 Investors Bank & Trust
Depositary Receipt + 5.53% 01/03/00 11,700,000
------------
$30,485,950
REPURCHASE AGREEMENTS--1.34%
5,927,275 Morgan Stanley Tri-party Repurchase
Agreement dated 12/31/99, due
01/03/00 with a maturity value of
$5,928,460, and an effective yield of 2.40%
collateralized by U.S. Treasury Notes with
a rate of 6.375%, a maturity of
03/31/01 and market value of $6,045,821. 5,927,275
TOTAL SHORT TERM INSTRUMENTS
- VALUE $36,413,225
- COST $36,413,225
TOTAL INVESTMENTS IN SECURITIES
(Cost $491,407,220) * (Notes 1 and 3) 105.16% $467,355,601
OTHER ASSETS AND LIABILITIES, NET (5.16)% (22,911,688)
------- ------------
TOTAL NET ASSETS 100.00% $444,443,913
======= ============
<FN>
- --------------------------------------------------------------------------------
+ Represents investment of collateral received from securities lending
transactions. See Note 4.
++ Investment is denominated in U.S. Dollars.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $491,526,454 AND NET
UNREALIZED DEPRECIATION CONSISTS OF:
Gross Unrealized Appreciation $10,369
Gross Unrealized Depreciation $(24,181,222)
-------------
NET UNREALIZED DEPRECIATION $(24,170,853)
=============
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE Bond Index Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1999
ASSETS
Investments -
Investment in Bond Index Master Portfolio, at market value (Note 1) $2,352,662
Receivables:
Receivable for fund shares sold 3,947
----------
Total Assets 2,356,609
----------
LIABILITIES
Accrued administration fee (Note 2) 451
Accrued advisory fee (Note 2) 28
Distribution payable to shareholders 29,446
----------
Total Liabilities 29,925
----------
TOTAL NET ASSETS $2,326,684
==========
Net Assets consist of:
Paid-in capital 2,368,667
Overdistributed net investment income ---------
Accumulated undistributed net realized loss on sale of investments (929)
----------
Net unrealized depreciation of investments (41,054)
----------
TOTAL NET ASSETS $2,326,684
==========
Shares Outstanding (unlimited authorized, par value $0.01) 234,796
==========
Net Asset Value, Offering Price and Redemption Price per Share $9.91
See accompanying notes to financial statements.
<PAGE>
E*TRADE Bond Index Fund
Statement of Operations
- --------------------------------------------------------------------------------
Period from August 13, 1999 (commencement of operations) to December 31, 1999
NET INVESTMENT INCOME:
NET INVESTMENT INCOME FROM BOND INDEX MASTER PORTFOLIO
Interest $33,907
Expenses (Note 2) (406)
-------
Net Investment Income from Bond Index Master Portfolio 33,501
-------
EXPENSES (NOTE 2):
Advisory fee 92
Administration fee 1,249
Trustee fees 27
Total expenses before waiver of Trustee fees 1,368
Waived Trustee fees (Note 2) (27)
-------
Net expenses 1,341
-------
NET INVESTMENT INCOME 32,160
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS ALLOCATED FROM
BOND INDEX MASTER PORTFOLIO
Net realized loss on sale of investments (917)
Change in unrealized depreciation of investments (41,054)
-------
Net Realized and Unrealized Loss on Investments
Allocated from Bond Index Master Portfolio (41,971)
-------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(9,811)
=======
See accompanying notes to financial statements.
<PAGE>
E*TRADE Bond Index Fund
Statement of Changes in Net Assets
Period from August 13, 1999 (commencement of operations) to December 31, 1999
INCREASE IN NET ASSETS
Operations:
Net investment income $32,160
Net realized loss on sale of investments (917)
Change in unrealized depreciation of investments (41,054)
Net decrease in net assets resulting from operations (9,811)
Distributions to Shareholders:
Distributions from net investment income (33,085)
Transactions in Shares of Common Stock:
Net proceeds from sales of shares 3,007,179
Net asset value of shares issued to shareholders in reinvestment of
distributions 3,470
Cost of shares redeemed (642,087)
Net increase in net assets from transactions in shares of common
stock 2,368,562
Redemption fees 1,018
Increase in Net Assets 2,326,684
NET ASSETS:
Beginning of period --
End of period $2,326,684
SHARE TRANSACTIONS:
Number of shares sold 298,523
Number of shares issued through reinvestment of distributions 346
Number of shares redeemed (64,073)
Net increase in shares outstanding 234,796
See accompanying notes to financial statements.
<PAGE>
E*TRADE Bond Index Fund
Financial Highlights
Period from August 13, 1999 (commencement of operations) to December 31, 1999
For a Share Outstanding for the Period (5)
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.16
Net realized and unrealized loss on investments allocated
from Bond Index Master Portfolio (0.09)
Total income from investment operations 0.07
Distributions to shareholders:
Distributions from net investment income (0.16)
Total distributions to shareholders (0.16)
Redemption fees added to paid-in capital 0.00(4)
Net asset value, end of period $9.91
Total return 0.74%(1)
Ratios / Supplemental Data:
Net assets, end of period (000s omitted) $2,327
Ratio of expenses to average net assets (5) 0.35%(2)(3)
Ratio of net investment income to average net assets (5) 6.34%(2)
(1) For the period August 13, 1999 (commencement of operations) to December 31,
1999 and not indicative of a full year's operating results.
(2)Annualized.
(3)The Investment Advisor has voluntarily agreed to pay the non-affiliated
Trustee expenses for the Fund. Even though such action had been taken, total
annualized operating expenses as a percentage of average net assets would have
remained unchanged at 0.35% for the period August 13, 1999 (commencement of
operations) through December 31, 1999.
(4)Rounds to less than $0.01.
(5)Per share amounts and ratios reflect income and expenses assuming inclusion
of the Fund's proportionate share of the income and expenses of the Bond Index
Master Portfolio.
See accompanying notes to financial statements.
12
<PAGE>
E*TRADE BOND INDEX FUND
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
E*TRADE Bond 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 December 31, 1999, the Trust offered six series: the S&P 500
Index Fund, the Bond Index Fund, the Extended Market Index Fund, the
International Index Fund, the E-Commerce Index Fund and the Technology
Index Fund. These financial statements contain the E*TRADE Bond Index Fund.
The Fund's investment objective is to provide investment results that
correspond, before fees and expenses, to the total return performance of
fixed-income securities in the aggregate, as represented by the Lehman
Brothers Government/Corporate Bond Index.
Lehman Brothers ("Lehman") does not sponsor the Fund or the Master
Portfolio, nor is it affiliated in any way with the Fund or the Master
Portfolio or their respective investment advisors. "Lehman Brothers
Government/Corporate Bond Index (REGISTRATION MARK)" is a trademark of
Lehman. The Fund and the Master Portfolio are not sponsored, endorsed,
sold, or promoted by Lehman, and neither Lehman nor the Bond Index makes
any representation or warranty, express or implied, regarding the
advisability of investing in the Fund or the Master Portfolio.
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 generally accepted accounting principles
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.
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 pursues its investment objective by investing all of its assets in
the Bond 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 December 31, 1999, the value of the Fund's
investment in the Master Portfolio was 0.53% 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. Debt securities of
the Master Portfolio 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.
<PAGE>
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 recognized 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. Bond discounts and premiums are amortized as
required by the Internal Revenue Code of 1986, as amended (the "Code"). All
net investment income and realized and unrealized capital gains and losses
of the Master Portfolio are allocated as required by 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. It is the policy of the Fund to
qualify as a regulated investment company under Subchapter M of the
Internal Revenue 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 December 31,
1999. At December 31, 1999, for federal income tax purposes, the Fund had a
capital loss carryforward of $134, expiring in 2007. The Fund will not
distribute any realized capital gains until the capital loss carryforward
has been fully utilized or until it expires. For the period ended December
31, 1999, the Fund has elected to defer $604 of capital losses attributable
to Post-October losses.
The following reclassifications, which have no impact on the net asset
value of the Fund, were made in order to present the Fund's capital
accounts on a tax basis:
Overdistributed Net Accumulated Undistributed
Investment Net Realized Gain on
Paid-in Capital Decrease Income Increase Sale of Investments Decrease
- --------------------------------------------------------------------------------
$913 $925 $12
<PAGE>
REDEMPTION FEES
Shares held in the Fund less than four months are subject to a fee equal to
0.50% of the proceeds of the redeemed shares. 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 is entitled to receive 0.08% 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 report 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.
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 period August 13, 1999 (commencement of
operations) through December 31, 1999.
3. PORTFOLIO SECURITIES LOANED
As of December 31, 1999, 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 is 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>
Bond Index Master Portfolio
Statement of Assets and Liabilities
December 31, 1999
ASSETS
Investments:
In securities, at market value (Cost $491,407,220) (Note 1) $467,355,601
Receivables:
Interest 7,643,636
Total Assets 474,999,237
------------
LIABILITIES
Payables:
Collateral for securities loaned (Note 4) 30,485,950
Due to BGI (Note 2) 69,374
Total Liabilities 30,555,324
------------
TOTAL NET ASSETS $444,443,913
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Bond Index Master Portfolio
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended
December 31, 1999 * February 28, 1999
-------------------- ------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Interest (1) $22,521,833 $7,152,613
----------- ----------
Total Investment Income 22,521,833 7,152,613
----------- ----------
EXPENSES (NOTE 2):
Advisory fees 277,850 89,576
----------- ----------
Total Expenses 277,850 89,576
----------- ----------
NET INVESTMENT INCOME 22,243,983 7,063,037
----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments (2,713,060) 419,676
Net change in unrealized depreciation of investments (22,407,564) (4,365,016)
----------- ----------
Net Loss on Investments (25,120,624) (3,945,340)
----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(2,876,641) $3,117,697
=========== ==========
- ----------------------------------------------------------------------------------------------------------------
(1)Interest income includes securities lending income of $ 49,933 $ 24,075
- ----------------------------------------------------------------------------------------------------------------
<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>
Bond Index Master Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended For the Year Ended For the Year Ended
December 31, 1999* February 28, 1999 February 28, 1998
INCREASE (DECREASE) IN NET ASSETS:
Operations:
<S> <C> <C> <C>
Net investment income $ 22,243,983 $ 7,063,037 $ 12,426,184
Net realized gain (loss) on sale of investments (2,713,060) 419,676 3,123,379
Net change in unrealized appreciation (depreciation)
of investments (22,407,564) (4,365,016) 3,034,137
Net increase (decrease) in net assets resulting from ------------ ------------ -------------
operations (2,876,641) 3,117,697 18,583,700
------------ ------------ -------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions 45,592,668 305,376,058 (146,679,073)
------------ ------------ -------------
Increase (Decrease) in Net Assets 42,716,027 308,493,755 (128,095,373)
NET ASSETS:
Beginning net asssets 401,727,886 93,234,131 221,329,504
------------ ------------ -------------
Ending net assets $444,443,913 $401,727,886 $ 93,234,131
============ ============ =============
<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>
BOND INDEX MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
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 (the "Master Portfolios"), the
Asset Allocation, Bond Index, LifePath Income (formerly "LifePath 2000"),
LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money Market,
S&P 500 Index, Extended Index, International Index and U.S. Equity Index
Master Portfolios. These financial statements relate to Bond Index Master
Portfolio (the "Master Portfolio").
The following significant accounting policies are consistently followed by
MIP in the preparation of its financial statements, and such policies 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.
Effective February 10, 1999, the Board of Trustees of MIP approved a change
in fiscal year-end of the Master Portfolio from February 28 to December 31.
Accordingly, the financial statements are presented for the ten-month
period ended December 31, 1999.
SECURITY VALUATION
Debt securities of the Master Portfolio 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). Interest income is recognized on a daily
accrual basis. Realized gains or losses are reported on the basis of
identified cost of securities delivered. Bond discounts and premiums are
accreted or amortized, respectively, under provisions of the Internal
Revenue Code of 1986, as amended (the "Code").
FEDERAL INCOME TAXES
The Master Portfolio intends to qualify as a partnership for federal income
tax purposes. The Master Portfolio, therefore, believes that it will not be
subject to any federal income tax on its income and net realized capital
gains (if any). However, each investor in the Master Portfolio will be
taxed on its allocable share of the partnership's income and capital gains
for the purposes of determining its federal income tax liability. The
determination of such share will be made in accordance with the applicable
sections of the Code.
It is intended that the Master Portfolio's assets, income and allocations
will be managed in such a way that a regulated investment company investing
in the Master Portfolio will be able to satisfy the
<PAGE>
requirements of Subchapter M of the Code, assuming that the regulated
investment company invested all of its assets in the Master Portfolio.
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 Portfolio 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 102% of market value. The repurchase agreements entered into
on December 31, 1999 by the Master Portfolio are collateralized by U.S.
Government securities.
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 0.08% of the average daily
net assets of the Bond Index 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
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 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
December 31, 1999, these officers of Stephens collectively owned less than
1% of the Master Portfolio's outstanding beneficial interests.
<PAGE>
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for
the Master Portfolio were as follows:
BOND INDEX
MASTER PORTFOLIO
---------------------------------------
AGGREGATE PURCHASES PERIOD ENDED YEAR ENDED
AND SALES OF: DEC. 31, 1999* FEB. 28, 1999
---------------------- ------------------ -----------------
U.S. GOVERNMENT
OBLIGATIONS:
Purchases at cost $ 117,198,084 $ 212,693,399
Sales proceeds 81,492,202 31,894,221
OTHER SECURITIES:
Purchases at cost $ 48,301,376 $ 109,813,822
Sales proceeds 20,740,434 2,543,045
* For the ten months ended December 31, 1999. The Master Portfolio changed
its fiscal year end from February 28 to December 31.
4. PORTFOLIO SECURITIES LOANED
As of December 31, 1999, 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. The value of the securities on
loan and the value of the related collateral were as follows:
VALUE OF VALUE OF
SECURITIES COLLATERAL
- --------------------------------------------------------------------------
Bond Index Master Portfolio $29,562,869 $30,485,950
5. FINANCIAL HIGHLIGHTS
The ratios of expenses and net investment income to average net assets and
portfolio turnover rates (excluding short-term securities) for the Master
Portfolio are as follows:
<TABLE>
<CAPTION>
For the For For
Period Ended the the
December 31, Year Ended Year Ended
1999 * February 28, February 28,
Bond Index Master Portfolio 1999 1998
- --------------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Ratio of expenses to average net assets + 0.08% 0.08% 0.08%
Ratio of net investment income to average net assets + 6.44% 6.31% 6.73%
Portfolio turnover 25% 28% 59%
<FN>
* For the ten months ended December 31, 1999. The Master Portfolio changed
its fiscal year end from February 28 to December 31.
+ Annualized for period of less than one year.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustee and Shareholders of E*TRADE Funds:
We have audited the accompanying statement of assets and liabilities of E*TRADE
Bond Index Fund (the "Fund") (one of six funds comprising the E*TRADE Funds) as
of December 31, 1999 and the related statement of operations, statement of
changes in net assets, and financial highlights for the period August 13, 1999
(commencement of operations) to December 31, 1999. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1999 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
E*TRADE Bond Index Fund as of December 31, 1999 and the results of its
operations, the changes in its net assets, and the financial highlights for the
period August 13, 1999 (commencement of operations) to December 31, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
February 23, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Interestholders and Board of Trustees of
Master Investment Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Bond Index Master Portfolio (one portfolio of
Master Investment Portfolio) as of December 31, 1999, and the related statements
of operations for the ten-month period then ended and the year ended February
28, 1999 and the statements of changes in net assets for the ten-month period
then ended and for each of the years in the two-year period ended February
28,1999. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1999 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bond Index Master Portfolio as
of December 31, 1999, the results of its operations and the changes in its net
assets for the periods indicated above in conformity with generally accepted
accounting principles.
KPMG
San Francisco, California
February 11, 2000
