Registration Nos. 333-66807
811-09093
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 2
/X/
Post-Effective Amendment No. ___
/ /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. 2
/X/
(Check appropriate box or boxes)
E*TRADE FUNDS
(Exact name of Registrant as specified in charter)
2400 Geng Road
Palo Alto, CA 94303
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (650) 842-2500
Kathy Levinson
E*TRADE Securities, Inc.
2400 Geng Road
Palo Alto, CA 94303
(Name and address of agent for service)
Please send copies of all communications to:
David A. Vaughan, Esq. Kathy Levinson
Dechert Price & Rhoads E*TRADE Securities, Inc.
1775 Eye Street, NW 2400 Geng Road
Washington, DC 20006 Palo Alto, CA 94303
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
It is proposed that this filing will become effective (check appropriate box):
Immediately upon filing pursuant to paragraph (b)
- --------
on (date) pursuant to paragraph (b)
- --------
60 days after filing pursuant to paragraph (a)(1)
- --------
75 days after filing pursuant to paragraph (a)(2) of Rule 485
- --------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- ---------
<PAGE>
E*TRADE FUNDS
E*TRADE S&P 500 INDEX FUND
Prospectus dated ____________, 1999
This Prospectus concisely sets forth information about the E*TRADE S&P 500 Index
Fund (the "Fund") that an investor needs to know before investing. Please read
this Prospectus carefully before investing, and keep it for future reference.
The Fund is a series of the E*TRADE Funds.
Objectives/Goals.
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 (the "S&P 500 Index"). The Fund seeks to achieve its
objective by investing in a master portfolio that, in turn, invests in stocks
and other assets and attempts to match the total return of the stocks making up
the S&P 500 Index.
Eligible Investors.
This Fund is designed and built specifically for on-line investors. In order to
be a shareholder of the Fund, you need to have an account with E*TRADE
Securities, Inc. ("E*TRADE Securities"). In addition, the Fund requires you to
consent to receive all information about the Fund electronically. If you wish to
rescind this consent or close your E*TRADE Securities account, the Fund would
require that you redeem all of your shares in your Fund account. The Fund is
designed for long-term investors and the value of the Fund's shares will
fluctuate over time. The Fund is a true no-load fund, which means you pay no
sales charges or 12b-1 fees.
About E*TRADE.
E*TRADE Group, Inc. ("E*TRADE") is the direct parent of E*TRADE Asset
Management, Inc., the Fund's investment advisor. E*TRADE, through its group
companies, is a leader in providing secure online investing services. E*TRADE's
focus on technology has enabled it to eliminate traditional barriers, creating
one of the most powerful and economical investing systems for the self-directed
investor. To give you ultimate convenience and control, E*TRADE offers
electronic access to your account virtually anywhere, at any time.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Prospectus dated ____________, 1999
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
FEES AND EXPENSES......................................................4
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS.....................5
YEAR 2000..............................................................7
FUND MANAGEMENT........................................................7
THE FUND'S STRUCTURE...................................................8
PRICING OF FUND SHARES.................................................9
HOW TO BUY AND SELL SHARES.............................................9
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................13
TAX CONSEQUENCES......................................................14
<PAGE>
RISK/RETURN SUMMARY
This is a summary. You should read this section along with the rest of this
Prospectus.
Investment Objectives/Goals
The Fund's investment objective is to provide investment results that attempt to
match the total return of the stocks making up the S&P 500 Index.
Principal Strategies
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 series
of Master Investment Portfolio ("MIP"), a registered open-end management
investment company, rather than directly in a portfolio of securities. In turn,
the Master Portfolio seeks to provide investment results that correspond to the
total return performance of publicly traded common stocks in the aggregate, as
represented by the S&P 500 Index* by investing substantially all of its assets
in the same stocks and in substantially the same percentages as the S&P 500
Index. The S&P 500 Index, a widely recognized benchmark for U.S. stocks,
currently represents about 75% of the market capitalization of all publicly
traded common stocks in the United States. The S&P 500 Index includes 500
established companies representing different sectors of the U.S. economy
(including industrial, utilities, financial, and transportation) selected by
Standard & Poor's.
* "Standard & Poor's(R)," "S&P(R)" "S&P 500(R)", "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.
Generally, the Master Portfolio attempts to be fully invested at all times in
securities comprising the S&P 500 Index and futures and options on stock index
futures, covered by liquid assets. The Master Portfolio also may invest up to
10% of its total assets in high-quality money market instruments to provide
liquidity.
Principal Risks
The stock market may rise and fall daily. The S&P 500 Index represents a
significant segment of the U.S. stock market. The S&P Index may also rise and
fall daily. As with any stock investment, the value of your investment in the
Fund will fluctuate, meaning you could lose money.
There is no assurance that the Fund will achieve its investment objective. The
S&P 500 Index may not appreciate, and could depreciate, during the time you are
invested in the Fund, even if you are a long-time investor.
The Fund cannot as a practical matter own all the stocks that make up the S&P
500 Index in perfect correlation to the S&P 500 Index itself. The use of futures
and options on futures is intended to help the Fund match the S&P 500 Index but
that may not be the result. The value of an investment in the Fund depends to a
great extent upon changes in market conditions. The Fund seeks to track the S&P
500 Index during down markets as well as during up markets. The Fund's returns
will be directly affected by the volatility of the stocks making up the S&P 500
Index. The Fund will also have exposure to the industries represented by those
stocks.
The S&P 500 Index primarily consists of large-cap stocks. As a result, whenever
these stocks perform worse than mid- or small-cap stocks, the Fund may
underperform funds that have exposure to those segments of the U.S. stock
market. Likewise, whenever large-cap U.S. stocks fall behind other types of
investments--bonds or foreign stocks, for instance--the Fund's performance also
will lag those investments. The companies in the S&P 500 Index are also exposed
to the global economy.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Shares of the Fund involve investment risks, including the possible loss
of principal.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. The Fund is new, and therefore, has no historical expense
data. Thus, the numbers below are estimates.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed in Reinvested
Dividends and other Distributions None
Redemption Fee
(within 120 days of purchase) $24.95
Annual Fund Operating Expenses*
(expenses that are deducted from Fund assets)
Management Fees 0.7%**
Distribution (12b-1) Fees None
Other Expenses (Administration) 0.25%***
Total Annual Fund Operating Expenses 0.32%
* The cost reflects the expenses at both the Fund and the Master Portfolio
levels.
** Management fees include a fee equal to 0.05% of daily net assets payable at
the Master Portfolio level to its investment advisor and an investment advisory
fee equal to 0.02% payable by the Fund to its investment advisor.
*** The administrative fee is payable by the Fund to E*TRADE Asset Management,
Inc. The administrative fee is based on estimated amounts for the current fiscal
year.
You should also know that the Fund does not charge investors any account
maintenance fees, account set-up fees, low balance fees, transaction fees or
customer service fees. E*TRADE Securities charges $20 for wire transfers out of
your E*TRADE Securities account. Also, transactions in Fund shares effected by
speaking with an E*TRADE securities representative are subject to a $15 fee.
Transactions in Fund shares effected online or by touchtone telephone (when
available) are not subject to that fee. You will be responsible for opening and
maintaining an e-mail account and internet access at your own expense.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 year* 3 years*
$33.. $105
*Reflects costs at both the Fund and Master Portfolio levels.
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS
Under normal market conditions, the Master Portfolio invests at least 90% of its
assets in the stocks making up the S&P 500 Index. That portion of its assets is
not actively managed but simply tries to mimic the S&P 500 Index. The Master
Portfolio attempts to achieve, in both rising and falling markets, a correlation
of at least 95% between the total return of its assets before expenses and the
S&P 500 Index. 100% correlation would mean the total return of the Master
Portfolio's assets would increase and decrease exactly the same as the S&P 500
Index. The Master Portfolio also purchases and sells futures and options on
stock index futures. The Master Portfolio also may invest up to 10% of its total
assets in high-quality money market instruments to provide liquidity.
Neither the Fund nor the Master Portfolio are managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial and market analysis and investment
judgment. Instead, the Fund and the Master Portfolio are managed by utilizing an
"indexing" investment approach to determine which securities are to be purchased
or sold to replicate, to the extent feasible, the investment characteristics of
the S&P 500 Index through computerized, quantitative techniques.
Many factors can affect stock market performance. Political and economic news
can influence marketwide trends; the outcome may be positive or negative,
short-term or long-term. Other factors may be ignored by the market as a whole
but may cause movements in the price of one company's stock or the stocks of one
or more industries (for example, rising oil prices may lead to a decline in
airline stocks).
Like all stock funds, the Fund's Net Asset Value ("NAV") will fluctuate with the
value of its assets. The assets held by the Fund will fluctuate based on market
and economic conditions, or other factors that affect particular companies or
industries. Since the investment characteristics and therefore, the investment
risks of the Fund, correspond to those of the Master Portfolio, the following
discussion also includes a description of the risks associated with the
investments of the Master Portfolio. The Fund's performance will correspond
directly to the performance of the Master Portfolio.
The Fund's ability to match its investment performance to the investment
performance of the S&P 500 Index may be affected by, among other things: the
Fund and the Master Portfolio's expenses; the amount of cash and cash
equivalents held by the Master Portfolio's investment portfolio; the manner in
which the total return of the S&P 500 Index is calculated and the timing;
frequency and size of shareholder purchases; and redemptions of both the Fund
and the Master Portfolio. The Master Portfolio uses cash flows from shareholder
purchase and redemption activity to maintain, to the extent feasible, the
similarity of its portfolio to the securities comprising the S&P 500 Index.
Similar to many index funds, the Master Portfolio also may invest in futures and
options transactions and other derivative securities transactions to minimize
the gap in performance that naturally exists between any index fund and its
index. This gap will occur mainly because, unlike the index, the Master
Portfolio and the Fund incur expenses and must keep a portion of their assets in
cash for paying expenses and processing shareholders orders. By using futures,
the Master Portfolio potentially can offset the portion of the gap attributable
to their cash holdings. However, because some of the effect of expenses remains,
the Master Portfolio and the Fund's performance normally will be below that of
the S&P 500 Index. The Master Portfolio uses futures contracts to gain exposure
to the S&P 500 Index for its cash balances, which could cause the Fund to track
the S&P 500 Index less closely if the futures contracts do not perform as
expected.
The Master Portfolio also may invest up to 10% of its total assets in
high-quality money market instruments to provide liquidity. Among other
purposes, the Master Portfolio needs liquidity to pay redemptions and fees.
The Master Portfolio may also lend a portion of its securities to certain
financial institutions in order to earn income. These loans are fully
collateralized. However, if the institution defaults, the Master Portfolio's and
the Fund's performance could be reduced.
YEAR 2000
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its investment advisor, the Fund's other service providers, or persons
with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." Virtually all operations of the Fund
are computer reliant. The investment advisor, administrator, transfer agent and
custodian have informed the Fund that they are actively taking steps to address
the Year 2000 Problem with regard to their respective computer systems. The Fund
is also taking measures to obtain assurances that comparable steps are being
taken by the Fund's other significant service providers. While there can be no
assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Master Portfolio's investment advisor and principal service
providers have also advised the Master Portfolio that they are working on any
necessary changes to their systems and that they expect their systems to be Year
2000 compliant in time. There can, of course, be no assurance of success by
either the Fund's or the Master Portfolio's service providers. In addition,
because the Year 2000 Problem affects virtually all organizations, the companies
or entities in which the Master Portfolio invests also could be adversely
impacted by the Year 2000 Problem. The extent of such impact cannot be
predicted.
FUND MANAGEMENT
Investment Advisors. Under an investment advisory agreement with the Fund,
E*TRADE Asset Management, Inc. ("Investment Advisor"), a registered investment
advisor, provides investment advisory services to the Fund. The Investment
Advisor is a wholly owned subsidiary of E*TRADE Group, Inc. and is located at
2400 Geng Road, Palo Alto, CA 94303. The Investment Advisor is newly formed and
therefore has no prior experience as an investment advisor.
Subject to general supervision of the E*TRADE Funds' Board of Trustees and in
accordance with the investment objective, policies and restrictions of the Fund,
the Investment Advisor provides advice with respect to all purchases and sales
of the Fund's securities. It also provides the Fund with ongoing investment
guidance, policy direction and monitoring of the Master Portfolio. The
Investment Advisor may in the future manage cash and money market instruments
for cash flow purposes. The Investment Advisor has not previously had
responsibility for managing a mutual fund. For its advisory services, the Fund
pays the Investment Advisor an investment advisory fee at an annual rate equal
to 0.02% of the Fund's average daily net assets.
The Master Portfolio's investment advisor is Barclays Global Fund Advisors
("BGFA"). BGFA is a direct subsidiary of Barclays Global Investors, N.A. (which,
in turn, is an indirect subsidiary of Barclays Bank PLC ("Barclays")) and is
located at 45 Fremont Street, San Francisco, California 94105. BFGA has provided
assets management, administration and advisory services for over 25-years. As of
April 30, 1998, BGFA and its affiliates provided investment advisory services
for over $575 billion of assets. BGFA receives a fee from the Master Portfolio
at an annual rate equal to 0.05% of the Master Portfolio's average daily net
assets.
The Fund bears a pro rata portion of the investment advisory fees paid by the
Master Portfolio, as well as certain other fees paid by the Master Portfolio,
such as accounting, legal, and SEC registration fees.
THE FUND'S STRUCTURE
The Fund is a separate series of the E*TRADE Funds. The Fund is a feeder fund in
a master/feeder structure. Accordingly, the Fund invests all of its assets in
the Master Portfolio. The Master Portfolio seeks to provide investment results
that correspond to the total return performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Stock Index. In
addition to selling its shares to the Fund, the Master Portfolio has and may
continue to sell its shares to certain other mutual funds or other accredited
investors. The expenses and, correspondingly, the returns of other investment
options in the Master Portfolio may differ from those of the Fund.
The Fund's Board of Trustees (the "Board") believes that, as other investors
invest their assets in the Master Portfolio, certain economic efficiencies may
be realized with respect to the Master Portfolio. For example, fixed expenses
that otherwise would have been borne solely by the Fund (and the other existing
interestholders in the Master Portfolio) would be spread across a larger asset
base as more funds invest in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses across a larger asset base) that
the Fund's Board believes should be available through investment in the Master
Portfolio may not be fully achieved or maintained. In addition, given the
relatively novel nature of the master/feeder structure, accounting and
operational difficulties could occur.
Fund shareholders may be asked to vote on matters concerning the Master
Portfolio.
The Fund may withdraw its investments in the Master Portfolio if the Board of
Trustees of the Fund determines that is in the best interests of the Fund and
its shareholders to do so. Upon any such withdrawal, the Board of Trustees of
the Fund would consider what action might be taken, including the investment of
all the assets of the Fund in another pooled investment entity having the same
investment objective as the Fund, direct management of a portfolio by the
Adviser or the hiring of a sub-advisor to manage the Fund's assets.
Investment of the Fund's assets in the Master Portfolio is not a fundamental
policy of the Fund and a shareholder vote is not required for the Fund to
withdraw its investment from the Master Portfolio.
PRICING OF FUND SHARES
The Fund is a true no-load fund, which means you may buy or sell shares directly
at the net asset value ("NAV") determined after E*TRADE Securities receives your
request in proper form. If E*TRADE Securities receives such request prior to the
close of the New York Stock Exchange, Inc. ("NYSE") on a day on which the NYSE
is open, your share price will be the NAV determined that day. Shares will not
be priced on the days on which the NYSE is closed for trading.
The Fund's investment in the Master Portfolio is valued at the NAV of the Master
Portfolio's shares held by the Fund. The Master Portfolio calculates the NAV of
its shares on the same day and at the same time as the Fund. Net asset value per
share is computed by dividing the value of the Master Portfolio's net assets
(i.e., the value of its assets less liabilities) by the total number of shares
of such Master Portfolio outstanding. The Master Portfolio's investments are
valued each day the NYSE is open for business. The Master Portfolio's assets are
valued generally by using available market quotations or at fair value as
determined in good faith by the Board of Trustees of MIP.
The Fund's NAV per share is calculated by taking the value of the Fund's net
assets and dividing by the number of shares outstanding. Expenses are accrued
daily and applied when determining the NAV.
The NAV for the Fund is determined as of the close of trading on the floor of
the NYSE (generally 4:00 p.m., Eastern time), each day the NYSE is open. The
Fund reserves the right to change the time at which purchases and redemptions
are priced if the NYSE closes at a time other than 4:00 p.m. Eastern time or if
an emergency exists.
HOW TO BUY AND SELL SHARES
This Fund is designed and built specifically for on-line investors. In order to
become a shareholder of the Fund, you will need to open an E*TRADE Securities
account. In addition, the Fund requires shareholders to consent to receive all
information about the Fund electronically. If a shareholder wishes to rescind
this consent, the Fund would require the shareholder to redeem the position in
the Fund, unless a new class of shares of the Fund has been formed for those
shareholders reflecting the higher costs of paper-based information delivery.
Shareholders required to redeem their shares because they revoked their consent
to receive Fund information electronically may experience adverse tax
consequences.
E*TRADE Securities reserves the right to deliver paper-based documents in
certain circumstances, at no cost to the investor. Shareholder information
includes prospectuses, financial reports, confirmations and statements. If for
any reason you decide you no longer wish to receive shareholder information
electronically, you rescind the right to own shares and you must sell your
position.
In order to buy shares, you will need to 1) Open an E*TRADE Securities account
2) Deposit money in the account 3) Execute an order to buy shares.
Step 1: How to Open an E*TRADE Securities Account
To open an E*TRADE Securities account, you must complete the application
available through our Website. You will be subject to E*TRADE Securities'
general account requirements as described in E*TRADE Securities' customer
agreement.
Whether you are investing in the Fund for the first time or adding to an
existing investment, the Fund provides you with several methods to buy its
shares. Because the Fund's net asset value changes daily, your purchase price
will be the next net asset value determined after the Fund receives and accepts
your purchase order.
On-line. You can access E*TRADE Securities' online application through multiple
electronic gateways, including the internet, WebTV, Prodigy, AT&T Worldnet,
Microsoft Investor, by GO ETRADE on CompuServe, with the keyword ETRADE on
America Online and via personal digital assistant. For more information on how
to access E*TRADE Securities electronically, please refer to our online
assistant E*STATION at www.etrade.com available 24 hours a day or call
1-800-786-2575 between 5:00 a.m. and 6 p.m. (pacific time), Monday - Friday.
By Mail. You can request an application by visiting the "Open an Account" area
of our web site, or by calling 1-800-786-2575. Complete and sign the
application. Make your check or money order payable to E*TRADE Securities, Inc.
Mail to E*TRADE Securities, Inc., 2400 Geng Road, Palo Alto, CA 94303.
Telephone. Request a new account kit by calling 1-800-786-2575 between 5:00 a.m.
and 6 p.m., Monday - Friday (pacific time).
In Person. Stop by E*TRADE Securities' customer service center in Palo Alto,
California at the address on the back cover page of this prospectus between 8:00
a.m. and 5:00 p.m. (pacific time). Customer service will only accept checks or
money orders made payable to E*TRADE Securities, Inc.
STEP 2: Funding Your Account.
By check or money order. Make your check or money order payable to E*TRADE
Securities, Inc. and mail it to E*TRADE Securities, Inc., 2400 Geng Road, Palo
Alto, CA 94303.
Wire. Send wired funds to:
The Bank of New York
48 Wall Street
New York, NY 10286
ABA #021000018
FBO: E*TRADE Securities, Inc.
A/C #8900346256 for further credit to (your name and account number).
After your account is opened, E*TRADE Securities will contact you with an
account number so that you can immediately wire funds.
STEP 3: Execute an Order to Buy/Sell Shares
Minimum Investment Requirements:
For your initial investment in the Fund $ 1,000
To buy additional shares of the Fund $ 250
Continuing minimum investment* $ 1,000
To invest in the Fund for your IRA, Roth IRA,
or one-person SEP account $ 250
To invest in the Fund for your Education IRA account $ 250
To invest in the Fund for your UGMA/UTMA account $ 250
To invest in the Fund for your SIMPLE, SEP-IRA,
Profit Sharing or Money Purchase Pension Plan,
or 401(a) account $ 250
* Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet a Fund's minimum balance requirements. Before taking such
action, the Fund will provide you with written notice and at least 30 days to
buy more shares to bring your investment up to $1,000.
After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell funds that are held in your E*TRADE
Securities account; that means you cannot "short" shares of the Fund.
You can access the money you have invested in the Fund at any time by selling
some or all of your shares back to the Fund. Please note that the Fund may
assess a $24.95 fee on redemptions of Fund shares held for less than 120 days.
As soon as E*TRADE Securities receives the shares or the proceeds from the Fund,
the transaction will appear in your account. This usually occurs the business
day following the transaction, but in any event, no later than three days
thereafter.
On-line. You can access E*TRADE Securities' secure trading pages at
www.etrade.com via the internet, WebTV, Prodigy, AT&T Worldnet, Microsoft
Investor, by GO ETRADE on CompuServe, with the keyword ETRADE on America Online
and via personal digital assistant. By clicking on one of several mutual fund
order buttons, you can quickly and easily place a buy or sell order for shares
in the Fund. You will be prompted to enter your trading password whenever you
perform a transaction so that we can be sure each buy or sell is secure. It is
for your own protection to make sure you or our co-account holder(s) are the
only people who can place orders in your E*TRADE account. When you buy shares,
you will be asked to: 1) affirm your consent to receive all Fund documentation
electronically, 2) provide an e-mail address and 3) affirm that you have read
the prospectus. The prospectus will be readily available for viewing and
printing on our web site.
Telephone. You can use TELE*MASTER to place orders. Call 1-800-STOCKS1 (1-800-
786-2571).
Our built-in verification system lets you double-check orders before they are
sent to the markets, and you can change or cancel any unfilled order subject to
prior execution.
You may also call 1-800-STOCKS5 (1-800-786-2575) to sell shares by phone through
an E*TRADE Securities broker for an additional $15.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so.
Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow these
procedures.
Due to increased telephone volume during periods of dramatic economic or market
changes, you may experience difficulty in implementing a broker assisted
telephone redemption. In these situations, investors may want to consider
trading online by accessing our Website or use TELE*MASTER, E*TRADE Securities'
automated telephone system, to effect such a transaction by calling
1-800-STOCKS1 (1-800-786-2571).
Signature Guarantee. For your protection, certain requests may require a
signature guarantee.
A signature guarantee is designed to protect you and the Fund against fraudulent
transactions by unauthorized persons. In the following instances, the Fund will
require a signature guarantee for all authorized owners of an account:
1. If you transfer the ownership of your account to another individual or
organization.
2. When you submit a written redemption for more than $25,000.
3. When you request that redemption proceeds be sent to a different name or
address than is registered on your account.
4. If you add or change your name or add or remove an owner on your account.
5. If you add or change the beneficiary on your transfer-on-death account.
For other registrations, access E*STATION through our Website or call
1-800-786-2575 for instructions.
You will have to wait to redeem your shares until the funds you use to buy them
have cleared (e.g., your check has cleared).
The right of redemption may be suspended during any period in which (i) trading
on the NYSE is restricted, as determined by the SEC, or the NYSE is closed for
other than weekends and holidays; (ii) the SEC has permitted such suspension by
order; or (iii) an emergency as determined by the SEC exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
Redemption Fee. The Fund can experience substantial price fluctuations and is
intended for long-term investors. Short-term "market timers" who engage in
frequent purchases and redemptions can disrupt the Fund's investment program and
create additional transaction costs that are borne by all shareholders. For
these reasons, the Fund may assess a $24.95 fee on redemptions of fund shares
held for less than 120 days.
Any redemption fees imposed will be paid to the Fund to help offset transaction
costs. The Fund will use the "first-in, first-out" (FIFO) method to determine
the 120-day holding period. Under this method, the date of the redemption will
be compared with the earliest purchase date of shares held in the account. If
this holding period is less than 120 days, the fee may be assessed. The fee may
apply to shares held through omnibus accounts or certain retirement plans.
Closing your account. If you close your E*TRADE Securities account, you will be
required to redeem your shares in your Fund account.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to pay dividends from net investment income quarterly and
distribute capital gains, if any, annually. The Fund may make additional
distributions if necessary.
Unless you choose otherwise, all your dividends and capital gain distributions
will be automatically reinvested in additional Fund shares. Shares are purchased
at the net asset value determined on the payment date.
TAX CONSEQUENCES
The following information is meant as a general summary for U.S. taxpayers.
Please see the Fund's Statement of Additional Information for more information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in the Fund.
The Fund generally will not have to pay income tax on amounts it distributes to
shareholders, although shareholders will be taxed on distributions they receive.
The Fund will distribute substantially all of its income and gains to its
shareholders every year. If the Fund declares a dividend in October, November or
December but pays it in January, you may be taxed on the dividend as if you
received it in the previous year.
You will generally be taxed on dividends you receive from the Fund, regardless
of whether they are paid to you in cash or are reinvested in additional Fund
shares. If the Fund designates a dividend as a capital gain distribution, you
will pay tax on that dividend at the long-term capital gains tax rate, no matter
how long you have held your Fund shares.
If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax advisor about investment through a tax-deferred account.
There may be tax consequences to you if you dispose of your Fund shares, for
example, through redemption, exchange or sale. You will generally have a capital
gain or loss from a disposition. The amount of the gain or loss and the rate of
tax will depend mainly upon how much you pay for the shares, how much you sell
them for, and how long you hold them.
The Fund will send you a tax report each year that will tell you which dividends
must be treated as ordinary income and which (if any) are long-term capital
gain.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax,
but is a method in which the IRS ensures that it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Fund, dated ___________, 1999
("SAI"), contains further information about the Fund. The SAI is incorporated
into this Prospectus by reference (that means it is legally considered part of
this Prospectus). Additional information about the Fund's investments will be
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its fiscal year. The first semi-annual report over the period of ________ to
_________ will be published about ________, 1999. The first annual report will
be published about _________.
Additional information including the SAI and the most recent annual and
semi-annual reports (when available) may be obtained without charge, at our
Website (www.etrade.com). Shareholders will be alerted by e-mail when a
prospectus amendment, annual or semi-annual report is available. Shareholders
may also call the toll-free number listed below for additional information or
with any inquiries.
Further information about the Fund (including the SAI) can also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You may call
1-800-SEC-0330 for information about the operations of the public reference
room. Reports and other information about the Fund are also available on the
SEC's Website (http://www.sec.gov) or copies can be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009.
E*TRADE Securities, Inc.
2400 Geng Road
Palo Alto, CA 94303
Toll-Free: (800) 786-2575
http://www.etrade.com
Investment Company Act file No.: 811-09093
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
E*TRADE Funds
E*TRADE S&P 500 Index Fund
______________, 1999
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the prospectus for the E*TRADE S&P 500 Index Fund
(the "Fund"), as a separate series of the E*TRADE Funds, dated _________, 1999
(as amended from time to time).
To obtain a copy of the Fund's prospectus and the Fund's most recent
shareholders report (when issued) free of charge, please access our Website
online (www.etrade.com) via e-mail or by calling our toll-free number at (800)
786-2575. Only customers of E*TRADE Securities, Inc. who consent to receive all
information about the Fund electronically may invest in the Fund.
<PAGE>
TABLE OF CONTENTS
Page
FUND HISTORY............................................................3
THE FUND................................................................3
THE FUND'S INVESTMENT STRATEGIES AND RISKS..............................3
FUND POLICIES..........................................................11
TRUSTEES AND OFFICERS..................................................15
INVESTMENT MANAGEMENT..................................................18
SERVICE PROVIDERS......................................................20
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION.........................22
ORGANIZATION, DIVIDEND AND VOTING RIGHTS...............................23
SHAREHOLDER INFORMATION................................................24
TAXATION...............................................................25
UNDERWRITER............................................................28
MASTER PORTFOLIO ORGANIZATION..........................................29
PERFORMANCE INFORMATION................................................29
FINANCIAL STATEMENTS...................................................33
STANDARD & POOR'S......................................................35
APPENDIX...............................................................37
<PAGE>
FUND HISTORY
The E*TRADE S&P 500 Index Fund (the "Fund") is a diversified series of E*TRADE
Funds (the "Trust"). The Trust is organized as a Delaware business trust and was
formed on November 4, 1998.
THE FUND
The Fund is classified as a diversified open-end, management investment company.
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 (the "S&P 500 Index"). The Fund seeks to achieve its
objective by investing in a master portfolio that, in turn, invests in stocks
and other assets and attempts to match the total return of the stocks making up
the S&P 500 Index. This investment objective is fundamental and therefore,
cannot be changed without approval of a majority (as defined in the 1940 Act, as
amended) of the Fund's outstanding voting interests.
To do so, the Fund intends to invest all of its assets in the S&P 500 Index
Master Portfolio (the "Master Portfolio"), which is a series of Master
Investment Portfolio ("MIP"), an open-end, management investment company.
However, this policy is not a fundamental policy of the Fund and a shareholder
vote is not required for the Fund to withdraw its investment from the Master
Portfolio. The Master Portfolio seeks to provide investment results that
correspond to the total return performance of publicly traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Stock Index.
THE FUND'S INVESTMENT STRATEGIES AND RISKS
The following investment strategies and risks supplement the discussion of the
Fund's investment objectives, policies, and techniques described in the
Prospectus and may be changed without shareholder approval unless otherwise
noted.
Futures Contracts and Options Transactions. The Master Portfolio may use futures
as a substitute for a comparable market position in the underlying securities.
Although the Master Portfolio intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given that
a liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the Master
Portfolio to substantial losses. If it is not possible, or if the Master
Portfolio determines not to close a futures position in anticipation of adverse
price movements, the Master Portfolio will be required to make daily cash
payments on variation margin.
The Master Portfolio may invest in stock index futures and options on stock
index futures as a substitute for a comparable market position in the underlying
securities. A stock index future obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, the Master
Portfolio intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when the
Master Portfolio seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
The Master Portfolio's futures transactions must constitute permissible
transactions pursuant to regulations promulgated by the Commodity Futures
Trading Commission ("CFTC"). In addition, the Master Portfolio may not engage in
futures transactions if the sum of the amount of initial margin deposits and
premiums paid for unexpired options on futures contracts, other than those
contracts entered into for bona fide hedging purposes, would exceed 5% of the
liquidation value of the Master Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts; provided, however,
that in the case of an option on a futures contract that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
liquidation limit. Pursuant to regulations and/or published positions of the
SEC, the Master Portfolio may be required to segregate cash or high quality
money market instruments in connection with its futures transactions in an
amount generally equal to the entire value of the underlying security.
Future Developments. The Master Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts and
any other derivative investments which are not presently contemplated for use by
the Master Portfolio or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the Master
Portfolio's investment objective and legally permissible for the Master
Portfolio. Before entering into such transactions or making any such investment,
the Fund will provide appropriate disclosure in its prospectus.
Forward commitments, when-issued purchases and delayed-delivery transactions.
The Master Portfolio may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Master Portfolio will generally purchase securities with the
intention of acquiring them, the Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Certain of the securities in which the Master Portfolio may invest will be
purchased on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of the commitment to purchase. The
Master Portfolio only will make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date if it is deemed advisable. When-issued
securities are subject to market fluctuation, and no income accrues to the
purchaser during the period prior to issuance. The purchase price and the
interest rate that will be received on debt securities are fixed at the time the
purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery. The
Master Portfolio currently does not intend on investing more than 5% of its
assets in when-issued securities during the coming year. The Master Portfolio
will establish a segregated account in which it will maintain cash or liquid
securities in an amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Master Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
Short-term instruments and temporary investments. The Master Portfolio may
invest in high-quality money market instruments on an ongoing basis to provide
liquidity or for temporary purposes when there is an unexpected level of
shareholder purchases or redemptions. The instruments in which the Master
Portfolio may invest include: (i) short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises); (ii) negotiable certificates of deposit
("CDs"), bankers' acceptances, fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and that are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC; (iii) commercial paper rated at the date of
purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of
comparable quality as determined by Master Portfolio's investment advisor; (iv)
non-convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and
(vi) short-term, U.S. dollar-denominated obligations of foreign banks (including
U.S. branches) that, at the time of investment have more than $10 billion, or
the equivalent in other currencies, in total assets and in the opinion of the
Master Portfolio's investment advisor are of comparable quality to obligations
of U.S. banks which may be purchased by the Master Portfolio.
Bank Obligations. The Master Portfolio may invest in bank obligations, including
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Master Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper and Short-Term Corporate Debt Instruments. The Master Portfolio
may invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corporations
to finance short-term credit needs. Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a commercial bank acting as
agent for the payee of such notes whereby both parties have the right to vary
the amount of the outstanding indebtedness on the notes. The investment adviser
to the Master Portfolio monitors on an ongoing basis the ability of an issuer of
a demand instrument to pay principal and interest on demand.
The Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. The Master Portfolio will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser to the Master Portfolio will consider such an event in
determining whether the Master Portfolio should continue to hold the obligation.
To the extent the Master Portfolio continues to hold such obligations, it may be
subject to additional risk of default.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Master Portfolio will
attempt to use comparable ratings as standards for investments in accordance
with the investment policies contained in its Prospectus and in this SAI. The
ratings of Moody's and S&P and other nationally recognized statistical rating
organizations are more fully described in the attached Appendix.
Repurchase Agreements. The Master Portfolio may enter into a repurchase
agreement wherein the seller of a security to the Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. The Master
Portfolio may enter into repurchase agreements only with respect to securities
that could otherwise be purchased by the Master Portfolio, including government
securities and mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be deposited with the
custodian if the value of the securities purchased should decrease below the
repurchase price.
The Master Portfolio may incur a loss on a repurchase transaction if the seller
defaults and the value of the underlying collateral declines or is otherwise
limited or if receipt of the security or collateral is delayed. The Master
Portfolio's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Master Portfolio under a repurchase
agreement. Repurchase agreements are considered loans by the Master Portfolio.
All repurchase transactions must be collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Master Portfolio limits investments in repurchase agreements to selected
creditworthy securities dealers or domestic banks or other recognized financial
institutions. The Master Portfolio's advisor monitors on an ongoing basis the
value of the collateral to assure that it always equals or exceeds the
repurchase price.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolio may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion the
investment advisor are of comparable quality to issuers of other permitted
investments of the Master Portfolio may be used for letter of credit-backed
investments.
Floating- and variable- rate obligations. The Master Portfolio may purchase debt
instruments with interest rates that are periodically adjusted at specified
intervals or whenever a benchmark rate or index changes. These adjustments
generally limit the increase or decrease in the amount of interest received on
the debt instruments. Floating- and variable-rate instruments are subject to
interest-rate risk and credit risk.
Loans of portfolio securities. The Master Portfolio may lend securities from its
portfolios to brokers, dealers and financial institutions (but not individuals)
in order to increase the return on its portfolio. The value of the loaned
securities may not exceed one-third of the Master Portfolio's total assets and
loans of portfolio securities are fully collateralized based on values that are
market-to-market daily. The Master Portfolio will not enter into any portfolio
security lending arrangement having a duration of longer than one year. The
principal risk of portfolio lending is potential default or insolvency of the
borrower. In either of these cases, the Master Portfolio could experience delays
in recovering securities or collateral or could lose all or part of the value of
the loaned securities. The Master Portfolio may pay reasonable administrative
and custodial fees in connection with loans of portfolio securities and may pay
a portion of the interest or fee earned thereon the borrower or a placing
broker.
In determining whether to lend a security to a particular broker, dealer or
financial institution, the Master Portfolio's investment advisor considers all
relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer, or financial institution. Any loans of
portfolio securities are fully collateralized and marked to market daily. The
Master Portfolio will not enter into any portfolio security lending arrangement
having a duration of longer than one year. Any securities that the Master
Portfolio may receive as collateral will not become part of the Master
Portfolio's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Master Portfolio is permitted to invest. During the time securities are on loan,
the borrower will pay the Master Portfolio any accrued income on those
securities, and the Master Portfolio may invest the cash collateral and earn
income or receive an agreed upon fee from a borrower that has delivered
cash-equivalent collateral.
Investment company securities. The Master Portfolio may invest in securities
issued by other open-end management investment companies which principally
invest in securities of the type in which such Master Portfolio invests. Under
the 1940 Act, a Master Portfolio's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Master Portfolio's net assets with
respect to any one investment company and (iii) 10% of the Master Portfolio's
net assets in the aggregate. Investments in the securities of other investment
companies generally will involve duplication of advisory fees and certain other
expenses. The Master Portfolio may also purchase shares of exchange-listed
closed-end funds.
Illiquid securities. To the extent that such investments are consistent with its
investment objective, the Master Portfolio may invest up to 15% of the value of
its net assets in securities as to which a liquid trading market does not exist.
Such securities may include securities that are not readily marketable, such as
privately issued securities and other securities that are subject to legal or
contractual restrictions on resale, floating- and variable-rate demand
obligations as to which the Master Portfolio cannot exercise a demand feature on
not more than seven days' notice and as to which there is no secondary market
and repurchase agreements providing for settlement more than seven days after
notice.
Foreign Securities. Since the stocks of some foreign issuers may be included in
the S&P 500 Index, the Master Portfolio's portfolio may contain securities of
such foreign issuers, as well as American Depositary Receipts and similar
instruments, which may subject the Master Portfolio to additional investment
risks with respect to those securities that are different in some respects from
those incurred by a fund which invests only in securities of domestic issuers.
Such risks include possible adverse political and economic developments, seizure
or nationalization of foreign deposits or adoption of governmental restrictions
which might adversely affect the value of the securities of a foreign issuer to
investors located outside the country of the issuer, whether from currency
blockage or otherwise.
American Depositary Receipts and Similar Instruments. To the extent necessary to
replicate the investment characteristics of the S&P 500 Index, the Master
Portfolio may invest in foreign securities through American Depositary Receipts
("ADRs") and similar instruments convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs (sponsored or unsponsored) are
receipts typically issued by a U.S. bank or trust company and traded on a U.S.
Stock Exchange, that evidence ownership of underlying foreign securities.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. and, therefore, such information may not correlate to
the market value of the unsponsored ADR.
Obligations of Foreign Governments, Banks and Corporations. The Master Portfolio
may invest in U.S. dollar-denominated short-term obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by its
investment adviser to be of comparable quality to the other obligations in which
the Master Portfolio may invest.
To the extent that such investments are consistent with its investment
objective, the Master Portfolio may also invest in debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The percentage of the Master Portfolio's assets invested in obligations of
foreign governments and supranational entities will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
The Master Portfolio may also invest a portion of its total assets in high
quality, short-term (one year or less) debt obligations of foreign branches of
U.S. banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
U.S. Government Obligations. The Master Portfolio may invest in various types of
U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the U.S. Treasury. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of such agencies or instrumentalities of the U.S. Government are supported by
the full faith and credit of the United States or U.S. Treasury guarantees.
Other obligation of such agencies or instrumentalities of the U.S. Government
are supported by the right of the issuer or guarantor to borrow from the U.S.
Treasury. Others by the discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality or only by the
credit of the agency or instrumentality issuing the obligation.
In the case of obligations not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Unrated, Downgraded and Below Investment Grade Investments. The Master Portfolio
may purchase instruments that are not rated if, in the opinion of its investment
advisor, such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by the Master Portfolio. After
purchase by the Master Portfolio, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Master Portfolio.
Neither event will require a sale of such security by the Master Portfolio
provided that the amount of such securities held by the Master Portfolio does
not exceed 5% of the Master Portfolio's net assets. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, the Master Portfolio will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in this SAI. The ratings of Moody's and S&P are more fully described
in the Appendix to this SAI.
Because the Master Portfolio is not required to sell downgraded securities, the
Master Portfolio could hold up to 5% of its net assets in debt securities rated
below "Baa" by Moody's or below "BBB" by S&P or in unrated, low quality (below
investment grade) securities. Although they may offer higher yields than do
higher rated securities, low rated, and unrated, low quality debt securities
generally involve greater volatility of price and risk of principal and income,
including the possibility of default by, or bankruptcy of, the issuers of the
securities. In addition, the markets in which low rated and unrated, low quality
debt are traded are more limited than those in which higher rated securities are
traded. The existence of limited markets for particular securities may diminish
the Master Portfolio's ability to sell the securities at fair value either to
meet redemption requests or to respond to changes in the economy or in the
financial markets and could adversely affect and cause fluctuations in the daily
net asset value of the Master Portfolio's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated, low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated, low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of the Master Portfolio to achieve its investment objective may, to the extent
it holds low rated or unrated low quality debt securities, be more dependent
upon such creditworthiness analysis than would be the case if the Master
Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated, low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolio may incur additional expenses to
seek recovery.
Warrants. To the extent that such investments are consistent with its investment
objective, the Master Portfolio may invest up to 5% of its net assets in
warrants. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Master Portfolio may
only purchase warrants on securities in which the Master Portfolio may invest
directly.
Portfolio Turnover Rate. The portfolio turnover rate for the Master Portfolio
generally is not expected to exceed 50%. This portfolio turnover rate will not
be a limiting factor when the investment advisor deems portfolio changes
appropriate.
FUND POLICIES
Fundamental Investment Restrictions
The following are the Fund's fundamental investment restrictions which, along
with the Fund's investment objective, cannot be changed without shareholder
approval by a vote of a majority of the outstanding shares of the Fund, as set
forth in the 1940 Act.
Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in the Fund's assets (i.e., due to cash inflows or redemptions) or in market
value of the investment or the Fund's assets will not constitute a violation of
that restriction.
Unless indicated otherwise below, the Fund:
1. may not invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation;
2. may not with respect to 75% of its total assets, invest in a security if, as
a result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding securities of any one issuer;
3. may not issue senior securities, except as permitted under the 1940 Act;
4. may (1) borrow money from banks and (2) make other investments or engage in
other transactions permissible under the 1940 Act which may involve a borrowing,
provided that the combination of (1) and (2) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed), less the
Fund's liabilities (other than borrowings), except that the Fund may borrow up
to an additional 5% of its total assets (not including the amount borrowed) from
a bank for temporary or emergency purposes (but not for leverage or the purchase
of investments). The Fund may also borrow money from other persons to the extent
permitted by applicable law;
5. may not act as an underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the disposition of portfolio
securities;
6. may not purchase the securities of any issuer if, as a result, more than 25%
of the Fund's total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities (or
repurchase agreement thereto);
7. may not purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein;
8. may not purchase or sell physical commodities or commodities contracts or
oil, gas or mineral programs. This restriction shall not prohibit the Fund,
subject to restrictions described in the Prospectus and elsewhere in this
Statement of Additional Information , from purchasing, selling or entering into
futures contracts, options on futures contracts and other derivative
instruments, subject to compliance with any applicable provisions of the federal
securities or commodities laws;
9. may not lend any funds or other assets, except that the Fund may, consistent
with its investment objective and policies: (a) invest in certain short-term or
temporary debt obligations, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements, and (c)
lend its portfolio securities in an amount not to exceed 33 1/3% of the Fund's
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the
directors of the Fund.
Non-Fundamental Operating Restrictions
The following are the Fund's non-fundamental operating restrictions, which may
be changed by the Fund's Board of Trustees without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. pledge, mortgage or hypothecate its assets, except to the extent necessary to
secure permitted borrowings and to the extent related to the purchase of
securities on a when-issued or forward commitment basis and the deposit of
assets in escrow in connection with writing covered put and call options and
collateral and initial or variation margin arrangements with respect to options,
forward contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes;
2. purchase securities of other investment companies, except to the extent
permitted under the 1940 Act;
3. invest in illiquid securities if, as a result of such investment, more than
15% of its net assets would be invested in illiquid securities, or such other
amounts as may be permitted under the 1940 Act; and
4. may, notwithstanding any other fundamental investment policy or restriction,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment objective,
policies, and restrictions as the Fund.
Master Portfolio: Fundamental Investment Restrictions
The Master Portfolio is subject to the following fundamental investment
restrictions which cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. If a percentage restriction is adhered to at the time of
investment, a later change in percentage resulting from a change in values or
assets except with respect to compliance with fundamental investment restriction
number 5, will not constitute a violation of such restriction.
The Master Portfolio may not:
1. invest more than 5% of its assets in the obligations of any single issuer,
except that up to 25% of the value of its total assets may be invested, and
securities issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation;
2. hold more than 10% of the outstanding voting securities of any single issuer.
This investment restriction applies only with respect to 75% of its total
assets;
3. issue any senior security (as such term is defined in Section 18(f) of the
1940 Act), except to the extent the activities permitted in the Master
Portfolio's fundamental policies (4) and (8) and non-fundamental policies (2)
and (3), may be deemed to give rise to a senior security; and
4. borrow money, except to the extent permitted under the 1940 Act, provided
that the Master Portfolio currently intends to borrow only for temporary or
emergency (not leveraging) purposes, and may borrow up to one-third of the value
of its total assets (including the amount borrowed) valued at the lesser of cost
or market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Master Portfolio's total
assets, the Master Portfolio will not make any new investments. For purposes of
this investment restriction, the Master Portfolio's entry into options, forward
contracts, futures contracts, including those relating to indexes, and options
on futures contracts or indexes shall not constitute borrowing to the extent
certain segregated accounts are established and maintained by the Master
Portfolio;
5. act as an underwriter of securities of other issuers, except to the extent
that the Master Portfolio may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities;
6. invest 25% or more of its total assets in the securities of issuers in any
particular industry or group of closely related industries except that there
shall be no limitation with respect to investments in (i) obligations of the
U.S. government, its agencies or instrumentalities; or (ii) any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period, the Master Portfolio will be concentrated as specified above only to the
extent the percentage of its assets invested in those categories of investments
is sufficiently larger than 25% or more of its total assets would be invested in
a single industry;
7. purchase, hold or deal in real estate, or oil, gas or other mineral leases or
exploration or development programs, but the Master Portfolio may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate;
8. invest in commodities, except that the Master Portfolio may purchase and sell
(i.e., write) options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes;
9. make loans to others, except through the purchase of debt obligations and the
entry into repurchase agreements. However, the Master Portfolio may lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Master Portfolio's Board of Trustees;
and
10. purchase securities on margin, but each Master Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those related to indexes, and options on futures contracts
or indexes;
Non-Fundamental Operating Policies
The Master Portfolio is subject to the following non-fundamental operating
policies which may be changed by the Board of Trustees of the Master Portfolio
without the approval of the holders of the Master Portfolio's outstanding
securities.
The Master Portfolio may not:
1. invest in the securities of a company for the purpose of exercising
management or control, but the Master Portfolio will vote the securities it owns
in its portfolio as a shareholder in accordance with its views;
2. pledge, mortgage or hypothecate its assets, except to the extent necessary to
secure permitted borrowings and to the extent related to the purchase of
securities on a when-issued or forward commitment basis and the deposit of
assets in escrow in connection with writing covered put and call options and
collateral and initial or variation margin arrangements with respect to options,
forward contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes;
3. purchase, sell or write puts, calls or combinations thereof, except as may be
described in the Master Portfolio's offering documents;
4. purchase securities of any company having less than three years' continuous
operations (including operations of any predecessors) unless the securities are
fully guaranteed or insured by the U.S. government, a state, commonwealth,
possession, territory, the District of Columbia or by an entity in existence at
least three years, or the securities are backed by the assets and revenues of
any of the foregoing if such purchase would cause the value of its investments
in all such companies to exceed 5% of the value of its total assets;
5. enter into repurchase agreements providing for settlement in more than seven
days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of the Master Portfolio's net assets would
be so invested;
6. purchase securities of other investment companies, except to the extent
permitted under the 1940 Act; and
7. purchase or retain securities of any issuer if the officers or trustees of
the Master Portfolio or officers or Trustees of any affiliated investment
companies or the investment advisor owning beneficially more than one-half of
one percent (0.5%) of the securities of the issuer together owned beneficially
more than 5% of such securities;
TRUSTEES AND OFFICERS
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities and the
conformity with Delaware Law and the stated policies of the Fund. The Board
elects the officers of the Trust who are responsible for administering the
Fund's day-to-day operations. Trustees and officers of the Fund, together with
information as to their principal business occupations during the last five
years, and other information are shown below. Each "interested or affiliated
person," as defined in the 1940 Act, is indicated by an asterisk (*):
<TABLE>
<CAPTION>
Name, Address, and Age Position(s) Held with the Fund Principal Occupation(s) During the Past 5
Years
<S> <C> <C>
*Kathy Levinson (43) Trustee Ms. Levinson is executive vice president of
2400 Geng Road E*TRADE Group, Inc. and president and chief
Palo Alto, CA 94303 operating officer of E*TRADE Securities. She
joined the company in January 1996 after serving
as a consultant to E*TRADE during 1995. Prior to
that Ms. Levinson was senior vice president of
custody services at Charles Schwab (Financial
Services). She is also a former senior vice
president of credit services for Schwab.
*Leonard C. Purkis (50) Trustee Mr. Purkis is chief financial officer and
2400 Geng Road executive vice president of finance and
Palo Alto, CA 94303 administration of E*TRADE Group, Inc. He
previously served as chief financial officer for
Iomega Corporation (Hardware Manufacturer) from
1995 to 1998. Prior to joining Iomega, he served
in numerous senior level domestic and
international finance positions for General
Electric Co. and its subsidiaries, culminating his
career there as senior vice president, finance,
for GE Capital Fleet Services (Financial
Services).
Shelly J. Meyers (39) Trustee Ms. Meyers is the Manager, Chief Executive
Officer, Chief Financial Officer and founder of
Meyers Capital Management, a registered investment
adviser formed in January 1996. She has also
managed the Meyers Pride Value Fund since June
1996. Prior to that, she was employed by The
Boston Company Asset Management, Inc. as Assistant
Vice President of its Institutional Asset
Management group.
Ashley T. Rabun (47) Trustee Ms. Rabun is the Founder and Chief Executive
Officer of InvestorReach (which is a consulting
firm specializing in marketing and distribution
strategies for financial services companies formed
in October 1996). From 1992 to 1996, she was a
partner and President of Nicholas Applegate Mutual
Funds, a division of Nicholas Applegate Capital
Management.
Steven Grenadier (34) Trustee Mr. Grenadier is an Associate Professor of Finance
at the Graduate School of Business at Stanford
University, where he has been employed as a
professor since 1992.
*Brian C. Murray (42) President Mr. Murray is President of E*TRADE Asset
2400 Geng Road Management, Inc. He joined E*TRADE Securities,
Palo Alto, CA 94303 Inc. in January 1998. Prior to that Mr. Murray was
Principal of Alameda Counsulting (Financial
Services Consulting) and prior to that he was
Director, Mutual Fund Marketplace of Charles
Schwab Corporation (Financial Services).
*Joe N. Van Remortel (33) Vice President and Secretary Mr. Van Remortel is Vice President of Operations,
2400 Geng Road E*TRADE Asset Management, Inc. He joined E*TRADE
Palo Alto, CA 94303 Securities, Inc. in September 1996. Prior to that
Mr. Van Remortel was Senior Consultant of KPMG
Peat Marwick and Associate of Analysis Group, Inc.
(management consulting).
</TABLE>
The Trust pays each non-affiliated Trustee a quarterly fee of $1,500 per Board
meeting for the Fund. In addition, the Trust reimburses each of the
non-affiliated Trustee for travel and other expenses incurred in connection with
attendance at such meetings. Other officers and Trustees of the Trust receive no
compensation or expense reimbursement. The following table provides an estimate
of each Trustee's compensation for the current fiscal year:
Estimated Compensation Table
<TABLE>
<CAPTION>
Total Compensation From
Name of Person, Position Aggregate Compensation from Fund and Fund Complex Paid
the Fund to Directors
Expected to be Paid to
Trustees (1)
<S> <C> <C>
Kathy Levinson, Trustee None None
Leonard C. Purkis, Trustee None None
Shelly J. Meyers $6,000 $6,000
Ashley T. Rabun $6,000 $6,000
Steven Grenadier $6,000 $6,000
No Trustee will receive any benefits upon retirement. Thus, no pension
or retirement benefits have accrued as part of the Fund's expenses.
<FN>
- ------------
(1) This amount represents the estimated aggregate amount of compensation
paid to each non-affiliated Trustee for service on the Board of
Trustees for the fiscal year ending December 31, 1999.
</FN>
</TABLE>
Control Persons and Principal Holders of Securities
A shareholder that owns 25% or more of the Fund's voting securities is in
control of the Fund on matters submitted to a vote of shareholders. To satisfy
regulatory requirements, as of January 27, 1999, E*TRADE Asset Management, Inc.
owned 100% of the Fund's outstanding shares. E*TRADE Asset Management, Inc. is a
Delaware corporation and is wholly owned by E*TRADE Group, Inc. Its address is
2400 Geng Road, Palo Alto, CA 94303.
INVESTMENT MANAGEMENT
Investment Advisors. Under an investment advisory agreement with the Fund,
E*TRADE Asset Management, Inc. ("Investment Advisor") provides investment
advisory services to the Fund. The Investment Advisor is a wholly owned
subsidiary of E*TRADE Group, Inc, a leader in providing secure online investing
services to the self-directed investor that offers electronic access to an
investor's account virtually anywhere, at any time.
Subject to general supervision of the E*TRADE Funds' Board of Trustees and in
accordance with the investment objective, policies and restrictions of the Fund,
the Investment Advisor provides advice with respect to all purchases and sales
of the Fund's securities. It also provides the Fund with ongoing investment
guidance, policy direction and monitoring of the Master Portfolio. The
Investment Advisor may in the future manage cash and money market instruments
for cash flow purposes. The Investment Advisor has not previously had
responsibility for managing a mutual fund. For its advisory services, the Fund
pays the Investment Advisor an investment advisory fee at an annual rate equal
to 0.02% of the Fund's average daily net assets.
The Master Portfolio's Investment Advisor.
The Master Portfolio's investment advisor is Barclays Global Fund Advisors
("BGFA"). BGFA is a direct subsidiary of Barclays Global Investors, N.A. (which,
in turn, is an indirect subsidiary of Barclays Bank PLC ("Barclays")) and is
located at 45 Fremont Street, San Francisco, California 94105. BFGA has provided
assets management, administration and advisory services for over 25-years. As of
April 30, 1998, BGFA and its affiliates provided investment advisory services
for over $575 billion of assets. Barclays Bank PLC has been involved in banking
in the United Kingdom in over 300 years. Pursuant to an Investment Advisory
Contract dated January 1, 1996 (the "Advisory Contract") with the Master
Portfolio, BGFA provides investment guidance and policy direction in connection
with the management of the Master Portfolio's assets. Pursuant to the Advisory
Contract, BGFA furnishes to the Master Portfolio's Boards of Trustees periodic
reports on the investment strategy and performance of the Master Portfolio. BGFA
receives a fee from the Master Portfolio at an annual rate equal to 0.05% of the
Master Portfolio's average daily net assets. This advisory fee is an expense of
the Master Portfolio borne proportionately by its interestholders, including the
Fund.
The Advisory Contract for the Master Portfolio provides that if, in any fiscal
year, the total expenses of the Master Portfolio (excluding taxes, interest,
brokerage commissions and its extraordinary expenses but including the fees
provided for in the Advisory Contract) exceed the most restrictive expense
limitation applicable to the Master Portfolio imposed by the securities laws or
regulations of the states having jurisdiction over the Master Portfolio, BGFA
shall waive its fees under the Advisory Contract for the fiscal year to the
extent of the excess or reimburse the excess, but only to the extent of its
fees.
BGFA has agreed to provide to the Master Portfolio, among other things, money
market security and fixed-income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition, credit conditions and average maturities of the Master
Portfolio's investment portfolio.
The Advisory Contract will continue in effect for more than two years provided
the continuance is approved annually (i) by the holders of a majority of the
Master Portfolio's outstanding voting securities or by the Master Portfolio's
Boards of Trustees and (ii) by a majority of the Trustees of the Master
Portfolio who are not parties to the Advisory Contract or affiliated of any such
party. The Advisory Contract may be terminated on 60 days' written notice by
either party and will terminate automatically if assigned.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold at the
same time by the Master Portfolio and one or more of these investment companies
or accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, these procedures may adversely affect
the size of the position obtained for or disposed of by the Master Portfolio or
the price paid or received by the Master Portfolio.
SERVICE PROVIDERS
Principal Underwriter. E*TRADE Securities, Inc., 2400 Geng Road, Palo Alto, CA
94303, is the Fund's principal underwriter. The underwriter is a wholly owned
subsidiary of E*TRADE Group, Inc.
Administrator and Placement Agent of the Master Portfolio. Stephens, Inc.
("Stephens"), and Barclays Global Investors, N.A. ("BGI") serve as
co-administrators on behalf of the Master Portfolio. Under the Co-Administration
Agreement between Stephens, BGI and the Master Portfolio, Stephens and BGI
provide as administrative services, among other things: (i) general supervision
of the operation of the Master Portfolio, including coordination of the services
performed by the investment advisor, transfer and dividend disbursing agent,
custodian, shareholder servicing agent(s), independent auditors and legal
counsel; (ii) general supervision of regulatory compliance matters, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Master Portfolio; and (iii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Master Portfolio's officers and Board.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Master Portfolio together with those ordinary
clerical and bookkeeping services that are not furnished by BGFA. Stephens also
pays the compensation of the Master Portfolio's trustees, officers and employees
who are affiliated with Stephens. Furthermore, except as provided in the
advisory contract, Stephens and BGI bears substantially all costs of the Master
Portfolio and the Master Portfolio's operations. However, Stephens and BGI are
not required to bear any cost or expense which a majority of the non-affiliated
trustees of the Master Portfolio deem to be an extraordinary expense.
Stephens also acts as the placement agent of Master Portfolio's shares pursuant
to a Placement Agency Agreement (the "Placement Agency Agreement") with the
Master Portfolio.
Administrator of the Fund. E*TRADE Asset Management, Inc., the Fund's Investment
Advisor, also serves as the Fund's administrator. As the Fund's administrator,
E*TRADE Asset Management, Inc. provides administrative services directly or
through sub-contracting, including: (i) general supervision of the operation of
the Fund, including coordination of the services performed by the investment
advisor, transfer and dividend disbursing agent, custodian, sub- administrator,
shareholder servicing agent, independent auditors and legal counsel; (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and (iii) periodic reviews of management reports
and financial reporting. E*TRADE Asset Management, Inc. also furnishes office
space and certain facilities required for conducting the business of the Fund.
Pursuant to an agreement with the Fund, E*TRADE Asset Management, Inc. receives
a fee equal to 0.25% of the average daily net assets of the Fund. E*TRADE Asset
Management, Inc. is responsible under that agreement for the expenses otherwise
payable by the Fund for transfer agency, dividend disbursing, custody, auditing
and legal fees, to the extent that those expenses would otherwise equal or
exceed 0.005% of the Fund's average daily net assets.
Custodian, Fund Accounting Services Agent and Sub-administrator. Investors Bank
& Trust Company ("IBT"), 200 Clarendon Street, Boston, MA 02111, serves as
custodian of the assets of the Fund and Master Portfolio. As a result, IBT has
custody of all securities and cash of the Fund and the Master Portfolio,
delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments, and performs other
duties, all as directed by the officers of the Fund and the Master Portfolio.
The custodian has no responsibility for any of the investment policies or
decisions of the Fund and the Master Portfolio. IBT also acts as the Fund's
Accounting Services Agent. IBT also serves as the Fund's sub-administrator,
under an agreement among the Trust and E*TRADE Asset Management, Inc., providing
management reporting and treasury administration, financial reporting and board
and proxy material to Fund Management and the Fund's Board of Trustees and
preparing income tax provisions and tax returns. IBT is compensated for its
services by E*TRADE Asset Management, Inc.
Transfer Agent and Dividend Disbursing Agent. PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809, acts as transfer agent and dividend-disbursing agent for
the Fund.
Fund Shareholder Servicing Agent. Under a Shareholder Servicing Agreement with
E*TRADE Asset Management, Inc., E*TRADE Group, Inc., 2400 Geng Road, Palo Alto,
CA 94303, acts as shareholder servicing agent for the Fund. As shareholder
servicing agent, E*TRADE Securities, Inc. provides personal services to the
Fund's shareholders and maintains the Fund's shareholder accounts. Such services
include, (i) answering shareholder inquiries regarding account status and
history, the manner in which purchases and redemptions of the Fund's shares may
be effected, and certain other matters pertaining to the Fund; (ii) assisting
shareholders in designating and changing dividend options, account designations
and addresses; (iii) providing necessary personnel and facilities to coordinate
the establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; (iv) transmitting shareholders' purchase and redemption
orders to the Fund's transfer agent; (v) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem shares of the Fund; (vi) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Fund of
the gross amount of purchase and redemption orders for the Fund's shares; (viii)
provide certain printing and mailing services, such as printing and mailing of
shareholder account statements, checks, and tax forms; and (ix) providing such
other related services as the Fund or a shareholder may reasonably request, to
the extent permitted by applicable law.
Independent Accountants. Deloitte & Touche LLP, Suite 1500, 1000 Wilshire Blvd.,
Los Angeles, CA 90017-2472, acts as independent accountants for the Fund.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, DC
20006-2401, acts as legal counsel for the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION
The Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Master Portfolio's Board of Trustees, BGFA as
advisor, is responsible for the Master Portfolio's investment portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Master Portfolio to obtain the best results taking into
account the broker/dealer's general execution and operational facilities, the
type of transaction involved and other factors such as the broker/dealer's risk
in positioning the securities involved. While BGFA generally seeks reasonably
competitive spreads or commissions, the Master Portfolio will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Master Portfolio may be
combined with those of other accounts that BGFA manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When BGFA determines that a particular security should be
bought or sold for the Master Portfolio and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Master Portfolio such as
Stephens, BGFA and their affiliates are prohibited from dealing with the Master
Portfolio as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.
Except in the case of equity securities purchased by the Master Portfolio,
purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master Portfolio
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, money market
securities, adjustable rate mortgage securities ("ARMS"), municipal obligations,
and collateralized mortgage obligations ("CMOs") are traded on a net basis and
do not involve brokerage commissions. The cost of executing the Master
Portfolio's investment portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions.
Purchases and sales of equity securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or BGI. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
In placing orders for portfolio securities of the Master Portfolio, BGFA is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that BGFA seeks to execute each transaction at a
price and commission, if any, that provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. While BGFA generally seeks
reasonably competitive spreads or commissions, the Master Portfolio will not
necessarily be paying the lowest spread or commission available. In executing
portfolio transactions and selecting brokers or dealers, BGFA seeks to obtain
the best overall terms available for the Master Portfolio. In assessing the best
overall terms available for any transaction, BGFA considers factors deemed
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Master Portfolio's Board of Trustees.
Certain of the brokers or dealers with whom the Master Portfolio may transact
business offers commission rebates to the Master Portfolio. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commission paid by other institutional investors for comparable services.
ORGANIZATION, DIVIDEND AND VOTING RIGHTS
The Fund is a diversified series of E*TRADE Funds (the "Trust"), an open-end
investment company, organized as a Delaware business trust on November 4, 1998.
The Trust may issue additional series and classes.
All shareholders may vote on each matter presented to shareholders. Fractional
shares have the same rights proportionately as do full shares. Shares of the
Trust have no preemptive, conversion, or subscription rights. If the Trust
issues additional series, each series of shares will be held separately by the
custodian, and in effect each series will be a separate fund.
All shares of the Trust have equal voting rights. Approval by the shareholders
of a fund is effective as to that fund whether or not sufficient votes are
received from the shareholders of the other investment portfolios to approve the
proposal as to those investment portfolios.
Generally, the Trust will not hold an annual meeting of shareholders unless
required by the 1940 Act. The Trust will hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the holders of at least 10% of the
Trust's outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of the Fund represents an equal proportional interest in the Fund and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared in the discretion of the Trustees.
In the event of the liquidation or dissolution of the Trust, shareholders of a
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Trust.
Under Delaware law, the shareholders of the Fund are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Portfolio. Notice of such disclaimer will generally be given in
each agreement, obligation or instrument entered into or executed by a series or
the Trustees. The Declaration of Trust also provides for indemnification by the
relevant series for all losses suffered by a shareholder as a result of an
obligation of the series. In view of the above, the risk of personal liability
of shareholders of a Delaware business trust is remote.
SHAREHOLDER INFORMATION
Shares are sold through E*TRADE Securities.
Pricing of Fund Shares. The net asset value of the Fund will be determined as of
the close of trading on each day the New York Stock Exchange ("NYSE") is open
for trading. The NYSE is open for trading Monday through Friday except on
national holidays observed by the NYSE.
Telephone and Internet Redemption Privileges. The Fund employs reasonable
procedures to confirm that instructions communicated by telephone or the
Internet are genuine. The Fund may not be liable for losses due to unauthorized
or fraudulent instructions. Such procedures include but are not limited to
requiring a form of personal identification prior to acting on instructions
received by telephone or the Internet, providing written confirmations of such
transactions to the address of record, tape recording telephone instructions and
backing up Internet transactions.
Retirement Plans. You can find information about the retirement plans offered by
E*TRADE Securities by accessing our Web site. You may fill out an IRA
application online or request our IRA application kit by mail.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
Taxation of the Fund. The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
Distributions. Distributions of investment company taxable income (including net
short-term capital gains) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by the Fund to a corporate
shareholder, to the extent such dividends are attributable to dividends received
by the Fund from U.S. corporations, may, subject to limitation, be eligible for
the dividends received deduction. However, the alternative minimum tax
applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term capital gain, regardless of
how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Dispositions. Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for not more than one
year. Any loss realized on a redemption, sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days, beginning 30 days before and ending 30
days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding.
Any amounts withheld may be credited against the shareholder's federal income
tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.
Market Discount. If the Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the Fund
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Fund may make with respect to its straddle
positions may also affect the amount, character and timing of the recognition of
gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
UNDERWRITER
Distribution of Securities. Under a Distribution Agreement with the Fund
("Distribution Agreement"), E*TRADE Securities Inc., 2400 Geng Road, Palo Alto,
CA 94303, acts as underwriter of the Fund's shares. The Fund pays no
compensation to E*TRADE Securities, Inc. for its distribution services. The
Distribution Agreement provides that the Distributor will use its best efforts
to distribute the Fund's shares.
The Fund is a no-load fund, therefore investors pay no sales charges when buying
or selling shares of the Fund. The Distribution Agreement further provides that
the Distributor will bear the additional costs of printing prospectuses and
shareholder reports which are used for selling purposes, as well as advertising
and any other costs attributable to the distribution of the Fund's shares. The
Distributor is a wholly owned subsidiary of E*TRADE Group, Inc. The Distribution
Agreement is subject to the same termination and renewal provisions as are
described above with respect to the Advisory Agreement.
MASTER PORTFOLIO ORGANIZATION
The Master Portfolio is a series of Master Investment Portfolio ("MIP"), an
open-end, series management investment company organized as Delaware business
trust. MIP was organized on October 21, 1993. In accordance with Delaware law
and in connection with the tax treatment sought by MIP, the Declaration of Trust
provides that its investors are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also provides
that MIP must maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its investors,
trustees, officers, employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations. Thus, the risk of an
investor incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and MIP itself was
unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIP are not
binding upon its trustees individually but only upon the property of MIP and
that the trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the trustee's office.
The interests in the Master Portfolio have substantially identical voting and
other rights as those rights enumerated above for shares of the Fund. MIP is
generally not required to hold annual meetings, but is required by Section 16(c)
of the 1940 Act to hold a special meeting and assist investor communications
under certain circumstances. Whenever the Fund is requested to vote on a matter
with respect to the Master Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such shareholders.
In a situation where the Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the Master Portfolio,
such Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
PERFORMANCE INFORMATION
The Fund may advertise a variety of types of performance information as more
fully described below. The Fund's performance is historical and past performance
does not guarantee the future performance of the Fund. From time to time, the
Investment Advisor may agree to waive or reduce its management fee and/or to
reimburse certain operating expenses of the Fund. Waivers of management fees and
reimbursement of other expenses will have the effect of increasing the Fund's
performance.
Average Annual Total Return. The Fund's average annual total return quotation
will be computed in accordance with a standardized method prescribed by rules of
the SEC. The average annual total return for the Fund for a specific period is
calculated as follows:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the applicable period at the end of the period.
The calculation assumes that all income and capital gains dividends paid by the
Fund have been reinvested at net asset value on the reinvestment dates during
the period and all recurring fees charges to all shareholder accounts are
included.
Total Return. Calculation of the Fund's total return is not subject to a
standardized formula. Total return performance for a specific period will be
calculated by first taking an investment (assumed below to be $1,000) ("initial
investment") in the Fund's shares on the first day of the period and computing
the "ending value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and expressing
the result as a percentage. The calculation assumes that all income and capital
gains dividends paid by the Fund have been reinvested at net asset value of the
Fund on the reinvestment dates during the period. Total return may also be shown
as the increased dollar value of the hypothetical investment over the period.
Cumulative Total Return. Cumulative total return represents the simple change in
value of an investment over a stated period and may be quoted as a percentage or
as a dollar amount. Total returns and cumulative total returns may be broken
down into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.
Distribution Rate. The distribution rate for the Fund will be computed,
according to a non-standardized formula by dividing the total amount of actual
distributions per share paid by the Fund over a twelve month period by the
Fund's net asset value on the last day of the period. The distribution rate
differs from the Fund's yield because the distribution rate includes
distributions to shareholders from sources other than dividends and interest,
such as short-term capital gains. Therefore, the Fund's distribution rate may be
substantially different than its yield. Both the Fund's yield and distribution
rate will fluctuate.
Yield. The yield will be calculated based on a 30-day (or one-month) period,
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period and
annualizing the result, according to the following formula:
YIELD = 2[(a-b+1)6-1],
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period.
The net investment income of a Fund includes actual interest income, plus or
minus amortized purchase discount (which may include original issue discount) or
premium, less accrued expenses. Realized and unrealized gains and losses on
portfolio securities are not included in a Fund's net investment income.
Performance Comparisons:
Certificates of Deposit. Investors may want to compare the Fund's performance to
that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest rates
and principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by the
issuing institution.
Money Market Funds. Investors may also want to compare performance of the Fund
to that of money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
Lipper Analytical Services, Inc. ("Lipper") and Other Independent Ranking
Organizations. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value, with
all income and capital gains dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. The Fund may be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. The Fund's performance may also be compared to the average
performance of its Lipper category.
Morningstar, Inc. The Fund's performance may also be compared to the performance
of other mutual funds by Morningstar, Inc., which rates funds on the basis of
historical risk and total return. Morningstar's ratings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3, 5,
and 10 year periods. Ratings are not absolute and do not represent future
results.
Independent Sources. Evaluations of fund performance made by independent sources
may also be used in advertisements concerning the Fund, including reprints of,
or selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for fund performance and articles about the Fund may
include publications such as Money, Forbes, Kiplinger's, Smart Money, Financial
World, Business Week, U.S. News and World Report, The Wall Street Journal,
Barron's, and a variety of investment newsletters.
Indices. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
Historical Asset Class Returns. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations will
typically compare the average annual rates of return of inflation, U.S. Treasury
bills, bonds, common stocks, and small stocks. There are important differences
between each of these investments that should be considered in viewing any such
comparison. The market value of stocks will fluctuate with market conditions,
and small-stock prices generally will fluctuate more than large-stock prices.
Stocks are generally more volatile than bonds. In return for this volatility,
stocks have generally performed better than bonds or cash over time. Bond prices
generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and, in the case of U.S. Treasury obligations,
backed by the full faith and credit of the U.S. Treasury.
The historical S&P 500 data presented from time to time is not intended to
suggest that an investor would have achieved comparable results by investing in
any one equity security or in managed portfolios of equity securities, such as
the Fund, during the periods shown.
Portfolio Characteristics. In order to present a more complete picture of the
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
Measures of Volatility and Relative Performance. Occasionally statistics may be
used to specify fund volatility or risk. The general premise is that greater
volatility connotes greater risk undertaken in achieving performance. Measures
of volatility or risk are generally used to compare the Fund's net asset value
or performance relative to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market as represented by
the Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates
volatility greater than the market, and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is a statistical tool that measures the
degree to which a fund's performance has varied from its average performance
during a particular time period.
Standard deviation is calculated using the following formula:
Standard deviation = the square root of S(xi - xm)2
n-1
Where: S = "the sum of",
xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.
statistics may also be used to discuss the Fund's relative performance. One such
measure is alpha. Alpha measures the actual return of a fund compared to the
expected return of a fund given its risk (as measured by beta). The expected
return is based on how the market as a whole performed, and how the particular
fund has historically performed against the market. Specifically, alpha is the
actual return less the expected return. The expected return is computed by
multiplying the advance or decline in a market representation by the Fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost. Other
measures of volatility and relative performance may be used as appropriate.
However, all such measures will fluctuate and do not represent future results.
Discussions of economic, social, and political conditions and their impact on
the Fund may be used in advertisements and sales materials. Such factors that
may impact the Fund include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior, industry
trends, technological advances, macroeconomic trends, and the supply and demand
of various financial instruments. In addition, marketing materials may cite the
portfolio management's views or interpretations of such factors.
Master Fund Performance. The Fund intends to disclose historical performance of
the Master Portfolio, including the average annual and cumulative returns
restated to reflect the expense ratio of the Fund. This information will be
included by amendment. Although the investments of the Master Portfolio will be
reflected in the Fund, the Fund is a distinct mutual fund and has different
fees, expenses and returns than the Master Portfolio itself. Historical
performance of substantially similar mutual funds is not indicative of future
performance of the Fund. Master Portfolio performance will be supplied by the
Master Portfolio.
<TABLE>
FINANCIAL STATEMENTS
E*TRADE S&P 500 INDEX FUND
Statement of Assets and Liabilities
January 26, 1999
<S> <C> <C>
ASSETS:
Cash $ 100,000
Total Assets 100,000
LIABILITIES:
Total Liabilities 0
NET ASSETS $ 100,000
=======
Net assets consist of:
Paid-in Capital $ 100,000
NET ASSETS: $ 100,000
=======
Shares outstanding: 10,000
NET ASSET VALUE: $ 10.00
See Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies:
The E*TRADE S&P 500 Index Fund ("the Fund"), is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund is a separate series of E*TRADE Funds (the "Trust").
The Trust was established as a Delaware business Trust organized pursuant to a
Declaration of Trust on November 4, 1998. The Fund pursues its investment
objective by investing all of its investable assets in the S&P 500 Index Master
Portfolio (the "Portfolio"), which is a series of Master Investment Portfolio
("MIP"). The Portfolio has an investment objective and investment policies
consistent with the Fund. As of January 26, 1999, the Fund had no operations
other than organizational matters, including the issuance of seed money shares
to E*TRADE Asset Management, Inc.
Note 2 - Investment Adviser
E*TRADE Asset Management, Inc. (the "Investment Adviser") serves as the Fund's
investment adviser. For their services, the Adviser is paid by the Fund a fee at
an annual rate of 0.02% of the Fund's average daily net assets.
Note 3 - Administrative and Shareholder Servicing Fees and Principal Underwriter
E*TRADE Asset Management, Inc. (the "Administrator") provides administrative
services to the Fund. Services provided by the Administrator include, but are
not limited to: managing the daily operations and business affairs of the Fund,
subject to the supervision of the Board of Trustees; overseeing the preparation
and maintenance of all documents and records required to be maintained by the
Fund; preparing or assisting in the preparation of regulatory filings,
prospectuses and shareholder reports; providing, at its own expense, the
services of its personnel to serve as officers of the Trust; and preparing and
disseminating material for meetings of the Board of Trustees and shareholders.
The Fund pays the Administrator a monthly fee calculated at an annual rate of
0.25% of the Fund's average daily net assets. The Administrator may not modify
or terminate these service agreements without the approval of the Board of
Trustees of the Fund.
E*TRADE Securities, Inc. serves as the shareholder servicing agent (the
"Shareholder Servicing Agent") for the Fund. The Shareholder Servicing Agent is
also responsible for maintaining the Fund's shareholder accounts. E*TRADE
Securities, Inc. also serves as the principal underwriter of the Fund.
Note 4 - Federal Taxes
</TABLE>
Independent Auditors' Report
To the Board of Trustees of
E*TRADE Funds:
We have audited the accompanying statement of assets and liabilities of the
E*TRADE S&P 500 Index Fund (the "Fund") (one of a series constituting
E*TRADE Funds) as of January 26, 1999. This statement of asset and
liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement.
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 statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. 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 statement referred to above present fairly,
in all material respects, the financial position of the E*TRADE S&P 500
Index Fund, as of January 26, 1999 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
January 27, 1999
Los Angeles, California
The Fund has elected and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. If so qualified, the
Fund will not be subject to federal income tax to the extent it distributes its
net income to shareholders.
Standard & Poor's
The Fund is not sponsored, endorsed sold or promoted by Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation
or warranty, express or implied, to the owners of the Fund or any member of the
public regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund or the shareholders into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Fund or the timing of the issuance or sale of shares of the
Fund or in the determination or calculation of the equation by which the Fund is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the Fund the shareholders, or any other person
or entity from the use of the S&P 500 Index or any data included therein. S&P
makes no express or implied warranties, and expressly disclaims all warranties
of merchantability or fitness for a particular purpose or use with respect to
the S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified of
the possibility of such damages.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of borrowing;
o basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances;
o typically, the issuer's industry is well established and the issuer has a
strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas;
o evaluation of the issuer's products in relation to competition and customer
acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist with
the issuer; and
o recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet
such obligations.
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
o Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
o Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
o The rating C1 is reserved for income bonds on which no interest is being
paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (&) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
o Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
o Bonds which are rated A possess many favorably investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
o Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
o Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
o Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
o Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
o Bonds which are rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked
shortcomings.
o Bonds which are rated C are the lowest class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
<PAGE>
2400 Geng Road
Palo Alto, CA 94303
Telephone: (650) 842-2500
Toll-Free: (800) 786-2575
Internet: http://www.etrade.com
<PAGE>
PART C:
OTHER INFORMATION
Item 23. Exhibits
(a)(i) Certificate of Trust.1
(a)(ii) Trust Instrument.1
(b) By-laws.
(c) Certificates for Shares will not be issued. Articles II, VII, IX
and X of the Trust Instrument, previously filed as exhibit
(a)(ii), define the rights of holders of the Shares.1
(d) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant.
(e) Form of Underwriting Agreement between E*TRADE Securities, Inc.
and the Registrant.
(f) Bonus or Profit Sharing Contracts: Not applicable.
(g) Form of Custodian Agreement between the Registrant and Investors
Bank & Trust Company.
(h)(i) Form of Third Party Feeder Fund Agreement among the Registrant,
E*TRADE Securities, Inc. and Master Investment Portfolio.
(h)(ii) Form of Administrative Services Agreement between the Registrant
and E*TRADE Asset Management, Inc.
(h)(iii) Form of Sub-Administration Agreement among E*TRADE Asset
Management, Inc., the Registrant and Investors Bank & Trust Company.
(h)(iv) Form of Transfer Agency Services Agreement between PFPC, Inc. and
the Registrant.
(h)(v) Form of Retail Shareholder Services Agreement between E*TRADE
Group, Inc., the Registrant and E*TRADE Asset Management, Inc.
(i) Opinion and Consent of Dechert Price & Rhoads.
(j) Consent of Deloitte &Touche LLP.
(k) Omitted Financial Statements: Not applicable.
(l) Form of Subscription Letter Agreements between E*TRADE
Asset Management, Inc. and the Registrant.
(m) Rule 12b-1 Plan: Not applicable.
(n) Financial Data Schedules: Not applicable.
(o) Rule 18f-3 Plan: Not applicable.
1 Incorporated by reference from the Registrant's Initial Registration
Statement on Form N-1A filed with the Securities and Exchange Commission on
November 5, 1998.
Item 24. Persons Controlled by or Under Common Control With Registrant
No person is controlled by or under common control with the Registrant.
Item 25. Indemnification
Reference is made to Article X of the Registrant's Trust Instrument.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, public policy as expressed in the Act
and, therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by trustees, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
E*TRADE Asset Management, Inc. (the "Investment Advisor") is a Delaware
corporation that offers investment advisory services. The Investment Advisor's
offices are located at 2400 Geng Road, Palo Alto, CA 94303. The directors and
officers of the Investment Advisor and their business and other connections are
as follows:
Directors and Officers of Title/Status with Other Business
Investment Adviser Investment Adviser Connections
Kathy Levinson Director Director, President and
Chief Operating
Officer, E*TRADE
Securities, Inc. and
Executive Vice
President, Operations
and Customer Operations
Officer, E*TRADE Group,
Inc. 1997-98
Connie M. Dotson Director Corporate Secretary and
Senior Vice President,
E*TRADE Securities, Inc.
Brian C. Murray President and Director Vice President and
General Manager of
Mutual Funds, E*TRADE
Securities, Inc.;
Principal of Alameda
Consulting, 1997
Jerry D. Gramaglia Director Senior Vice President,
E*TRADE Group, Inc.,
1998; Vice President,
Sprint Corp., 1997-98
Joseph N. Van Remortel Vice President Sr. Manager, E*TRADE
Securities, Inc.,
1997-98
Item 27. Principal Underwriters
(a) E*TRADE Securities, Inc. (the "Distributor") serves as Distributor of
Shares of the Trust. The Distributor is a wholly owned subsidiary of
E*TRADE Group, Inc.
(b) The officers and directors of E*TRADE Securities, Inc. are:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
Kathy Levinson Director, President and Chief Trustee
Operating Officer
Stephen C. Richards Director and Senior Vice None
President
Steve Hetlinger Director and Vice President None
Connie M. Dotson Corporate Secretary and None
Senior Vice President
* The business address of all officers of the Distributor is 2400 Geng Road,
Palo Alto, CA 94303.
Item 28. Location of Accounts and Records
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained in the physical possession of:
(1) the Registrant's investment advisor, E*TRADE Asset Management, Inc.,
at 2400 Geng Road, Palo Alto, CA 90453;
(2) the Registrant's custodian, accounting services agent and
sub-administrator, Investors Bank & Trust Company, at 200 Clarendon Street,
Boston, MA 02111;
(3) the Registrant's transfer agent and dividend disbursing agent, PFPC,
Inc. at 400 Bellevue Parkway, Wilmington, DE 19809; and
(4) the Master Portfolio's investment advisor, Barclays Global Fund
Advisor, at 45 Fremont Street, San Francisco, CA 94105.
Item 29. Management Services
Not applicable
Item 30. Undertakings: Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Palo Alto in the State of California on the 26th day of January, 1999.
E*TRADE FUNDS
(Registrant)
By: /s/ Brian C. Murray
--------------------------
Name: Brian C. Murray
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Kathy Levinson
- ----------------------
Kathy Levinson Trustee January 26, 1999
/s/ Leonard C. Purkis
- ----------------------
Leonard C. Purkis Trustee and Treasurer January 26, 1999
(Principal Financial and
Accounting Officer)
/s/ Brian C. Murray
- ---------------------
Brian C. Murray President (Principal January 26, 1999
Executive Officer)
Shelly J. Meyers Trustee January __, 1999
Ashley T. Rabun Trustee January __, 1999
/s/ Steven Grenadier
- ----------------------
Steven Grenadier Trustee January 26, 1999
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
Item No. 23:
(b) By-laws
(d) Form of Investment Advisory Agreement between
E*TRADE Asset Management, Inc. and the Registrant.
(e) Form of Underwriting Agreement between E*TRADE
Securities, Inc. and the Registrant.
(g) Form of Custodian Agreement between the
Registrant and Investors Bank & Trust Company.
(h)(i) Form of Third Party Feeder Fund Agreement among
the Registrant, E*TRADE Securities, Inc. and
Master Investment Portfolio.
(h)(ii) Form of Administrative Services Agreement
between the Registrant and E*TRADE Asset Management, Inc.
(h)(iii) Form of Sub-Administration Agreement among
E*TRADE Asset Management, Inc., the Registrant
and Investors Bank & Trust Company.
(h)(iv) Form of Transfer Agency Services Agreement
between PFPC, Inc. and the Registrant.
(h)(v) Form of Retail Shareholder Services Agreement
between E*TRADE Group, Inc., the Registrant and
E*TRADE Asset Management, Inc.
(i) Opinion and Consent of Dechert Price & Rhoads.
(j) Consent of Deloitte & Touche LLP.
(l) Form of Subscription Letter Agreements between
E*TRADE Asset Management, Inc. and the Registrant.
BYLAWS
OF
E*TRADE FUNDS
(a Delaware Business Trust)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS........................................................1
ARTICLE II OFFICES...........................................................1
Section 1. Resident Agent...........................................1
Section 2. Offices..................................................1
ARTICLE III SHAREHOLDERS.....................................................1
Section 1. Meetings.................................................1
--------------------
Section 2. Notice of Meetings.......................................2
------------------------------
Section 3. Record Date for Meetings and Other Purposes..............2
-------------------------------------------------------
Section 4. Proxies..................................................2
-------------------
Section 5. Action Without Meeting...................................3
----------------------------------
ARTICLE IV TRUSTEES..........................................................4
Section 1. Meetings of the Trustees.................................4
Section 2. Quorum and Manner of Acting..............................5
ARTICLE V COMMITTEES.........................................................5
Section 1. Executive and Other Committees...........................5
Section 2. Meetings, Quorum and Manner of Acting....................6
ARTICLE VI OFFICERS..........................................................6
Section 1. General Provisions.......................................6
Section 2. Term of Office and Qualifications........................7
Section 3. Removal..................................................7
Section 4. Powers and Duties of the President.......................7
Section 5. Powers and Duties of Vice Presidents.....................8
Section 6. Powers and Duties of the Treasurer.......................8
Section 7. Powers and Duties of the Secretary.......................9
Section 8. Powers and Duties of Assistant Treasurers................9
Section 9. Powers and Duties of Assistant Secretaries...............9
Section 10. Compensation of Officers and Trustees and Members
of the Advisory Board...................................9
ARTICLE VII FISCAL YEAR.....................................................11
ARTICLE VIII SEAL...........................................................11
ARTICLE IX WAIVERS OF NOTICE................................................11
ARTICLE X CUSTODY OF SECURITIES.............................................11
Section 1. Action Upon Termination of Custodian Agreement..........11
Section 2. Provisions of Custodian Agreement.......................12
Section 3. Acceptance of Receipts in Lieu of Certificates..........13
ARTICLE XI AMENDMENTS.......................................................13
ARTICLE XII INSPECTION OF BOOKS.............................................13
<PAGE>
BYLAWS
OF
E*TRADE FUNDS
ARTICLE I
DEFINITIONS
Any terms defined in the Trust Instrument of E*TRADE Funds dated _____,
1998, as amended from time to time, shall have the same meaning when used
herein.
ARTICLE II
OFFICES
Section 1. Resident Agent. The Trust shall maintain a resident agent in
the State of Delaware, which agent shall initially be The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware 19801. The Trustees may
designate a successor resident agent, provided, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of State.
Section 2. Offices. The Trust may have its principal office and other
offices in such places within as well as without the State of Delaware as the
Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Trust Instrument at such place within or without the State of
Delaware as the Trustees shall designate.
Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least ten (10) days and not more than sixty
(60) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or
his/her attorney thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or without
closing the transfer books the Trustees may fix a date not more than sixty (60)
days prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, subject to the provisions of the Trust
Instrument.
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote may vote by proxy, provided that no proxy shall be voted
at any meeting unless it shall have been placed on file with the Secretary, or
with such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken. Proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Shareholders of record as of the record date shall be entitled
to vote. Each whole share shall be entitled to one vote as to any matter on
which it is entitled by the Trust Instrument to vote, and each fractional Share
shall be entitled to a proportionate fractional vote. When any Share is held
jointly by two or more persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such Share is a minor or legally incompetent, and subject
to guardianship or the legal control of any other person as regards the charge
or management of such Share, the person may vote by his or her guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy. For purposes of this Section, a proxy granted by telephone,
telegram, telex, telecopy, internet, computer interface or other electronic
method of document transfer shall be deemed "executed by or on behalf of a
Shareholder."
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be sent by facsimile, telegraphed, cabled, or sent by
internet, computer interface or other electronic method of document transfer to
each Trustee at his business address, or personally delivered to him or her at
least one day before the meeting. Such notice may, however, be waived by any
Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting can hear one another. Participation in a telephone conference
meeting shall constitute presence in person at such meeting. Any action required
or permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if all the Trustees consent to the action in writing
and the written consents are filed with the records of the Trustees' meetings.
Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Trust Instrument or these Bylaws) the
act of a majority of the Trustees present at any such meeting, at which a quorum
is present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Trust Instrument or these Bylaws they are prohibited
from delegating. The Trustees may also elect from their own number other
Committees from time to time, the number composing such Committees, the powers
conferred upon the same (subject to the same limitations as with respect to the
Executive Committee) and the term of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation, the Committee may elect its own
Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be kept with the
records of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Trust Instrument or these Bylaws, the President, the
Treasurer and the Secretary shall each hold office until his or her successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees. The Secretary and Treasurer may be the
same person. A Vice President and the Treasurer or Assistant Treasurer or a Vice
President and the Secretary or Assistant Secretary may be the same person, but
the offices of Vice President and Secretary and Treasurer shall not be held by
the same person. The President shall hold no other office. Except as above
provided, any two offices may be held by the same person. Any officer may be,
but none need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or Committee may be removed with or without cause by such appointing
officer or Committee.
Section 4. Powers and Duties of the President. The President may call
meetings of the Trustees and of any Committee thereof when he or she deems it
necessary and shall preside at all meetings of the Shareholders. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he or she shall at
all times exercise a general supervision and direction over the affairs of the
Trust. He or she shall have the power to employ attorneys and counsel for the
Trust and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust. He or she shall
also have the power to grant, issue, execute or sign such powers of attorney,
proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust. The President shall have such other
powers and duties as from time to time may be conferred upon or assigned to him
or her by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, any Vice President designated by the Trustees shall
perform all the duties and may exercise any of the powers of the President,
subject to the control of the Trustees. Each Vice President shall perform such
other duties as may be assigned to him or her from time to time by the Trustees
and the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. He or she shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these Bylaws. He
or she shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders among the
Trust records; he or she shall have custody of the seal of the Trust; he or she
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of the Transfer Agent. He or she shall attend to the giving
and serving of all notices by the Trust in accordance with the provisions of
these Bylaws and as required by law; and subject to these Bylaws, he or she
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him or her by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Trust Instrument,
the compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he or she is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the 31st day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Trust
Instrument or these Bylaws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by Internet, computer interface or other
electronic method of document transfer for the purposes of these Bylaws when it
has been delivered to a representative of the Trust or any telegraph or cable
company with instructions that it be telegraphed, cabled or sent by other
electronic method of document transfer.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding voting securities, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
Section 2. Provisions of Custodian Agreement. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or to which the Trust may become
entitled, and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio securities
to another person, or other disposition thereof, all as the Trustees may
generally or from time to time require or approve or to a successor Custodian;
and the Trustees shall cause all funds included in the Trust Property or to
which it may become entitled to be paid to the Custodian, and shall order the
same disbursed only for investment against delivery of the securities acquired,
or the return of cash held as collateral for loans of portfolio securities, or
in payment of expenses, including management compensation, and liabilities of
the Trust, including distributions to shareholders, or to a successor Custodian.
In connection with the Trust's purchase or sale of futures contracts, the
Custodian shall transmit, prior to receipt on behalf of the Trust of any
securities or other property, funds from the Trust's custodian account in order
to furnish to and maintain funds with brokers as margin to guarantee the
performance of the Trust's futures obligations in accordance with the applicable
requirements of commodities exchanges and brokers.
Section 3. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or
new Bylaws may be adopted by (a) a vote of a majority of the Shares outstanding
and entitled to vote or (b) the Trustees, provided, however, that no Bylaw may
be amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Trust Instrument or these Bylaws, a vote
of the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust, or any of them, shall be open to the
inspection of the shareholders; and no shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
law or authorized by the Trustees or by resolution of the Shareholders.
FORM OF
INVESTMENT ADVISORY AGREEMENT
E*TRADE FUNDS
with respect to
E*TRADE S&P 500 INDEX FUND
AGREEMENT, effective commencing as of, 1999 between E*TRADE Asset
Management, Inc. (the "Adviser") and E*TRADE Funds (the "Trust") with respect to
E*TRADE S&P 500 Index Fund (the "Fund").
WHEREAS, the Trust is a Delaware business trust organized pursuant to a
Declaration of Trust dated November 4, 1998 (the "Declaration of Trust"), and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified management investment company, and the Fund
is the initial portfolio of the Trust; and
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as
investment adviser to the Fund for the periods and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties.
(a) Subject to the supervision of the Trustees of the Trust, the Adviser
will: (i) provide a program of continuous investment management for the Fund in
accordance with the Fund's investment objective, policies and limitations as
stated in the Fund's Prospectus and Statement of Additional Information included
as part of the Trust's Registration Statement filed with the Securities and
Exchange Commission ("SEC") and as the Prospectus and Statement of Additional
Information may be amended from time to time, copies of which shall be provided
to the Adviser by the Trust; and (ii) select and manage, subject to approval by
the Trustees, investment subadvisers, who may be granted discretionary
investment authority, and/or master funds for the Fund.
(b) In performing its investment management services to the Fund hereunder,
the Adviser will provide the Fund with ongoing investment guidance, policy
direction, including oral and written research, monitoring of any master fund,
analysis, advice, statistical and economic data and judgments regarding
individual investments, general economic conditions and trends and long-range
investment policy.
(c) To the extent permitted by the Adviser's Form ADV as filed with the SEC
and subject to the approval of the Trustees of the Trust, the Adviser shall have
the authority to manage cash and money market instruments for cash flow
purposes.
(d) To the extent permitted by the Adviser's current Form ADV as filed with
the SEC, the Adviser will advise as to the securities, instruments, repurchase
agreements, options and other investments and techniques that the Fund will
purchase, sell, enter into or use, and will provide an ongoing evaluation of the
Fund's portfolio. The Adviser will advise as to what portion of the Fund's
portfolio shall be invested in securities and other assets, and what portion if
any, should be held uninvested.
(e) The Adviser may engage and remove one or more subadvisers, subject to
the legally required approvals of the Trust and its shareholders, and the
Adviser shall monitor the performance of any subadviser and report to the Trust
thereon.
(f) The Adviser further agrees that, in performing its duties
hereunder, it will:
(i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(ii) use reasonable efforts to manage the Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to the Fund's investment determinations as
approved by the Trustees for the Fund directly with the issuer, or with any
broker or dealer, in accordance with applicable policies expressed in the Fund's
Prospectus and/or Statement of Additional Information and in accordance with
applicable legal requirements;
(iv) furnish to the Trust whatever statistical information the
Trust may reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Trust and the Trustees
informed of developments materially affecting the Fund's portfolio and shall, on
the Adviser's own initiative, furnish to the Trust from time to time whatever
information the Adviser believes appropriate for this purpose;
(v) make available to the Trust's administrator (the
"Administrator") and the Trust, promptly upon their request, such copies of its
investment records and ledgers with respect to the Fund as may be required to
assist the Administrator and the Trust in their compliance with applicable laws
and regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund and any subadviser as they may reasonably
request;
(vi) immediately notify the Trust in the event that the Adviser or
any of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the SEC or other regulatory
authority. The Adviser further agrees to notify the Trust immediately of any
material fact known to the Adviser respecting or relating to the Adviser that is
not contained in the Trust's Registration Statement regarding the Fund, or any
amendment or supplement thereto, but that is required to be disclosed thereon,
and of any statement contained therein that becomes untrue in any material
respect; and
(vii) in providing investment advice to the Fund, use no inside
information that may be in its possession or in the possession of any of its
affiliates, nor will the Adviser seek to obtain any such information.
3. Futures and Options. The Adviser's investment authority shall include
advice with regard to purchasing, selling, covering open positions, and
generally to deal in financial futures contracts and options thereon, or master
funds which do so in accordance with Rule 4.5 of the Commodity Futures Trading
Commission.
The Adviser's authority shall include authority to: (i) open and
maintain brokerage accounts for financial futures and options (such accounts
hereinafter referred to as "Brokerage Accounts") on behalf of and in the name of
the Fund; and (ii) execute for and on behalf of the Brokerage Accounts, standard
customer agreements with a broker or brokers. The Adviser may, using such of the
securities and other property in the Brokerage Accounts as the Adviser deems
necessary or desirable, direct the custodian to deposit on behalf of the Fund,
original and maintenance brokerage deposits and otherwise direct payments of
cash, cash equivalents and securities and other property into such brokerage
accounts and to such brokers as the Adviser deems desirable or appropriate.
4. Use of Securities Brokers and Dealers. The Adviser will monitor the use
by master funds of broker-dealers. To the extent permitted by the Adviser's Form
ADV, purchase and sale orders will usually be placed with brokers who are
selected by the Adviser as able to achieve "best execution" of such orders.
"Best execution" shall mean prompt and reliable execution at the most favorable
securities price, taking into account the other provisions hereinafter set
forth. Whenever the Adviser places orders, or directs the placement of orders,
for the purchase or sale of portfolio securities on behalf of the Fund, in
selecting brokers or dealers to execute such orders, the Adviser is expressly
authorized to consider the fact that a broker or dealer has furnished
statistical, research or other information or services which enhance the
Adviser's research and portfolio management capability generally. It is further
understood in accordance with Section 28(e) of the Securities Exchange Act of
1934, as amended, that the Adviser may negotiate with and assign to a broker a
commission which may exceed the commission which another broker would have
charged for effecting the transaction if the Adviser determines in good faith
that the amount of commission charged was reasonable in relation to the value of
brokerage and/or research services (as defined in Section 28(e)) provided by
such broker, viewed in terms either of the Fund or the Adviser's overall
responsibilities to the Adviser's discretionary accounts.
Neither the Adviser nor any parent, subsidiary or related firm shall
act as a securities broker with respect to any purchases or sales of securities
which may be made on behalf of the Fund, provided that this limitation shall not
prevent the Adviser from utilizing the services of a securities broker which is
a parent, subsidiary or related firm, provided such broker effects transactions
on a "cost only" or "nonprofit" basis to itself and provides competitive
execution. Unless otherwise directed by the Trust in writing, the Adviser may
utilize the service of whatever independent securities brokerage firm or firms
it deems appropriate to the extent that such firms are competitive with respect
to price of services and execution.
5. Allocation of Charges and Expenses.
(a) Except as otherwise specifically provided in this section 5, the
Adviser shall pay the compensation and expenses of all of its directors,
officers and employees who serve as trustees, officers and executive employees
of the Trust (including the Trust's share of payroll taxes), and the Adviser
shall make available, without expense to the Fund, the service of its directors,
officers and employees who may be duly elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law.
(b) The Adviser shall not be required to pay pursuant to this Agreement any
expenses of the Fund other than those specifically allocated to the Adviser in
this section 5. In particular, but without limiting the generality of the
foregoing, the Adviser shall not be responsible, except to the extent of the
reasonable compensation of such of the Trust's employees as are officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Fund: organization and certain offering expenses of the Fund
(including out-of-pocket expenses, but not including the Adviser's overhead and
employee costs); fees payable to the Adviser and to any other Fund advisers or
consultants; legal expenses; auditing and accounting expenses; interest
expenses; telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; fees, dues and expenses incurred by or
with respect to the Fund in connection with membership in investment company
trade organizations; cost of insurance relating to fidelity coverage for the
Trust's officers and employees; fees and expenses of the Fund's Administrator or
of any custodian, subcustodian, transfer agent, registrar, or dividend
disbursing agent of the Fund; expenses of any master fund in which the Fund
invests; payments to the Administrator for maintaining the Fund's financial
books and records and calculating its daily net asset value; other payments for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates; other
expenses in connection with the issuance, offering, distribution or sale of
securities issued by the Fund; expenses relating to investor and public
relations; expenses of registering and qualifying shares of the Fund for sale;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities or other assets of the Fund, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
stockholders; costs of stationery or other office supplies; any litigation
expenses; costs of stockholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to the Fund's
business) of officers, Trustees and employees of the Trust who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Trust who are officers,
directors or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees of the Trust with respect to
matters concerning the Fund, or any committees thereof or advisers thereto.
6. Compensation.
As compensation for the services provided and expenses assumed by the
Adviser under this Agreement, the Trust will arrange for the Fund to pay the
Adviser at the end of each calendar month an advisory fee computed daily at an
annual rate equal to the amount of average daily net assets listed opposite the
Fund's name in Exhibit A, attached hereto. The "average daily net assets" of the
Fund shall mean the average of the values placed on the Fund's net assets as of
4:00 p.m. (New York time) on each day on which the net asset value of the Fund
is determined consistent with the provisions of Rule 22c-1 under the 1940 Act
or, if the Fund lawfully determines the value of its net assets as of some other
time on each business day, as of such other time. The value of net assets of the
Fund shall always be determined pursuant to the applicable provisions of the
Declaration of Trust and the Registration Statement. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of the close of the New York Stock Exchange, or as of such other time
as the value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value of the
shares of the Fund has been so suspended for a period including any month end
when the Adviser's compensation is payable pursuant to this section, then the
Adviser's compensation payable at the end of such month shall be computed on the
basis of the value of the net assets of the Fund as last determined (whether
during or prior to such month). If the Fund determines the value of the net
assets of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 6.
7. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Trust and will be surrendered promptly to the Trust upon
its request. The Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders. Provided that the investment objective, policies
and restrictions of the Fund are adhered to, the Trust agrees that the Adviser
may aggregate sales and purchase orders of securities held in the Fund with
similar orders being made simultaneously for other accounts managed by the
Adviser or with accounts of the affiliates of the Adviser, if in the Adviser's
reasonable judgment such aggregation shall result in an overall economic benefit
to the respective Fund taking into consideration the advantageous selling or
purchase price, brokerage commission and other expenses. The Trust acknowledges
that the determination of such economic benefit to the Fund by the Adviser
represents the Adviser's evaluation that the Fund is benefited by relatively
better purchase or sales prices, lower commission expenses and beneficial timing
of transactions or a combination of these and other factors.
9. Standard of Care and Limitation of Liability. The Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or the holders of the Fund's shares
in connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Trust, the Fund or to holders of the Fund's
shares to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Adviser's reckless disregard of its obligations and
duties under this Agreement. As used in this Section 9, the term "Adviser" shall
include any officers, directors, employees or other affiliates of the Adviser
performing services with respect to the Fund.
10. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, including the Trust (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its obligations to the Fund hereunder. When the
Adviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Adviser recommends the
purchase or sale of the same security for the Fund, it is understood that in
light of its fiduciary duty to the Fund, such transactions will be executed on a
basis that is fair and equitable to the Fund. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its directors, officers or employees shall act as a principal or
agent or receive any commission. If the Adviser provides any advice to its
clients concerning the shares of the Fund, the Adviser shall act solely as
investment counsel for such clients and not in any way on behalf of the Trust or
the Fund.
11. Duration and Termination.
(a) This Agreement shall continue for a period of two years from the
date of commencement, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of the Fund's outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person (to the extent required by the 1940 Act) at a meeting called for
the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated:
(a) at any time without penalty by the Fund upon the vote of a majority of the
Trustees or by vote of the majority of the Fund's outstanding voting securities,
upon sixty (60) days' written notice to the Adviser or (b) by the Adviser at any
time without penalty, upon sixty (60) days' written notice to the Trust. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. Amendments. This Agreement may be amended at any time but only by
the mutual agreement of the parties to this Agreement and in accordance with any
applicable legal or regulatory requirements.
13. Proxies. Unless the Trust gives written instructions to the
contrary, the Adviser shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Fund may be invested in a manner
which best serves the interests of the Fund's shareholders. The Adviser shall
use its best good faith judgment to vote such proxies in a manner which best
serves the interests of the Fund's shareholders.
14. Use of "E*TRADE" Name.
(a) It is understood that the name "E*TRADE" and any logo associated
with that name, is the valuable property of E*TRADE Group, Inc., and that the
Trust and Adviser have the right to include "E*TRADE" as a part of their name
only so long as this Agreement shall continue in effect and the Adviser is a
wholly owned subsidiary of the E*TRADE Group, Inc. Further, the Trust and the
Adviser agree that: (i) they will use the name "E*TRADE" only as a component of
the names of the Trust, the Fund and the Adviser, and for no other purposes;
(ii) neither will purport to grant to any third party any rights in the name
"E*TRADE"; (iii) at the request of E*TRADE Group, Inc., the Trust or the Adviser
take such action as may be required to provide their consent to use of the name
"E*TRADE" by E*TRADE Group, Inc. or any affiliate of E*TRADE Group, Inc., to
whom E*TRADE Group, Inc. shall have granted the right to such use; and (iv)
E*TRADE Group, Inc. may use or grant to others the right to use the name
"E*TRADE", or any abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company.
(b) Upon termination of this Agreement as to the Trust or its Fund, the
Trust and the Adviser shall, upon request of E*TRADE Group, Inc., cease to use
the name "E*TRADE" as part of the name of the Trust, the Fund or the Adviser, as
applicable. In the event of any such request by E*TRADE Group, Inc. that use of
the name "E*TRADE" shall cease, the Trust and the Adviser shall cause their
officers, trustees, directors and stockholders to take any and all such actions
which E*TRADE Group, Inc. may request to effect such request and to reconvey to
E*TRADE Group, Inc. any and all rights to the name "E*TRADE."
15. Use of "S&P 500" Name.
It is understood that the Adviser has entered into a licensing
agreement with The McGraw-Hill Companies, Inc., for use of the terms "S&P 500",
"S&P", "Standard & Poor's", and "Standard & Poor's 500" (the "license"). In
accordance with such license, the Adviser shall permit the Trust, on behalf of
the Fund, to use the terms "S&P 500", "S&P", "Standard & Poor's", and "Standard
& Poor's 500", so long as the license and this Agreement shall continue in
effect.
16. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Fund.
(e) All liabilities of the Trust hereunder are limited to the assets of
the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of.
E*TRADE FUNDS
By:_____________________________
Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT A
Name of Fund Advisory Fee
E*TRADE S&P 500 Index Fund 0.02%, if the Fund invests all
of its assets in a master fund
and 0.07% on that portion of
the Fund's assets not invested
in a master fund.
FORM OF
UNDERWRITING AGREEMENT
E*TRADE FUNDS
2400 Geng Road
Palo Alto, CA 94303
_____________, 1999
E*TRADE Securities, Inc.
2400 Geng Road
Palo Alto, CA 94303
Re: Underwriting Agreement
Gentlemen:
E*TRADE Funds is a Delaware business trust operating as an open-end
management investment company (hereinafter referred to as the "Company"). The
Company is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act"), and interests in the Company ("Shares") are registered
under the Securities Act of 1933, as amended (the "1933 Act"). The Company
currently consists of one series, the E*TRADE S&P 500 Index Fund (the "Fund").
The Company, on behalf of the Fund, desires to offer and sell the authorized but
unissued Shares of the Fund to the public in accordance with applicable federal
and state securities laws.
You have informed us that E*TRADE Securities, Inc. is registered as a
broker-dealer under the provisions of the Securities Exchange Act of 1934 and is
a member in good standing of the National Association of Securities Dealers,
Inc. You have indicated your desire to act as the exclusive selling agent and
principal underwriter for the Shares of the Fund and for such other series of
the Company hereinafter established as agreed to from time to time and evidenced
by the addition of such series to Schedule A of this Agreement. We have been
authorized by the Company to execute and deliver this Agreement to you by a
resolution of our Board of Trustees (the "Trustees") adopted at a meeting of the
Trustees, at which a majority of Trustees, including a majority of our Trustees
who are not otherwise interested persons of our investment manager or its
related organizations, were present and voted in favor of the said resolution
approving this Underwriting Agreement. This Underwriting Agreement is intended
to apply to all Shares of the Fund issued before or after this amendment.
1. Appointment of Underwriter. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for distribution of the Shares and agree that we will deliver to you such
Shares as you may sell. You agree to use your best efforts to promote the sale
of the Shares, but you are not obligated to sell any specific number of the
Shares.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind the Company or the Fund by your actions, conduct or
contracts, except that you are authorized to accept orders for the purchase or
repurchase of the Shares as our agent. You may appoint sub-agents or distribute
the Shares through dealers (or otherwise) as you may determine necessary or
desirable from time to time. This Agreement shall not, however, be construed as
authorizing any dealer or other person to accept orders for sale or repurchase
on our behalf or to otherwise act as our agent for any purpose.
3. Offering Price. Shares of the Fund shall be offered at a price
equivalent to their net asset value as set forth in the Fund's Prospectus. On
each business day on which the New York Stock Exchange is open for business, we
will furnish you with the net asset value of the Shares, which shall be
determined and become effective as of the close of business of the New York
Stock Exchange on that day. The net asset value so determined shall apply to all
orders for the purchase of the Shares received by dealers prior to such
determination, and you are authorized in your capacity as our agent to accept
orders and confirm sales at such net asset value; provided that, such dealers
notify you of the time when they received the particular order and that the
order is placed with you prior to your close of business on the day on which the
applicable net asset value is determined. To the extent that our Fund
Shareholder Servicing Agent and Transfer Agent and Dividend Disbursing Agent
(collectively, "Agent") and the Custodian(s) for any pension, profit-sharing,
employer or self-employed plan receive payments on behalf of the investors, such
Agent and Custodian(s) shall be required to record the time of such receipt with
respect to each payment, and the applicable net asset value shall be that which
is next determined and effective after the time of receipt by them. In all
events, you shall forthwith notify all of the dealers comprising your selling
group and the Agent and Custodian(s) of the effective net asset value as
received from us. Should we at any time calculate our net asset value more
frequently than once each business day, you and we will follow procedures with
respect to such additional price or prices comparable to those set forth above
in this Section 3.
4. Payment of Shares. At or prior to the time of delivery of any of the
Shares you will pay or cause to be paid to the Custodian, for our account, an
amount in cash equal to the net asset value of such Shares. In the event that
you pay for Shares sold by you prior to your receipt of payment from purchasers,
you are authorized to reimburse yourself for the net asset value of such Shares
from the offering price of such Shares when received by you.
5. Registration of Shares. No Shares shall be registered on our books until
(i) receipt by us of your written request therefor; (ii) receipt by the
Custodian and Agent of a certificate signed by an officer of the Company stating
the amount to be received therefor; and (iii) receipt of payment of that amount
by the Custodian. We will provide for the recording of all Shares purchased in
unissued form in "book accounts", unless a request in writing for certificates
is received by the Agent, in which case certificates for shares in such names
and amounts as is specified in such writing will be delivered by the Agent, as
soon as practicable after registration thereof on the books.
6. Purchases for Your Own Account. You shall not purchase Shares for your
own account for purposes of resale to the public, but you may purchase Shares
for your own investment account upon your written assurance that the purchase is
for investment purposes only and that the Shares will not be resold except
through redemption by us.
7. Payment of Expenses.
(a) The Fund shall assume and pay for the following expenses: (i) costs
of preparing, printing and distributing reports, Prospectuses and Statements of
Information used by it in connection with the sale or offering of its Shares and
all advertising and sales literature relating to it printed at your instruction;
and (ii) counsel fees and expenses in connection with the foregoing.
(b) You shall pay all of your own costs and expenses connected with the
sale of Shares.
8. Furnishing of Information. We will furnish to you such information with
respect to our company and its Shares, in such form and signed by such of our
officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may reasonably
request in order to qualify our Shares for sale to the public under the Blue Sky
Laws or in jurisdictions in which you may wish to offer them. We will furnish
you at least annually with audited financial statements of our books and
accounts certified by independent public accountants, and with such additional
information regarding our financial condition, as you may reasonably request
from time to time.
9. Conduct of Business. Other than the currently effective Prospectus and
Statement of Additional Information, you will not issue any sales material or
statements except literature or advertising which conforms to the requirements
of federal and state securities laws and regulations and which have been filed,
where necessary, with the appropriate regulatory authorities. You will furnish
us with copies of all such material prior to their use and no such material
shall be published if we shall reasonably and promptly object.
You shall comply with the applicable federal and state laws and regulations
where our Shares are offered for sale and conduct your affairs with us and with
dealers, brokers or investors in accordance with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
10. Redemption . You are authorized as our agent and subject to our
direction, to redeem outstanding Shares of the Fund when properly tendered by
shareholders pursuant to the redemption right granted to the shareholders by the
Trust Instrument of the Company, as from time to time in effect, at a redemption
price equal to the NAV per Share of the Fund next determined after proper tender
and acceptance. The Company has delivered to you a copy of its Trust Instrument
as currently in effect and agrees to deliver to you any amendments thereto
promptly upon filing thereof with the Office of the Secretary of State of the
State of Delaware.
11. Other Activities. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their Shares.
12. Term of Agreement. This Agreement shall remain in effect until
______________, 1999, and shall continue annually thereafter for successive one
(1) year periods if approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Funds or by a vote of the Trustees of
the Company, and (ii) by a vote of a majority of the Trustees of the Company who
are not interested persons or parties to this Agreement (other than as Trustees
of the Company), cast in person at a meeting called for the purpose of voting on
this Agreement.
13. Termination. Either party may terminate this Agreement without the
payment of any penalty, upon not more than sixty days' nor less than thirty
days' written notice delivered personally or mailed by registered mail, postage
prepaid, to the other party; provided, that in the case of termination by any
series of the Company, such action shall have been authorized (i) by resolution
of the Trustees, or (ii) by vote of a majority of the outstanding voting
securities of the respective series, or (iii) by written consent of a majority
of the disinterested Trustees. The Agreement shall automatically terminate if it
is assigned by you.
14. Suspension of Sales. We reserve the right at all times to suspend or
limit the public offering of the Shares upon written notice to you, and to
reject any order in whole or in part.
15. Miscellaneous.
(a) This Agreement shall be subject to the laws of the State of
Maryland and shall be interpreted and construed to further and promote the
operation of the Company as an open-end investment company.
(b) As used herein, the terms "Net Asset Value," "Offering Price,"
"Investment Company," "Open-End Investment Company," "Assignment," "Principal
Underwriter," "Interested Person," "Parents," and "Majority of the Outstanding
Voting Securities," shall have the meanings set forth in the 1933 Act and the
1940 Act, as applicable, and the rules and regulations promulgated thereunder.
Any question of interpretation of any term or provision of this Agreement having
a counterpart in or otherwise derived from a provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretation thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC validly issued pursuant to the 1940 Act. In addition, when the effect
of a requirement of the 1940 Act reflected in any provision of this Agreement is
modified, interpreted or relaxed by a rule, regulation or order of the SEC,
whether of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. the company and you
may from time to time agree on such provisions interpreting or clarifying the
provisions of this Agreement as, in our joint opinion, are consistent with the
general tenor of this Agreement and with the specific provisions of this Section
15(b). Any such interpretations or clarification shall be in writing signed by
the parties and annexed hereto, but no such interpretation or clarification
shall be effected if in contravention of any applicable federal or state law or
regulations, and no such interpretation or clarification shall be deemed to be
an amendment of this Agreement.
16. Liability.
(a) Nothing contained herein shall be deemed to protect you against any
liability to us or to our shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
(b) You shall look only to the assets of a series for the performance
of this Agreement by the Company on behalf of such series and neither the
Trustees nor any of the Company's officers, employees or agents, whether past,
present or future, shall be personally liable therefor.
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed counterparts hereof and returning
such counterparts to us, whereupon this shall constitute a binding agreement as
of the date first above written.
Very truly yours,
E*TRADE FUNDS
(on behalf of the E*TRADE S&P 500 Index Fund)
By: ___________________________________
Title: ___________________________________
Agreed to and Accepted:
E*TRADE SECURITIES, INC.
By: ______________________________
Title: ______________________________
<PAGE>
SCHEDULE A
The series of E*TRADE Funds currently subject to this Agreement are as follows:
E*TRADE S&P 500 Index Fund
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of ___________, 1999, between E*TRADE
FUNDS, a company organized under the laws of the state of Delaware (the "Fund"),
and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company on behalf of the
portfolios/series listed on Appendix A hereto (as such Appendix A may be amended
from time to time) (each a "Portfolio" and collectively, the "Portfolios"),
desires to place and maintain all of its portfolio securities and cash in the
custody of the Bank. The Bank has at least the minimum qualifications required
by Section 17(f)(1) of the Investment Company Act of 1940, as amended (the "1940
Act"), to act as custodian of the portfolio securities and cash of the Fund, and
has indicated its willingness to so act, subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian
of its portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth. For the services rendered pursuant to this Agreement the
Fund agrees to pay to the Bank the fees set forth on Appendix B hereto, solely
from the assets of the Portfolios listed on Appendix A hereto.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Trustees of the Fund.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned
by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934, as amended
("Exchange Act"), its successor or successors and its nominee or nominees. The
term "Depository" shall further mean and include any other person authorized to
act as a depository under the 1940 Act, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions (which may be continuing instructions) regarding the purchase or
sale of Portfolio Securities, and payments and deliveries in connection
therewith, given by an Authorized Person, such instructions to be given in such
form and manner as the Bank and the Fund shall agree upon from time to time, and
(ii) instructions (which may be continuing instructions) regarding other matters
signed or initialed by an Authorized Person. Oral instructions will be
considered Proper Instructions if the Bank reasonably believes them to have been
given by an Authorized Person. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the sole
obligation of the Bank with respect to any follow-up or confirmatory instruction
shall be to make reasonable efforts to detect any discrepancy between the
original instruction and such confirmation and to report such discrepancy to the
Fund. The Fund shall be responsible, at the Fund's expense, for taking any
action, including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires the Bank to act, the Fund shall
give the Bank specific Proper Instructions as to the action required. Upon
receipt by the Bank of an Officers' Certificate as to the authorization by the
Board accompanied by a detailed description of procedures approved by the Fund,
Proper Instructions may include communication effected directly between
electro-mechanical or electronic devices provided that the Board and the Bank
agree in writing that such procedures afford adequate safeguards for the Fund's
assets.
3. Separate Accounts. If the Fund has more than one portfolio, the Bank
will segregate the assets of each portfolio to which this Agreement relates into
a separate account for each such series or portfolio containing the assets of
such portfolio (and all investment earnings thereon). Unless the context
otherwise requires, any reference in this Agreement to any actions to be taken
by the Fund shall be deemed to refer to the Fund acting on behalf of one or more
of its portfolios, any reference in this Agreement to any assets of the Fund,
including, without limitation, any portfolio securities and cash and earnings
thereon, shall be deemed to refer only to assets of the applicable portfolio,
any duty or obligation of the Bank hereunder to the Fund shall be deemed to
refer to duties and obligations with respect to such individual portfolio and
any obligation or liability of the Fund hereunder shall be binding only with
respect to such individual portfolio, and shall be discharged only out of the
assets of such portfolio.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board. Upon the occurrence of any change in the information set
forth in the most recent certification on file (including without limitation any
person named in the most recent certification who is no longer an Authorized
Person as designated therein), the Secretary or Assistant Secretary of the Fund
will sign a new or amended certification setting forth the change and the new,
additional or omitted names or signatures. The Bank will be entitled to rely and
act upon any Officers' Certificate given to it by the Fund which has been signed
by Authorized Persons named in the most recent certification received by the
Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. The Bank will make payments of cash held
for the accounts of the Fund upon the purchase of securities for the Fund,
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs as registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. The Bank will make payments of cash held for the
accounts of the Fund in such amount as may be necessary for the repurchase or
redemption of common shares of the Fund offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. The Bank will make payments of
cash held for the accounts of the Fund for the payment on the account of the
Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. The Bank will make payments of
cash held for the accounts of the Fund for payments in connection with the
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. The Bank will make payments of cash held for
the accounts of the Fund to repay loans of money made to the Fund, but, in the
case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. The Bank will make payments of cash held for the
accounts of the Fund to repay the cash delivered to the Fund for the purpose of
collateralizing the obligation to return to the Fund certificates borrowed from
the Fund representing Portfolio Securities, but only upon redelivery to the Bank
of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. The Bank will make payments of cash held
for the accounts of the Fund for other authorized transactions of the Fund, or
other obligations of the Fund incurred for proper Fund purposes; provided that
before making any such payment the Bank will also receive a certified copy of a
resolution of the Board signed by an Authorized Person (other than the Person
certifying such resolution) and certified by its Secretary or Assistant
Secretary, naming the person or persons to whom such payment is to be made, and
either describing the transaction for which payment is to be made and declaring
it to be an authorized transaction of the Fund, or specifying the amount of the
obligation for which payment is to be made, setting forth the purpose for which
such obligation was incurred and declaring such purpose to be a proper corporate
purpose.
5.9 Termination: The Bank will make payments of cash held for the
accounts of the Fund upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the Proper Instructions of the
Fund pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate) in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank, but in no
case more than one business day.
(a) The Bank shall act upon a required Response only after receipt
by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the
date specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign
Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon:
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
any if its or their employees of from any reckless disregard by the Bank or any
such agent of its duty to use its best efforts to enforce such rights as it may
have against the Book-Entry System. At the election of the Fund, it shall be
entitled to be substituted for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have a consequence of
any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage.
6.5 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officers' Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of a Depository by reason of any gross negligence,
willful misfeasance or bad faith of the Bank or its employees or from any
reckless disregard by the Bank of its duty to use its best efforts to enforce
such rights as it may have against a depository. Accordingly, the Bank shall use
its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in
an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) The Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank and the
European Branch as belonging to the Fund and that the books of the Bank identify
the European Branch holding such Portfolio Securities. Notwithstanding any other
provision of this Agreement to the contrary, except as stated in the first
sentence of this subsection 6.8, the Bank shall be under no other duty with
respect to such Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker or the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(ii) of this Section 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and futures and puts and calls
thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) in the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.12, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) For the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) For the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) For other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) Upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Declaration of Trust and By-laws of the Fund (the
"Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall have no further obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not been previously
been reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act. The Bank will furnish
to the Fund at the end of every month, and at the close of each quarter of the
Fund's fiscal years, a list of the Portfolio Securities and the aggregate amount
of cash held by it for the Fund.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Fund and the Prospectus and
Statement of Additional Information relating to the Fund, as they may from time
to time be amended, and any applicable resolutions of the Board at the time in
force and applicable; and promptly to notify the Fund, the proper exchange and
the NASD or such other persons as the Fund may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Fund
and in respect of liabilities of the Fund not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
12.2. Yield Calculation. The Bank will compute the performance results
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund for
the stated periods of time as shall be mutually agreed upon, and communicate in
a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the
Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Fund. In the event that the computation methods in the Releases or
the Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Fund shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by the Bank pursuant to this Agreement and the Bank shall not be
deemed to have knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services for
the Fund as are set forth on Appendix C hereto. Appendix C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, any federal or state statutes or any rule
or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held
in the United States. The Bank may employ agents of its own selection in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without limiting
the foregoing, certain duties of the Bank hereunder may be performed by one or
more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any such subcustodian
and the Fund shall indemnify the Bank and hold it harmless from and against any
and all actions, suits and claims, arising directly or indirectly out of the
performance of any subcustodian. Upon request of the Bank, the Fund shall assume
the entire defense of any action, suit, or claim subject to the foregoing
indemnity. The Fund shall pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Custody Manager.
(i) If the Fund has appointed the Bank Foreign Custody Manager
(as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties
and obligations with respect to the Fund's Portfolio Securities and other assets
maintained outside the United States shall be, to the extent not set forth
herein, as set forth in the Delegation Agreement between the Fund and the Bank
(the "Delegation Agreement").
(ii) If the Fund has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon Proper Instructions from
the Fund with regard to any of the Fund's Portfolio Securities or other assets
held or to be held outside of the United States, and the Bank shall be without
liability for any Claim (as that term is defined in Section 15 hereof) arising
out of maintenance of the Fund's Portfolio Securities or other assets outside of
the United States. The Fund also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books
as belonging to the Fund the Foreign Portfolio Securities held by each foreign
sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign
Custody Manager, subject to receipt by the Bank of the necessary information
from such Eligible Foreign Custodian if the Foreign Custody Manager is not the
Bank.
(c) Access of Independent Accountants of the Fund. If the Bank is
the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use
its best efforts to arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless
from any liability by reason of the registration of such securities in the name
of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Eligible Foreign Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
14.4 Insurance. The Bank shall maintain such customary insurance as it
does in the ordinary course of business with respect to the safekeeping of
Portfolio Securities and cash of the Fund held by it as it uses in respect of
its own similar property.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
solely from the assets of the Portfolios listed in Appendix A hereto such
compensation or fees at such rate and at such times as shall be agreed upon in
writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable out-of-pocket expenses incurred in
conjunction with termination of this Agreement. All such payments made pursuant
to this paragraph shall be paid solely from the assets of the Portfolios listed
in Appendix A hereto.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand
solely from the assets of the Portfolios listed in Appendix A hereto. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness or to the
extent required by law, whichever is greater, in and to any property at any time
held by it for the Fund's benefit or in which the Fund has an interest and which
is then in the Bank's possession or control (or in the possession or control of
any third party acting on the Bank's behalf). The Fund authorizes the Bank, in
the Bank's sole discretion, at any time to charge any overdraft or indebtedness,
together with interest due thereon, against any balance of account standing to
the credit of the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the gross negligence,
willful misfeasance or bad faith of the Bank or any Indemnified Party. Without
limiting the foregoing, neither the Bank nor the Indemnified Parties shall be
liable for, and the Bank and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund;
(c) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(d) Any Corporate Action requiring a Response for which the Bank
has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(e) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(f) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(g) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
15.3 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Funds be liable to the Bank or any third party, and the Bank
shall indemnify and hold the Funds harmless from and against any Claims arising
as a result of gross negligence, willful misfeasance or bad faith of the Bank.
16. Termination.
16.1 This Agreement may be terminated at any time without penalty upon
ninety days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such ninety days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
16.2 In the event of the appointment of a successor custodian, it is
agreed that the cash, securities and other property owned by the Fund (including
all records maintained under Section 11) and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement. At any time after the
termination of this Agreement, the Fund will, at request, have access to the
records of the Bank relating to the performance of its duties as custodian. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
E*TRADE Funds
2400 Geng Road
Palo Alto, CA 94303
Attention:
With a copy to:
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Alex Chaloff, Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time
designate in writing.
19. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability of the Trustees and Shareholders. It is
expressly agreed that the obligations of the Fund hereunder shall not bring upon
any of the Trustees, Shareholders, nominees, officers, agents or employees of
the Fund, personally, but bind only the assets and property of the Fund, as
provided in the Declaration of Trust. The execution and delivery of this
Agreement has been authorized by the Trustees of the Fund and signed by an
authorized officer of the Fund, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the assets and property of the Fund as
provided in its Declaration of Trust.
25. Several Obligations of the Portfolios. This Agreement is an agreement
entered into between the Bank and the Fund with respect to each Portfolio listed
on Appendix A hereto. With respect to any obligation of the Fund on behalf of
any Portfolio arising out of this Agreement, the Bank shall look for payment or
satisfaction of such obligation solely to the assets of the Portfolio to which
such obligation relates as though the Bank had separately contracted with the
Fund by separate written instrument with respect to each Portfolio.
26. Year 2000 Compliance. The Bank represents that the occurrence in or use
by the Bank's own proprietary internal systems (the "Systems") of dates on or
after January 1, 2000 (the "Millennial Dates") will not adversely affect the
performance of the Systems with respect to date dependent data, computations,
output or other functions (including, without limitation, calculating, computing
and sequencing) and that the Systems will create, store and generate output data
related to or including Millennial Dates without errors or omissions ("Year 2000
Compliance"). The Bank shall promptly notify the Fund of any lack of Year 2000
Compliance of which it becomes aware that impact the Bank's services hereunder.
The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems utilized by
the Bank in its day to day operations or with which the Systems interact or
communicate, from which the Systems receive data or to which the Systems send
data. The parties further acknowledge that while the Bank has contacted such
third-party providers regarding Year 2000 Compliance and will use reasonable
efforts to monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely Year 2000
Compliance could adversely affect the Bank's performance of its obligations
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
E*TRADE FUNDS
By:__________________________________________
Name:
Title:
Investors Bank & Trust Company
By:__________________________________________
Name:
Title:
<PAGE>
APPENDIX A
to the
CUSTODIAN AGREEMENT
Portfolios
E*TRADE S&P 500 Index Fund
FORM OF
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
E*TRADE FUNDS
E*TRADE SECURITIES, INC.
AND
MASTER INVESTMENT PORTFOLIO
dated as of
___________________, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I. REPRESENTATIONS AND WARRANTIES..............................
1.1 Company.....................................................
1.2 MIP.........................................................
1.3 Distributor.................................................
ARTICLE II. COVENANTS...................................................
2.1 Company.....................................................
2.2 MIP.........................................................
2.3 Reasonable Actions..........................................
ARTICLE III. INDEMNIFICATION.............................................
3.1 Company and Distributor.....................................
3.2 MIP.........................................................
ARTICLE IV. ADDITIONAL AGREEMENTS.......................................
4.1 Access to Information.......................................
4.2 Confidentiality.............................................
4.3 Obligations of Company and MIP .............................
ARTICLE V. TERMINATION, AMENDMENT......................................
5.1 Termination.................................................
5.2 Amendment...................................................
ARTICLE VI. GENERAL PROVISIONS..........................................
6.1 Expenses....................................................
6.2 Headings....................................................
6.3 Entire Agreement............................................
6.4 Successors..................................................
6.5 Governing Law...............................................
6.6 Counterparts................................................
6.7 Third Parties...............................................
6.8 Notices.....................................................
6.9 Interpretation..............................................
6.10 Operation of Fund...........................................
6.11 Relationship of Parties; No Joint Venture, Etc. ............
6.12 Use of Name.................................................
Signatures
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the
____ day of _______________, 1999, by and among E* TRADE Funds, a Delaware
business trust (the "Company"), for itself and on behalf of its series, the E*
TRADE S&P 500 Index Fund (the "Fund"), E*TRADE Securities, Inc. (the
"Distributor"), a _____________ corporation, and Master Investment Portfolio
("MIP"), a Delaware business trust, for itself and on behalf of its series, the
S&P 500 Index Master Portfolio ("Portfolio").
WITNESSETH
WHEREAS, Company and MIP are each registered under the Investment
Company Act of 1940 (the "1940 Act") as open-end management investment
companies;
WHEREAS, Fund and Portfolio have the same investment objective and
substantially the same investment policies;
WHEREAS, Fund desires to invest on an ongoing basis all or
substantially all of its investable assets (the "Assets") in exchange for a
beneficial interest in the Portfolio (the "Investment") on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Company. Company represents and warrants to MIP that:
(a) Organization. Company is a business trust duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and Fund is a duly and validly designated series of Company.
Each of Company and Fund has the requisite power and authority to own
its property and conduct its business as proposed to be conducted
pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by Company on behalf of Fund and the conduct of business
contemplated hereby have been duly authorized by all necessary action
on the part of Company's Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this
Agreement by Fund, or the performance by Fund of its obligations
hereunder. This Agreement when executed and delivered by Company on
behalf of Fund shall constitute a legal, valid and binding obligation
of Company, enforceable against Fund in accordance with its terms,
except as may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar law affecting the
enforcement of creditors' rights generally, and subject to general
principles of equity. No meeting of, or consent by, shareholders of
Fund is necessary to approve or implement the Investments.
(c) 1940 Act Registration. Company is duly registered under
the Investment Company Act of 1940, as amended (the "1940 Act") as an
open-end management investment company, and such registration is in
full force and effect.
(d) SEC Filings. Company has duly filed all forms, reports,
proxy statements and other documents (collectively, the "SEC Filings")
required to be filed with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act,
and the rules and regulations thereunder, (collectively, the
"Securities Laws") in connection with the registration of Fund's
shares, any meetings of its shareholders and its registration as an
investment company. All SEC Filings relating to Fund were prepared to
comply in all material respects in accordance with the requirements of
the applicable Securities Laws and do not, as of the date of this
Agreement, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(e) Fund Assets. Fund currently intends on an ongoing basis to
invest its Assets solely in Portfolio, although it reserves the right
to invest Assets in other securities and other assets and/or to redeem
any or all units of the Portfolio at any time without notice.
(f) Registration Statement. Company has reviewed MIP's and
Portfolio's registration statement on Form N-lA, as filed with the SEC.
(g) Insurance. Company has in force an errors and omissions
liability insurance policy insuring the Fund against loss up to $___
million for negligence or wrongful acts.
1.2 MIP. MIP represents and warrants to Company that:
(a) Organization. MIP is a trust duly organized, validly
existing and in good standing under the laws of the State of Delaware
and Portfolio is a duly and validly designated series of MIP. Each of
MIP and Portfolio has the requisite power and authority to own its
property and conduct its business as now being conducted and as
proposed to be conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by MIP on behalf of Portfolio and the conduct of
business contemplated hereby have been duly authorized by all necessary
action on the part of MIP's Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this
Agreement by Portfolio, or the performance by Portfolio of its
obligations hereunder and the consummation by the Portfolio of the
transactions contemplated hereby. This Agreement when executed and
delivered by MIP on behalf of Portfolio shall constitute a legal, valid
and binding obligation of MIP and Portfolio, enforceable against MIP
and Portfolio in accordance with its terms. No meeting of, or consent
by, interestholders of Portfolio is necessary to approve the issuance
of the Interests (as defined below) to Fund.
(c) Issuance of Beneficial Interest. The issuance by MIP of
beneficial interests in the Portfolio ("Interests") in exchange for the
Investments by Fund of its Assets has been duly authorized by all
necessary action on the part of the Board of Trustees of MIP. When
issued in accordance with the terms of this Agreement, the Interests
will be validly issued, fully paid and non-assessable.
(d) 1940 Act Registration. MIP is duly registered as an
open-end management investment company under the 1940 Act and such
registration is in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all
SEC Filings, as defined herein, relating to Portfolio required to be
filed with the SEC under the Securities Laws. Interests in Portfolio
are not required to be registered under the 1933 Act, because such
Interests are offered solely in private placement transactions which do
not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. In addition, Interests in Portfolio are either noticed or
qualified for sale or exempt from notice or qualification requirements
under applicable securities laws in those states and other
jurisdictions in which Interests are offered and sold. All SEC Filings
relating to Portfolio comply in all material respects with the
requirements of the applicable Securities Laws and do not, as of the
date of this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) Tax Status. The Portfolio is taxable as a partnership for
federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code").
(g) Taxable and Fiscal Year. The taxable and fiscal year end
of the portfolio is -----------.
(h) Insurance. MIP has in force an errors and commissions
liability insurance policy insuring the Portfolio against loss up to
$_____________ million for negligence and wrongful acts.
1.3 Distributor. Distributor represents and warrants to MIP that the
execution and delivery of this Agreement by Distributor have been duly
authorized by all necessary action on the part of Distributor and no other
action or proceeding is necessary for the execution and delivery of this
Agreement by Distributor, or the performance by Distributor of its obligations
hereunder. This Agreement when executed and delivered by Distributor shall
constitute a legal, valid and binding obligation of Distributor, enforceable
against Distributor in accordance with its terms, except as may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar law affecting the enforcement of creditors' rights generally, and
subject to general principles of equity..
ARTICLE II
COVENANTS
2.1 Company. Company covenants that:
(a) Advance Review of Certain Documents. Company will furnish
MIP at least ten (10) business days prior to the earlier of filing or
first use, with drafts of Fund's registration statement on Form N-lA
and any amendments thereto, and also will furnish MIP at least three
(3) business days' prior to the earlier of filing or first use, with
drafts of any prospectus or statement of additional information
supplements. In addition, Company will furnish or will cause to be
furnished to MIP at least two (2) business days prior to the earlier of
filing or first use, as the case may be, any proposed advertising or
sales literature that contains language that describes or refers to MIP
or Portfolio and that was not previously approved by MIP. Company
agrees that it will include in all such Fund documents any disclosures
that may be required by law, and that it will incorporate in all such
Fund documents any material and reasonable comments made by MIP. MIP
will not, however, in any way be liable to Company for any errors or
omissions in such documents, whether or not MIP makes any objection
thereto, except to the extent such errors or omissions result from
information provided in Portfolio's 1940 Act registration statement or
otherwise provided by MIP for inclusion therein. In addition, neither
Fund nor Distributor will make any other written or oral
representations about MIP or Portfolio other than those contained in
such documents without MIP's prior written consent.
(b) SEC and Blue Sky Filings. Company will file all SEC
Filings required to be filed with the SEC under the Securities Laws in
connection with the registration of Fund's shares, any meetings of its
shareholders, and its registration as a series of an investment
company. Company will file such similar or other documents as may be
required to be filed with any securities commission or similar
authority by the laws or regulations of any state, territory or
possession of the United States, including the District of Columbia, in
which shares of Fund are or will be noticed for sale ("State Filings").
Fund's SEC Filings will be prepared in all material respects in
accordance with the requirements of the applicable Securities Laws,
and, insofar as they relate to information other than that supplied or
required to be supplied by MIP, will not, at the time they are filed or
used to offer Fund shares, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Fund's State
Filings will be prepared in accordance with the requirements of
applicable state and federal law and the rules and regulations
thereunder.
(c) 1940 Act Registration. Company will be duly registered as
an open-end management investment company under the 1940 Act.
(d) Tax Status. Fund will qualify for treatment as a regulated
investment company under Subchapter M of the Code for any taxable year
during which this Agreement continues in effect except to the extent a
failure to so qualify may result from any action or omission of the
Portfolio or MIP.
(e) Fiscal Year. Fund shall take appropriate action to adopt
and maintain the same fiscal year end as Portfolio (currently the last
day of February).
(f) Proxy Voting. If requested to vote on matters pertaining
to MIP or Portfolio, Fund will vote such shares in accordance with
applicable law or exemption therefrom.
(g) Compliance with Laws. Company shall comply, in all
material respects, with all applicable laws, rules and regulations in
connection with conducting its operations as a registered investment
company.
(h) Year 2000 Readiness. Company shall use its best efforts to
ensure the readiness of its computer systems, or those used by it in
the performance of its duties, to properly process information and data
from and after January 1, 2000. Company shall promptly notify MIP of
any significant problems that arise in connection with such readiness.
2.2 MIP. MIP covenants that:
(a) Signature Pages. MIP shall promptly provide all required
signature pages to Company for inclusion in any SEC Filings of Company,
provided Company is in material compliance with its covenants and other
obligations under this Agreement at the time such signature pages are
provided and included in the SEC Filing. Company and Distributor
acknowledge and agree that the provision of such signature pages does
not constitute a representation by MIP, its Trustees or Officers, that
such SEC Filing complies with the requirements of the applicable
Securities Laws, or that such SEC Filing does not contain any untrue
statement of a material fact or does not omit to the state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except with respect to information provided by
MIP for inclusion in such SEC Filing or for use by Company in preparing
such filing, which shall in any event include any written information
obtained from MIP's current registration statement on Form N-1A.
(b) Redemption. Except as otherwise provided in this Section
2.2(b), redemptions of Interests owned by Fund will be effected
pursuant to Section 2.2(c). In the event Fund desires to withdraw its
entire Investment from Portfolio, either by submitting a redemption
request or by terminating this Agreement in accordance with Section 5.1
hereof, Portfolio, unless otherwise agreed to by the parties, and in
all cases subject to Sections 17 and 18 of the 1940 Act and the rules
and regulations thereunder, will effect such redemption "in kind" and
in such a manner that the securities delivered to Fund or its custodian
for the account of Fund mirror, as closely as practicable, the
composition of Portfolio immediately prior to such redemption.
Portfolio further agrees that, to the extent legally possible, it will
not take or cause to be taken any action without Company's prior
approval that would cause the withdrawal of Fund's Investments to be
treated as a taxable event to the Fund. Portfolio further agrees to
conduct its activities in accordance with all applicable requirements
of Regulation 1.731-2(e) under the Code or any successor regulation.
(c) Ordinary Course Redemptions. Portfolio will effect
redemptions of Interests in accordance with the provisions of the 1940
Act and the rules and regulations thereunder, including, without
limitation, Section 17 thereof. All redemption requests other than a
withdrawal of Fund's entire Investment in Portfolio under Section
2.2(b) or, at the sole discretion of MIP, a withdrawal (or series of
withdrawals over any three (3) consecutive business days) of an amount
that exceeds 10% of Portfolio's net asset value, will be effected in
cash at the next determined net asset value after the redemption
request is received. Portfolio will use its best efforts to settle
redemptions on the business day following the receipt of a redemption
request by Fund and if such next business day settlement is not
practicable, will immediately notify Fund regarding the anticipated
settlement date, which shall in all events be a date permitted under
the 1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be
filed with the SEC under the Securities Laws in connection with any
meetings of Portfolio's investors and its registration as an investment
company and will provide copies of all such definitive filings to
Company. Portfolio's SEC Filings will comply in all material respects
with the requirements of the applicable Securities Laws, and will not,
at the time they are filed or used, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as
an open-end management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and
rulings and Treasury Regulations, Portfolio will continue to be treated
as a partnership for federal income tax purposes. Portfolio will
continue to satisfy (i) the income test imposed on regulated investment
companies under Section 851(b)(2) of the Code and (ii) the
diversification test imposed on regulated investment companies under
Section 851(b)(3) of the Code as if such Sections applied to it for so
long as this Agreement continues in effect. MIP agrees to forward to
Company prior to Fund's initial Investment a copy of its opinion of
counsel or private letter ruling relating to the tax status of
Portfolio and agrees that Company and Fund may rely upon such opinion
or ruling during the term of this Agreement.
(g) Securities Exemptions. Interests in Portfolio have been
and will continue to be offered and sold solely in private placement
transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act or require registration or
notification under any state law.
(h) Advance Notice of Certain Changes. MIP shall provide
Company with at least one hundred twenty (120) days' advance notice, or
such lesser time as may be agreed to by the parties, of any change in
Portfolio's investment objective, and at least sixty (60) days' advance
notice, or if MIP has knowledge or should have knowledge that one of
the following changes is likely to occur more than sixty (60) days in
advance of such event, notice shall be provided as soon as reasonably
possible after MIP obtains or should have obtained such knowledge, of
any material change in Portfolio's investment policies or activities,
any material increase in Portfolio's fees or expenses, or any change in
Portfolio's fiscal year or time for calculating net asset value for
purposes of Rule 22c-1.
(i) Compliance with Laws. MIP shall comply, in all material
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
(j) Proxy Costs. If and to the extent that: (i) MIP submits a
matter to a vote of Portfolio's Interestholders; (ii) Fund determines
that it is necessary or appropriate to solicit proxies from its
shareholders in order to vote its Interests; and (iii) MIP agrees to
assume the costs associated with soliciting proxies from the
shareholders of any other feeder fund that invests substantially all of
its investable assets in Portfolio, then MIP shall assume the costs
associated with soliciting proxies from the shareholders of Fund.
(k) Year 2000 Readiness. MIP shall use its best efforts to
ensure the readiness of its computer systems, or those used by it in
the performance of its duties, to properly process information and data
from and after January 1, 2000. MIP shall promptly notify Company of
any significant problems that arise in connection with such readiness.
2.3 Reasonable Actions. Each party covenants that it will, subject to
the provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
3.1 Fund and Distributor
(a) Fund and Distributor agree, jointly and severally, to
indemnify and hold harmless MIP, Portfolio and Portfolio's investment
adviser, and any director/trustee, officer, employee or agent of MIP,
Portfolio or Portfolio's investment adviser (in this Section, each, a
"Covered Person" and collectively, "Covered Persons"), against any and
all losses, claims, demands, damages, liabilities or expenses
(including, with respect to each Covered Person, the reasonable cost of
investigating and defending against any claims therefor and reasonable
counsel fees incurred in connection therewith, except as provided in
subparagraph (b)), that:
(i) arise out of or are based upon any violation or
alleged violation of any of the Securities Laws, or any other
applicable statute, rule, regulation or common law, or are
incurred in connection with or as a result of any formal or
informal administrative proceeding or investigation by a
regulatory agency, insofar as such violation or alleged
violation, proceeding or investigation arises out of or is
based upon any direct or indirect omission or commission (or
alleged omission or commission) by Company with respect to the
Fund or by Distributor or by any of its or their
trustees/directors, officers, employees or agents, but only
insofar as such omissions or commissions relate to Fund; or
(ii) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
contained in any advertising or sales literature used by the
Distributor, prospectus, registration statement, or any other
SEC Filing relating to Fund, or any amendments or supplements
to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was not made in the Offering
Documents in reliance upon and in conformity with MIP's
registration statement on Form N-1A and other written
information furnished by MIP to Fund or by any service
provider of MIP for use therein or for use by Fund in
preparing such documents, including but not limited to any
written information contained in MIP's current registration
statement on Form N-1A;
provided, however, that in no case shall Fund or Distributor
be liable for indemnification hereunder with respect to any claims made
against any Covered Person unless a Covered Person shall have notified
Company or Distributor in writing within a reasonable time after the
summons, other first legal process, notice of a federal, state or local
tax deficiency, or formal initiation of a regulatory investigation or
proceeding giving information of the nature of the claim shall have
properly been served upon or provided to a Covered Person seeking
indemnification. Failure to notify Company or Distributor of such claim
shall not relieve Company or Distributor from any liability that it may
have to any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) Company and Distributor each will be entitled to
participate at its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any such liability,
but if Company and/or Distributor elect(s) to assume the defense, such
defense shall be conducted by counsel chosen by Company and/or
Distributor, as applicable. In the event Company and/or Distributor
elect(s) to assume the defense of any such suit and retain such
counsel, each Covered Person in the suit may retain additional counsel
but shall bear the fees and expenses of such counsel unless (A) Company
and Distributor shall have specifically authorized the retaining of and
payment of fees and expenses of such counsel or (B) the parties to such
suit include any Covered Person and Company and/or Distributor, and any
such Covered Person has been advised in a written opinion by counsel
acceptable to Company and Distributor in its reasonable judgment that
one or more legal defenses may be available to it that may not be
available to Company and/or Distributor, in which case Company and/or
Distributor shall not be entitled to assume the defense of such suit
notwithstanding their obligation to bear the reasonable fees and
expenses of one counsel to such persons. For purposes of the foregoing,
the parties agree that the fact that interests in the Portfolio are not
registered under the 1933 Act shall be deemed not to give rise to one
or more legal or equitable defenses available to Portfolio that are not
available to the Company and/or the Fund. Company shall not be required
to indemnify any Covered Person for any settlement of any such claim
effected without its written consent and Distributor shall not be
required to indemnify any Covered Person for any settlement of any such
claim effected without its written consent, which consent, in each
case, shall not be unreasonably withheld or delayed. The indemnities
set forth in paragraph (a) will be in addition to any liability that
Company and/or Distributor might otherwise have to Covered Persons.
3.2 MIP.
(a) MIP agrees to indemnify and hold harmless Company, Fund,
Distributor, and any affiliate of the Company, the Distributor and/or
Fund, and any trustee/director, officer, employee or agent of any of
them (in this Section, each, a "Covered Person" and collectively,
"Covered Persons"), against any and all losses, claims, demands,
damages, liabilities or expenses (including, with respect to each
Covered Person, the reasonable cost of investigating and defending
against any claims therefor and any counsel fees incurred in connection
therewith, except as provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or
alleged violation of any of the Securities Laws, or any other
applicable statute, rule, regulation or common law or are
incurred in connection with or as a result of any formal or
informal administrative proceeding or investigation by a
regulatory agency, insofar as such violation or alleged
violation, proceeding or investigation arises out of or is
based upon any direct or indirect omission or commission (or
alleged omission or commission) by MIP, or any of its
trustees, officers, employees or agents; or
(ii) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
contained in any advertising or sales literature, or any other
SEC Filing relating to Portfolio, or any amendments to the
foregoing (in this Section, collectively, the "Offering
Documents") relating to Portfolio, or arise out of or are
based upon the omission or alleged omission to state therein,
a material fact required to be stated therein, or necessary to
make the statements therein in light of the circumstances
under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact
contained in any Offering Documents relating to Company, Fund
or relating to the Distributor or any of their affiliates or
arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in
light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to Fund by
MIP for use therein or for use by Fund in preparing such
documents, including but not limited to any written
information contained in MIP's current registration statement
on Form N-1A.
provided, however, that in no case shall MIP be liable for
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified MIP in
writing within a reasonable time after the summons, other first legal
process, notice of a federal, state or local tax deficiency, or formal
initiation of a regulatory investigation or proceeding giving
information of the nature of the claim shall have properly been served
upon or provided to a Covered Person seeking indemnification. Without
limiting the generality of the foregoing, Portfolio's indemnity to
Covered Persons shall include all relevant liabilities of Covered
Persons under the Securities Laws, as if the Offering Documents
constitute a "prospectus" within the meaning of the 1933 Act, and MIP
had registered its interests under the 1933 Act pursuant to a
registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any
liability that it may have to any Covered Person otherwise than on
account of the indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if MIP elects to assume the
defense, such defense shall be conducted by counsel chosen by MIP. In
the event MIP elects to assume the defense of any such suit and retain
such counsel, each Covered Person in the suit may retain additional
counsel but shall bear the fees and expenses of such counsel unless (A)
MIP shall have specifically authorized the retaining of and payment of
fees and expenses of such counsel or (B) the parties to such suit
include any Covered Person and MIP, and any such Covered Person has
been advised in a written opinion by counsel acceptable to MIP in its
reasonable judgment that one or more legal defenses may be available to
it that may not be available to MIP, in which case MIP shall not be
entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of one counsel to such
persons. MIP shall not be required to indemnify any Covered Person for
any settlement of any such claim effected without its written consent,
which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any
liability that MIP might otherwise have to Covered Persons.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Access to Information. Throughout the life of this Agreement,
Company and MIP shall afford each other reasonable access at all reasonable
times to such party's officers, employees, agents and offices and to all
relevant books and records and shall furnish each other party with all relevant
financial and other data and information as such other party may reasonably
request.
4.2 Confidentiality. Each party agrees that it shall hold in strict
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, Fund's or Portfolio's respective
auditors, or in the opinion of counsel to the disclosing party such disclosure
is required by law, and then only with as much prior written notice to the other
parties as is practical under the circumstances. Each party hereto acknowledges
that the provisions of this Section 4.2 shall not prevent Company or MIP from
filing a copy of this Agreement as an exhibit to a registration statement on
Form N-1A as it relates to Fund or Portfolio, respectively, and that such
disclosure by Company or MIP shall not require any additional consent from the
other parties.
4.3 Obligations of Company and MIP. MIP agrees that the financial
obligations of Company under this Agreement shall be binding only upon the
assets of Fund, and that except to the extent liability may be imposed under
relevant Securities Laws, MIP shall not seek satisfaction of any such obligation
from the officers, agents, employees, trustees or shareholders of Company or the
Fund, and in no case shall MIP or any covered person have recourse to the assets
of any series of the Company other than the Fund. Company agrees that the
financial obligations of MIP under this Agreement shall be binding only upon the
assets of Portfolio and that, except to the extent liability may be imposed
under relevant Securities Laws, Company shall not seek satisfaction of any such
obligation from the officers, agents, employees, trustees or shareholders of MIP
or other classes or series of MIP.
ARTICLE V
TERMINATION, AMENDMENT
5.1 Termination. This Agreement may be terminated at any time by the
mutual agreement in writing of all parties, or by any party on ninety (90) days'
advance written notice to the other parties hereto; provided, however, that
nothing in this Agreement shall limit Company's right to redeem all or a portion
of its units of the Portfolio in accordance with the 1940 Act and the rules
thereunder. The provisions of Article III and Sections 4.2 and 4.3 shall survive
any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented
at any time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
6.1 Expenses. All costs and expenses incurred in connection with this
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
6.2 Headings. The headings and captions contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. This Agreement sets forth the entire
understanding between the parties concerning the subject matter of this
Agreement and incorporates or supersedes all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between the parties relating to the
subject matter of this Agreement other than those set forth herein.
This Agreement may be amended only in a writing signed by all parties.
6.4 Successors. Each and all of the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement, nor any rights herein granted may be assigned to, transferred to or
encumbered by any party, without the prior written consent of the other parties
hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of laws provisions thereof; provided, however, that in the event of
any conflict between the 1940 Act and the laws of California, the 1940 Act shall
govern.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Except as expressly provided in Article III, nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, other than the parties hereto and their successors or assigns,
any rights or remedies under or by reason of this Agreement.
6.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Fund:
__________________________________
__________________________________
__________________________________
__________________________________
If to Distributor:
__________________________________
__________________________________
__________________________________
__________________________________
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10 Operation of Fund. Except as otherwise provided herein, this
Agreement shall not limit the authority of Fund, Company or Distributor to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood
and agreed that neither Company nor Distributor shall hold itself out as an
agent of MIP with the authority to bind such party, nor shall MIP hold itself
out as an agent of Company or Distributor with the authority to bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by
law (e.g., in Company's Registration Statement on Form N-1A), neither Company,
Fund nor Distributor shall describe or refer to the name of MIP, Portfolio or
any derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Company, Fund or Distributor or any derivation thereof, or any affiliate
thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of
Company, Fund or Distributor, as the case may be. In no case shall any such
consents be unreasonably withheld or delayed. In addition, the party required to
give its consent shall have at least three (3) business days prior to the
earlier of filing or first use, as the case may be, to review the proposed
advertising or promotional materials.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first written above.
E* TRADE Funds
on behalf of itself and the E*
TRADE S&P 500 Index Fund
By: _______________________________________________
Name:
Title:
E*TRADE Securities, Inc.
By: _______________________________________________
Name:
Title:
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and the S&P 500 Index
MASTER PORTFOLIO
By: _______________________________________________
Name:
Title:
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this ___ day of _______, 1999, between E*TRADE Funds (a
Delaware business trust, hereinafter referred to as the "Company"), on behalf of
the series listed on Exhibit A hereto (each a "Fund" and collectively, the
"Funds") and E*TRADE Asset Management, Inc. (a Delaware corporation, hereinafter
referred to as the "Administrator").
WHEREAS, the Company is a registered investment company under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Administrator is able to act as administrator of the Fund;
and
WHEREAS, the Company wishes to appoint the Administrator and the
Administrator has agreed to act as administrator for the Funds in accordance
with the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
whereof is hereby acknowledged, and the mutual performance of undertakings
herein, it is agreed by and between the parties hereto as follows:
1. Services to be Provided by the Administrator. The Administrator, as
administrator for the Funds, will, at its own expense:
(a) Furnish to the Funds the services of its employees and agents in
the management and conduct of the corporate business and affairs of
the Funds;
(b) If requested, provide the services of its officers as
administrative executives of the Funds and the services of any
trustees of the Funds who are "interested persons" of the
Administrator or its affiliates, as that term is defined in the Act,
subject in each case to their individual consent to serve and to
applicable legal limitations;
(c) Provide office space, secretarial and clerical services and wire
and telephone services (not including toll charges, which will be
reimbursed by the Funds), and monitor and review the Funds' contracted
services and expenditures;
(d) Prepare or supervise the preparation of periodic reports to the
Funds' shareholders and prepare and file, with such advice of counsel
as reasonably deemed necessary by the Administrator, such documents
and other papers as may be required to comply with the rules,
regulations and requirements of the Securities and Exchange Commission
("SEC") and other governmental agencies, whether state or federal,
except that the Funds shall bear the expenses provided for in Section
2 hereof (Special services, if any, rendered to individual
shareholders or groups of shareholders shall not be included in the
services to be rendered by the Administrator pursuant to this
paragraph, but the Administrator shall be reimbursed for the actual
cost of such services pursuant to the provisions of Section 2 below.);
(e) Coordinate the services provided to the Funds by the investment
advisor, transfer and dividend disbursing agent, custodian,
sub-administrator, shareholder servicing agent, independent auditors
and legal counsel; and
(f) Report to the Trustees of the Funds concerning its activities
pursuant to this Agreement at regular meetings of the Trustees and at
such other times as the Trustees may request.
2. Expenses. The Administrator shall bear expenses incurred by it which
are necessary for the performance of its duties and activities specified in this
Agreement, except such expenses as are assumed by the Funds under this
Agreement. The Administrator (or its affiliates, as applicable) will also pay
the compensation and expenses of all officers and executive employees of the
Funds who are directors, officers or employees of the Administrator or of its
affiliates and will make available or cause to be made available, without
expense to the Funds, the services of such of the directors, officers and
employees of the Administrator or its affiliates as may fully be elected
officers or trustees of the Funds, subject to their individual consent to serve
and to any limitations imposed by law. The Administrator will also be
responsible for the expenses otherwise payable by the Funds for transfer agency,
dividend disbursing, custody, auditing and legal fees, to the extent such
expenses equal or exceed the maximum amount specified in Exhibit B hereto. The
Funds shall bear all of their other expenses incurred in their operation and not
specifically assumed by the Administrator. The expenses assumed by the Funds
shall include, without limitation: organizational expenses of the Funds; fees
and expenses incurred in connection with the Funds' memberships in investment
company organizations; fees of the investment advisers; interest expenses, taxes
and governmental fees; distribution fees; brokerage commissions and other
expenses incurred in acquiring or disposing of the Funds' portfolio securities;
expenses of registering and qualifying the Funds' shares for sale with the SEC
and with various state securities authorities; the expenses of qualifying the
Funds to do business in jurisdictions where such qualification is required; the
cost of preparing share certificates or any other expenses, including clerical
and administrative expenses, related to the issue, redemption and repurchase of
Fund shares; insurance premiums; expenses of obtaining quotations on the Funds'
portfolio securities and pricing of the Funds' shares; expenses of shareholders'
meetings; expenses of preparing and distributing reports, proxies and
prospectuses to existing shareholders; and expenses and fees of the Funds'
Trustees who are not "interested persons" of the Funds, as that term is defined
in the 1940 Act and any independent legal counsel retain to advise such
Trustees.
3. Compensation. For the services provided and the expenses assumed by
the Administrator, each of the Funds shall pay to the Administrator a fee,
computed daily and to be paid on the last business day of each month, equal on
an annual basis to: 0.25% of the average daily net assets of the Fund.
The term "average daily net assets of the Fund" is defined as the
average of the values placed on the net assets of the Fund as of the close of
the New York Stock Exchange, on each day on which the net asset value of the
portfolio of the Fund is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Fund lawfully determines the value of the net
assets of its portfolio as of some other time on each business day, as of such
time. The value of the net assets of the Fund shall be determined pursuant to
the applicable provisions of the Fund's then current registration statement
under the 1940 Act and the Securities Act of 1933 ("Registration Statement").
If, pursuant to such provisions, the determination of net asset value is
suspended for any particular business day, then for the purposes of this Section
3, the value of the net assets of the Fund shall be deemed to be the value of
such net assets as last determined in accordance with the Registration
Statement. If the determination of the net asset value of the Fund has been
suspended pursuant to the Registration Statement for a period including a month
for which payment pursuant to this Agreement is due, the Administrator's
compensation payable at the end of such month shall be computed on the basis of
the value of the net assets of the Fund as last determined (whether during or
prior to such month).
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Administrator hereby agrees that all records which it
maintains or causes to be maintained for the Funds are the property of the Funds
and further agrees to surrender promptly to the Funds any of such records upon
the Company's request. The Administrator further agrees to preserve or cause to
be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
5. Sub-contracts. The Administrator may, from time to time, at its own
expense, employ or associate with itself such person or persons as it believes
necessary to assist it in carrying out its obligations under this Agreement.
6. Compliance. The Administrator shall observe and comply with the
Certificate of Trust and organizing documents of the Company, the applicable
provisions of the Registration Statement, federal securities laws, all lawful
resolutions of the Company's Trustees and other lawful orders and directions
given to it from time to time by the Trustees. All activities engaged in by the
Administrator hereunder shall be at all times subject to the control of and
review by the Trustees.
7. Limitations of Liability. Except as may otherwise be required by the
1940 Act or the rules thereunder or other applicable law, neither the
Administrator nor its shareholders, officers, directors, employees or agents
shall be subject to any liability for, or any damages, expenses or losses
incurred in connection with, any act or omission connected with or arising out
of any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith or negligence in the performance of the Administrator's
duties or by reason of reckless disregard of the Administrator's obligations and
duties under this Agreement. Notwithstanding the foregoing, the Administrator
shall not be liable to the Company or the Funds for the acts and omissions of
any party engaged by the Administrator to assist it in carrying out its
obligations under this Agreement except to the extent that such party is liable
to the Administrator for such acts and omissions pursuant to the contract under
which the Administrator shall have retained such party. Any person, even though
also employed by the Administrator, who may be or become an employee of and paid
by the Company shall be deemed, when acting within the scope of his employment
by the Company, to be acting in such employment solely for the Company and not
as the employee or agent of the Administrator.
8. Non-Exclusivity. Nothing in this Agreement will in any way limit or
restrict the Administrator or any of its officers, directors, employees, agents
or affiliates from providing administrative services or other services to any
other person or entity pursuant to any contract or otherwise; and no such
performance of administrative or other services or taking of any such action or
doing of any such thing, shall be in any manner restricted or otherwise affected
by any aspect of any relationship of the Administrator to the Company or the
Funds or be deemed to violate or give rise to any duty or obligation of the
Administrator to the Company, except as otherwise imposed by law.
9. Duration and Termination. This Agreement shall become effective as
of ______, 1999 and shall continue in force until ______, 2001, if not sooner
terminated. This Agreement shall continue in effect for successive 12-month
periods, unless terminated, provided that each such continuance is specifically
approved at least annually by (a) the vote of a majority of the entire Board of
Trustees of the Funds, or by the vote of a majority of the outstanding voting
securities of the Funds (as defined in the 1940 Act), and (b) the vote of a
majority of those Trustees who are not parties to this Agreement or interested
persons (as such term is defined in the 1940 Act) at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated at any time
without payment of any penalty, by the Company upon the vote of a majority of
the Company's Board of Trustees or by a majority of the outstanding voting
securities of the Funds, or by the Administrator, in each case, on sixty (60)
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment (as such term is defined in the 1940
Act).
10. Reliance on Information. In discharging the functions specified in
this Agreement, the Administrator may, without inquiry, rely and act upon all
notices, information or other communications reasonably believed to have been
supplied to it by any one or more of the Trustees or agents of the Company.
11. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
12. Miscellaneous.
a. This Agreement shall be construed in accordance with the laws of the
State of Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, as amended, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or delimit any of the provisions hereof or otherwise affect
their construction or effect.
c. If any provisions of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. The Administrator shall for all purposes herein be deemed to be an
independent contractor and shall have, unless otherwise expressly provided or
authorized, no authority to act for or represent the Company or the Funds in any
way or otherwise be deemed an agent of the Company or the Funds.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
E*TRADE FUNDS (on behalf of the
series listed on Exhibit A)
By:___________________________
Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
E*TRADE S&P 500 Index Fund
<PAGE>
EXHIBIT B
The Administrator is responsible for expenses otherwise payable by a
Fund for transfer agency, dividend disbursing, custody, auditing and legal fees,
to the extent those expenses equal or exceed 0.005% of a Fund's average daily
net assets.
FORM OF
SUB-ADMINISTRATION AGREEMENT
AGREEMENT made as of ____________, 1999 by and among E*TRADE ASSET
MANAGEMENT, INC. a corporation organized under the laws of Delaware ("E*TRADE
Asset Management"), E*TRADE Funds (the "Fund"), a business trust organized under
the laws of Delaware, and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust
company (the "Bank").
WHEREAS, the Fund is a registered investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), consisting of the
separate portfolios (each a "Portfolio") listed on Appendix A hereto; and
WHEREAS, E*TRADE Asset Management is the Administrator to the Fund with
respect to the Portfolio; and
WHEREAS, the E*TRADE Asset Management desires to retain the Bank to
render certain administrative services to the Fund with respect to the Portfolio
and the Bank is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, it is agreed between the parties hereto as follows:
1. Appointment. E*TRADE Asset Management hereby appoints the Bank to
act as Sub-Administrator of the Fund with respect to the Portfolio on the terms
set forth in this Agreement. The Bank accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished the Bank with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of the Bank to provide certain administrative services to the Fund
and approving this Agreement;
(b) The Fund's incorporating documents filed with the state of
Delaware on November 4, 1998 and all amendments thereto (the "Articles");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, custody agreements, distribution agreements
and transfer agency agreements (collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A
(the "Registration Statement") under the Securities Act of 1933 and under the
1940 Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually
be deemed necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
The Fund will immediately furnish the Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund will notify
the Bank as soon as possible of any matter which may materially affect the
performance by the Bank of its services under this Agreement.
3. Duties of Sub-Administrator. Subject to the supervision and
direction of the Board of Directors of the Fund, the Bank, as Sub-Administrator,
will assist in conducting various aspects of the Fund's administrative
operations and undertakes to perform the services described in Appendix B
hereto. The Bank may, from time to time, perform additional duties and functions
which shall be set forth in an amendment to such Appendix B executed by both
parties. At such time, the fee schedule included in Appendix C hereto shall be
appropriately amended.
In performing all services under this Agreement, the Bank
shall act in conformity with the Fund's Articles and By-Laws and the 1940 Act,
as the same may be amended from time to time, and the investment objectives,
investment policies and other practices and policies set forth in the Fund's
Registration Statement, as the same may be amended from time to time.
Notwithstanding any item discussed herein, the Bank has no discretion over the
Fund's assets or choice of investments and cannot be held liable for any dispute
relating to such investments.
4. Duties of the Fund.
(a) The Fund is solely responsible (through its transfer agent or
otherwise) for (i) providing timely and accurate reports of the daily purchase
and redemption of shares of each portfolio ("Daily Sales Reports") which will
enable the Bank as Sub-Administrator to monitor the total number of shares sold
in each state on a daily basis and (ii) identifying any exempt transactions
("Exempt Transactions") which are to be excluded from the Daily Sales Reports.
(b) The Fund agrees to make its legal counsel available to the Bank
for reasonable instruction with respect to any matter of law arising in
connection with the Bank's duties hereunder, and the Fund further agrees that
the Bank shall be entitled to rely on such instruction without further
investigation on the part of the Bank.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to be
furnished by the Bank, as provided for in this Agreement, E*TRADE Asset
Management will compensate the Bank in accordance with the fee schedule attached
as Appendix C hereto, provided, however, that the fees with respect to each
Portfolio will be payable only out of the assets of that Portfolio. Such fees do
not include out-of-pocket disbursements (as delineated on the fee schedule or
other expenses with the prior approval of E*TRADE Asset Management's management)
of the Bank for which the Bank shall be entitled to bill E*TRADE Asset
Management separately and for which E*TRADE Asset Management shall reimburse the
Bank, but only out of the assets of the relevant Portfolio.
(b) The Bank shall not be required to pay any expenses incurred by
the Fund.
6. Limitation of Liability.
(a) The Bank, its directors, officers, employees and agents shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its obligations and
duties under this Agreement, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of such obligations and duties,
or by reason of its reckless disregard thereof. The Fund will indemnify the
Bank, its directors, officers, employees and agents against and hold it and them
harmless from any and all losses, claims, damages, liabilities or expenses
(including legal fees and expenses) resulting from any claim, demand, action or
suit (i) arising out of the actions or omissions of the Fund, including, but not
limited to, inaccurate Daily Sales Reports and misidentification of Exempt
Transactions; (ii) arising out of the offer or sale of any securities of the
Fund in violation of (x) any requirement under the federal securities laws or
regulations, (y) any requirement under the securities laws or regulations of any
state, or (z) any stop order or other determination or ruling by any federal or
state agency with respect to the offer or sale of such securities; or (iii) not
resulting from the willful misfeasance, bad faith or gross negligence of the
Bank in the performance of such obligations and duties or by reason of its
reckless disregard thereof.
(b) Notwithstanding anything in this Agreement to the contrary, in
no event shall the Funds be liable to the Bank or any third party, and the Bank
shall indemnify and hold the Funds harmless from and against any Claims arising
as a result of gross negligence, willful misfeasance or bad faith of the Bank.
(c) The Bank may apply to the Fund at any time for instructions and
may consult counsel for the Fund, or its own counsel, and with accountants and
other experts with respect to any matter arising in connection with its duties
hereunder, and the Bank shall not be liable or accountable for any action
reasonably taken or omitted by it in good faith in accordance with such
instruction, or with the opinion of such counsel, accountants, or other experts.
The Bank shall not be liable for any act or omission taken or not taken in
reliance upon any document, certificate or instrument which it reasonably
believes to be genuine and to be signed or presented by the proper person or
persons. The Bank shall not be held to have notice of any change of authority of
any officers, employees, or agents of the Fund until receipt of written notice
thereof has been received by the Bank from the Fund.
(d) In the event the Bank is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of acts of
God, strikes, legal constraint, government actions, war, emergency conditions,
interruption of electrical power or other utilities, equipment or transmission
failure or damage reasonably beyond its control or other causes reasonably
beyond its control, the Bank shall not be liable to the Fund for any damages
resulting from such failure to perform, delay in performance, or otherwise from
such causes. The Bank will, however, take all reasonable steps to minimize
service interruption for any period that such interruption continues beyond the
Bank's control.
(e) The Bank certifies that the occurrence in or use by the Bank's
own proprietary internal systems (the "Systems") of dates on or after January 1,
2000 (the "Millennial Dates") will not adversely affect the performance of the
Systems with respect to date dependent data, computations, output or other
functions (including, without limitation, calculating, computing and sequencing)
and that the Systems will create, store and generate output data related to or
including Millennial Dates without errors or omissions ("Year 2000 Compliance").
(i) The parties to this Agreement acknowledge that the Bank can
make no certification as to the Year 2000 Compliance of third-party systems
utilized by the Bank in its day to day operations or with which the Systems
interact or communicate, from which the Systems receive data or to which the
Systems send data. The parties further acknowledge that while the Bank has
contacted such third-party providers regarding Year 2000 Compliance and will use
reasonable efforts to monitor the status of such third-party providers' Year
2000 Compliance, failure by such third-party providers to achieve timely Year
2000 Compliance could adversely affect the Bank's performance of its obligations
hereunder.
(f) Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank be liable for special, incidental or consequential
damages, even if advised of the possibility of such damages.
7. Termination of Agreement.
(a) The term of this Agreement shall be an initial term of 2 years
commencing upon the date hereof (the "Initial Term"), unless earlier terminated
as provided herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the non-renewing
party to the other party no later than ninety days prior to the expiration of
the Initial Term or any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the violating party does not
cure such violation within ninety days of receipt of written notice from the
non-violating party of such violation.
(ii) Either party may terminate this Agreement during any
Renewal Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 7(a)(ii) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed, at the request of the Fund, to a date not more than one hundred
twenty days after delivery of the written notice in order to give the Fund an
opportunity to make suitable arrangements for a successor sub-administrator.
(b) At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as Sub-Administrator.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to E*TRADE Asset Management or the Bank shall
be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To E*TRADE Asset Management:
E*TRADE Asset Management, Inc.
2400 Geng Road
Palo Alto, CA 94303
Attention: Brian C. Murray
To the Fund:
E*TRADE Funds
2400 Geng Road
Palo Alto, CA 94303
Attention: Brian C. Murray
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Alex Chaloff, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain confidential,
and shall not be voluntarily disclosed to any other person, except as may be
required in the performance of duties hereunder or as otherwise required by law.
10. Use of Name. The Fund shall not use the name of the Bank or any of
its affiliates in any prospectus, sales literature or other material relating to
the Fund in a manner not approved by the Bank prior thereto in writing; provided
however, that the approval of the Bank shall not be required for any use of its
name which merely refers in accurate and factual terms to its appointment
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
unreasonably withheld or delayed.
11. Year 2000 Compliance. The Bank represents that the occurrence in or
use by the Bank's own proprietary internal systems (the "Systems") of dates on
or after January 1, 2000 (the "Millennial Dates") will not adversely affect the
performance of the Systems with respect to date dependent data, computations,
output or other functions (including, without limitation, calculating, computing
and sequencing) and that the Systems will create, store and generate output data
related to or including Millennial Dates without errors or omissions ("Year 2000
Compliance"). The Bank shall promptly notify the Fund of any lack of Year 2000
Compliance of which it becomes aware that impact the Bank's services hereunder.
The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems utilized by
the Bank in its day to day operations or with which the Systems interact or
communicate, from which the Systems receive data or to which the Systems send
data. The parties further acknowledge that while the Bank has contacted such
third-party providers regarding Year 2000 Compliance and will use reasonable
efforts to monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely Year 2000
Compliance could adversely affect the Bank's performance of its obligations
hereunder.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
E*TRADE ASSET MANAGEMENT, INC.
By:__________________________________
Name:
Title:
E*TRADE FUNDS
By:__________________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:__________________________________
Name:
Title:
<PAGE>
Appendices
Appendix A..................................... Portfolios
Appendix B..................................... Services
Appendix C..................................... Fee Schedule
<PAGE>
APPENDIX A
to the
SUB-ADMINISTRATION AGREEMENT
Portfolios
E*TRADE S&P 500 Index Fund
<PAGE>
Appendix B
E * Trade Group, Inc.
Annual Fee Schedule
For One Equity Fund - 2 Classes
October 28, 1998
================================================================================
Fund Accounting, Custody and Calculation of N.A.V., Fund Administration,
Financial Statement Preparation.
================================================================================
A. Fund Accounting, Custody and Calculation of N.A.V. , Fund Administration,
Financial Statement Preparation.
The Annual Fee for Fund Accounting, Custody and Calculation of N.A.V., Fund
Administration, Financial Statement Preparation for the one (1) E * Trade
Group, Inc. S&P 500 Equity Fund (including two classes) will be charged
according to the following schedule. The following schedule is exclusive of
transaction costs and out-of-pocket expenses.
Annual Fee
Annual Fee per fund $42,000
For each additional class added beyond the first class there will be an
annual fee of $18,000 for the above services.
================================================================================
Miscellaneous
================================================================================
A. Out-of-Pocket
These charges consist of:
- Telephone
- Ad Hoc Reporting
- TA - Non-current Day Inquiry ($1.00 per inquiry)
- Third Party Review
- Forms and Supplies
- Printing/Postage/Delivery
- Systems Development/Reports/Transmissions
- Equipment Rental
- Legal costs associated with substantial alterations of IBT's standard
agreements
B. Balance Credits
We allow use of balance credit against fees (excluding out-of-pocket
charges) for collected fund balances arising out of the custody
relationship. The monthly earnings allowance is equal to 75% of the 90-day
T-bill rate.
C. Systems
The details of any systems work required to service this fund will be
determined after a thorough business analysis. All systems work, including
creating customized reports and establishing systems/communications
interfaces with E * Trade, other providers, etc., will be billed on a time
and materials basis.
D. Other
Assumptions:
The fee schedule assumes that there will be two (2) classes of shares.
The above fees will be charged against the funds' custodian checking account
five business days after the invoice is mailed to the fund.
This annual fee schedule is valid for 30 days and assumes the execution of
IBT's standard contractual agreements for a minimum term of three (3) years.
All charges will be billed monthly. The fee schedule will be effective upon
start-up of the fund.
Agreed:
_________________________________
E * Trade Group, Inc.
<PAGE>
WIRE INSTRUCTIONS FOR E*TRADE S&P 500 INDEX FUND:
INVESTORS BANK & TRUST COMPANY
BOSTON, MASSACHUSETTS
ABA # 011001438
ACCOUNT # 5819-1000
ACCOUNT: BGI CAP STOCK
REFERENCE: E*TRADE FUND - 10755
<PAGE>
Appendix C Investors Bank & Trust Summary of Administration Functions 1/99
E * Trade Group, Inc.
<TABLE>
<CAPTION>
Suggested Fund
Function Investors Bank & Trust E * Trade Auditor or Counsel
<S> <C> <C> <C>
- ---------------------------------
Management Reporting
& Treasury Administration
- ---------------------------------
Prepare agenda and board Prepare agenda and C - Review agenda,
materials for quarterly board resolutions and board material and
meetings. assemble board board and committee
materials for meeting minutes.
quarterly board Ensure BOD material
meetings. Prepare contains all required
supporting information information that the
and materials when BOD must review
necessary. Attend and/or approve to
Frequency: Quarterly board and committee perform their duties
meetings and prepare as directors.
minutes.
Monitor portfolio compliance in Perform tests of certain Continuously monitor A/C - Provide
accordance with the current specific portfolio activity portfolio activity and consultation as
Prospectus and SAI. designed from provisions of Fund operations in needed on compliance
the Fund's Prospectus and conjunction with 1940 issues.
SAI at the Master level Act, Prospectus, SAI
only. Follow-up on and any other
potential violations. applicable laws and
Frequency: Daily regulations. Monitor
testing results and
approve resolution of
compliance issues.
Provide compliance summary Provide a report of Review report. A/C - Provide
package. compliance testing results. consultation as
needed.
Frequency: Monthly
Perform asset diversification Perform asset Continuously monitor A - Provide
testing to establish diversification tests at portfolio activity in consultation as
qualification as a RIC. each tax quarter end. conjunction with IRS needed in
Follow-up on issues. requirements. Review establishing
test results and take positions to be taken
any necessary action. in tax treatment of
Frequency: Quarterly Approve tax positions particular issues.
taken. Review quarter end
tests on a current
basis.
<PAGE>
- ---------------------------------
Management Reporting
& Treasury Administration
(CONT.)
- ---------------------------------
Perform qualifying income Perform qualifying income Continuously monitor A- Consult as needed
testing to establish testing (on book basis portfolio activity in on tax accounting
qualification as a RIC. income, unless material conjunction with IRS positions to be
differences are requirements. Review taken. Review in
anticipated) on quarterly test results and take conjunction with
basis and as may otherwise any necessary action. year-end audit.
Frequency: Quarterly be necessary. Follow-up Approve tax positions
on issues. taken.
Prepare the Fund's annual Prepare preliminary expense Provide asset level
expense budget. Establish budget. Notify fund projections. Approve
daily accruals. accounting of new accrual expense budget.
rates.
Frequency: Annually
Monitor the Fund's expense Monitor actual expenses Provide asset level C/A - Provide
budget. updating budgets/ expense projections consultation as
Review the Fund's multi-class accruals. Review expense quarterly. Provide requested.
expense differentials. differentials among classes vendor information as
to ensure consistency with necessary. Review
Rule 18f-3 or the Fund's expense analysis and
exemptive application and approve budget
Frequency: Quarterly the Fund's private letter revisions.
ruling or published ruling.
Receive and coordinate payment Propose allocations of Approve invoices and
of fund expenses. invoice among Funds and allocations of
obtain authorized approval payments. Send
Frequency: As often as to process payment. invoices to IBT in a
necessary timely manner.
<PAGE>
- ---------------------------------
Management Reporting
& Treasury Administration
(CONT.)
- ---------------------------------
Calculate periodic dividend Calculate amounts available Establish and maintain C - Review dividend
rates to be declared in for distribution. dividend and resolutions in
accordance with management Coordinate review by distribution conjunction with
guidelines. management and/or policies. Approve Board approval.
auditors. Notify custody distribution rates per
and transfer agent of share and aggregate A - Review and concur
authorized dividend rates amounts. Obtain Board with proposed
in accordance with Board approval when required. distributions
Frequency: Annually approved policy. Report
dividends to Board as
required.
Calculate total return Provide total return Review total return
information on Funds as defined calculations. information.
in the current Prospectus and
SAI.
Frequency: Monthly
Prepare responses to major Prepare, coordinate as Identify the services
industry questionnaires. necessary, and submit to which the Funds
responses to the report. Provide
Frequency: As often as appropriate agency. information as
necessary requested.
Prepare disinterested Summarize amounts paid to Provide social
director/trustee Form 1099-Misc. directors/trustees during security numbers and
the calendar year. Prepare current mailing
and mail Form 1099-Misc. address for trustees.
Frequency: Annually Review and approve
information provided
for Form 1099-Misc.
<PAGE>
- ---------------------------------
FINANCIAL REPORTING
- ---------------------------------
Prepare financial information Prepare selected
for presentation to Fund portfolio and
Management and Board of financial information
Directors. for inclusion in board
material.
Frequency: Quarterly
Coordinate the annual audit and Coordinate the creation of Provide past F/S and A - Perform audit and
semi-annual preparation and templates reflecting other information issue opinion on
printing of financial client-selected required to create annual financial
statements and notes with standardized appearance and templates, including statements.
management, fund accounting and text of financial report style and
the fund auditors. statements and footnotes. graphics. Approve A/C - Review reports.
Draft and manage production format and text as
cycle. Coordinate with IBT standard. Approve
fund accounting the production cycle and
electronic receipt of assist in managing to
portfolio and general the cycle. Coordinate
ledger information. Assist review and approval by
in resolution of accounting portfolio managers of
issues. Using templates, portfolio listings to
draft financial statements, be included in
coordinate auditor and financial statements.
management review, and Prepare appropriate
Frequency: clear comments. Coordinate management letter and
Annually/semi-annually printing of reports and coordinate production
EDGAR conversion with of Management
outside printer and filing Discussion and
with the SEC via EDGAR. Analysis. Review and
approve entire
report. Make
appropriate
representations in
conjunction with audit.
<PAGE>
- ---------------------------------
TAX
- ---------------------------------
Prepare income tax provisions. Calculate investment Provide transaction A - Provide
company taxable income, net information as consultation as
tax exempt interest, net requested. Identify needed in
capital gain and spillback Passive Foreign establishing
dividend requirements. Investment Companies positions to be taken
Identify book-tax (PFICs). Approve tax in tax treatment of
accounting differences. accounting positions particular issues.
Frequency: Annually Track required information to be taken. Approve Perform review in
relating to accounting provisions. conjunction with the
differences. year-end audit.
Calculate excise tax Calculate required Provide transaction A - Provide
distributions distributions to avoid information as consultation as
imposition of excise tax. requested. Identify needed in
- Calculate capital gain Passive Foreign establishing
net income and Investment Companies positions to be taken
foreign currency (PFICs). Approve tax in tax treatment of
gain/loss through accounting positions particular issues.
October 31. to be taken. Review Review and concur
- Calculate ordinary and approve all income with proposed
income and and distribution distributions per
distributions through a calculations, share.
specified cut off date . including projected
- Project ordinary income and dividend
income from cut off shares. Approve
date to December 31. distribution rates per
- Ascertain dividend share and aggregate
shares. amounts. Obtain Board
Identify book-tax approval when required.
accounting differences.
Track required information
Frequency: Annually relating to accounting
differences. Coordinate
review by management and
fund auditors. Notify
custody and transfer agent
of authorized dividend
rates in accordance with
Board approved policy.
Report dividends to Board
as required.
<PAGE>
- ---------------------------------
TAX (CONT.)
- ---------------------------------
Prepare tax returns Prepare excise and RIC tax Review and sign tax A - Review and sign
returns for Feeder. return. tax return as
Frequency: Annually preparer.
Prepare Form 1099 Obtain yearly distribution Review and approve
information. Calculate information provided
1099 reclasses and for Form 1099.
Frequency: Annually coordinate with transfer
agent.
Prepare other year-end Obtain yearly income Review and approve
tax-related disclosures distribution information provided.
information. Calculate
disclosures
(i.e., dividend received
Frequency: Annually deductions,
foreign tax credits,
tax-exempt
income, income by
jurisdiction) and
coordinate with transfer
agent.
</TABLE>
Review and Approval
The attached Summary of Administration Functions has been reviewed and
represents the services currently being provided.
___________________________________________________________
Signature of Account Manager Date
___________________________________________________________
Signature of Authorized Client Representative Date
FORM OF
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of ____________, 1999 by and between PFPC
INC., a Delaware corporation ("PFPC"), and E*TRADE FUNDS, a Delaware business
trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar and dividend disbursing agent to its investment portfolios listed on
Exhibit A attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each a "Portfolio"), and PFPC wishes to furnish such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions.
As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other person
duly authorized by the Fund's Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and listed
on the Authorized Persons Appendix attached hereto and made a part
hereof or any amendment thereto as may be received by PFPC. An
Authorized Person's scope of authority may be limited by the Fund by
setting forth such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodity Exchange Act, as amended.
(e) "Change of Control" means a change in ownership or control (not
including transactions between wholly-owned direct or indirect
subsidiaries of a common parent) of 25% or more of the beneficial
ownership of the shares of common stock or shares of beneficial
interest of an entity or its parent(s).
(f) "Oral Instructions" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(i) "Shares" mean the shares of beneficial interest of any series or class
of the Fund.
(j) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be
delivered by hand, mail, tested telegram, cable, telex, facsimile
sending device or e-mail.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
registrar and dividend disbursing agent to the Portfolios in accordance
with the terms set forth in this Agreement. PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PFPC or its affiliates
to provide services to the Fund and approving this Agreement;
(b) A copy of the Fund's most recent effective registration statement;
(c) A copy of the advisory agreement with respect to each Portfolio;
(d) A copy of the distribution agreement with respect to each class of
Shares of the Fund;
(e) A copy of each Portfolio's administration agreements if PFPC is not
providing the Portfolio with such services;
(f) Copies of any shareholder servicing agreements made in respect of the
Fund or a Portfolio; and
(g) Copies (certified or authenticated if requested by PFPC) of any and
all amendments or supplements to the foregoing.
4. Compliance with Rules and Regulations. PFPC undertakes to comply with all
applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by PFPC hereunder. Except as specifically set
forth herein, PFPC assumes no responsibility for such compliance by the
Fund or any of the Portfolios.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to
this Agreement. PFPC may assume that any Oral Instruction or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any
vote, resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are
received. The fact that such confirming Written Instructions are not
received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person,
PFPC shall incur no liability to the Fund in acting in good faith upon
such Oral Instructions or Written Instructions provided that PFPC's
actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's investment adviser or
PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from
the Fund, and the advice it receives from counsel, PFPC may rely upon
and follow the advice of counsel. In the event PFPC so relies on the
advice of counsel, PFPC remains liable for any action or omission on
the part of PFPC which constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Fund or from counsel and
which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions.
Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not
taking such action. Nothing in this subsection shall excuse PFPC when
an action or omission on the part of PFPC constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this
Agreement.
7. Records; Visits. PFPC shall prepare and maintain in complete and accurate
form all books and records ---------------- necessary for it to serve as
transfer agent, registrar and dividend disbursing agent to the Fund,
including (a) all those records required to be prepared and maintained by
the Fund under the Securities Laws, rules and regulations and by state laws
and (b) such books and records as are necessary for PFPC to perform all of
the services it agrees to provide in this Agreement. The books and records
pertaining to the Fund, which are in the possession or under the control of
PFPC, shall be the property of the Fund. The Fund and Authorized Persons
shall have access to such books and records in the possession of PFPC at
all times during PFPC's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records in the possession of PFPC
shall be provided by PFPC to the Fund or to an Authorized Person, at the
Fund's expense. Upon reasonable notice by the Fund, PFPC shall make
available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for
reasonable visits by the Fund, any agent or person designated by the Fund
or any regulatory agency having authority over the Fund.
8. Confidentiality. PFPC agrees to keep confidential all records of the Fund
and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to
civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect
to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Insurance. PFPC shall maintain insurance of the types and in the amounts
deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the
parties set forth in this Agreement, the contracts of insurance shall take
precedence, and no provisions of this Agreement shall be construed to
relieve an insurer of any obligation to pay claims to PFPC or other insured
party which would otherwise be a covered claim in the absence of any
provision of this Agreement.
12. Compensation. As compensation for services rendered by PFPC during the term
of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to from time to time in writing by the Fund and PFPC.
13. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and its
affiliates, subject to subsection (b) of this Section, from all taxes,
charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the Securities Laws and
any state and foreign securities and blue sky laws, and amendments
thereto), and expenses, including (without limitation) attorneys' fees
and disbursements, arising directly or indirectly from (i) any action
or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Fund or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance,
processing and/or negotiation of checks or other methods utilized for
the purchase of Shares. Neither PFPC, nor any of its affiliates, shall
be indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates' own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement.
(b) The Trustees and Shareholders of the Fund, or any Portfolio thereof,
shall not be liable for any obligations of the Fund, or any such
Portfolio, under this Agreement, and PFPC agrees that in asserting any
rights or claims under this Agreement, it shall look only to the
assets and property of the particular Portfolio in settlement of such
rights or claims and not to such members of the Board or Shareholders.
PFPC further agrees that it will look only to the assets and property
of a particular Portfolio of the Fund, should the Fund have
established separate series, in asserting any rights or claims under
this Agreement with respect to services rendered with respect to that
Portfolio and will not seek to obtain settlement of such rights or
claims from assets of any other Portfolio of the Fund. Notwithstanding
the foregoing, in asserting any rights or claims under this Agreement,
PFPC shall not be prevented from looking to the assets and property of
the Fund sponsor or any other appropriate party(ies) in settlement of
such rights or claims.
14. Security.
(a) PFPC represents and warrants that, to the best of its knowledge, the
various procedures and systems which PFPC has implemented with regard
to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for 24-hour restricted access) of
the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the
performance of its obligations hereunder are commercially reasonable,
and that it will make such changes therein from time to time as in its
reasonable judgement are required for the secure performance of its
obligations hereunder. PFPC shall review such systems and procedures
on a periodic basis and the Fund shall have reasonable access to
review these systems and procedures.
(b) Year 2000 Readiness Disclosure. PFPC (i) has reviewed its business and
operations as they relate to the services provided hereunder, (ii) has
remediated or replaced computer applications and systems controlled by
PFPC and which are mission-critical to providing services hereunder
(the "Relevant Systems") and (iii) has implemented a testing plan to
test the remediation or replacement of the Relevant Systems, in each
case, to address on a timely basis the risk that the Relevant Systems
may be unable to process over the January 1, 2000 boundary and on the
leap day of February 29, 2000). PFPC represents and warrants that,
based on assessments and testing to date, processing errors by the
Relevant Systems involving such boundary and leap day are not likely
to occur. PFPC will continue to monitor and test the Relevant Systems
and make adjustments as necessary.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise care
and diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits, in
performing the services provided for under this Agreement. PFPC shall
be liable for any damages arising out of PFPC's failure to perform its
duties under this Agreement to the extent such damages arise out of
PFPC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with
the standard of care set forth above; and (ii) Subject to Section 10,
PFPC shall not be liable for delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including
acts of civil or military authority, national emergencies, labor
difficulties, fire, flood, catastrophe, acts of God, insurrection,
war, riots or failure of the mails, transportation, communication or
power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund
may incur or suffer by or as a consequence of PFPC's or its
affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC or its
affiliates.
16. Description of Services.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii)Prepare and certify stockholder lists in conjunction with proxy
solicitations;
(iv) Countersign share certificates;
(v) Provide periodic shareholder lists and statistics to the clients;
(vi) Provide detailed data for underwriter/broker confirmations;
(vii)Notify on a timely basis the investment adviser, accounting
agent, and custodian of fund activity;
(viii) Perform other participating broker-dealer shareholder services
as may be agreed upon from time to time; and
(ix) Report abandoned property.
(b) Services Provided by PFPC Under Oral Instructions or Written
Instructions.
(i) Accept and post daily Fund purchases and redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions; and
(iv) Issue and cancel certificates (when requested in writing by the
shareholder).
(c) Purchase of Shares. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it
receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
(iii)Confirmation of receipt or crediting of funds for such order to
the Fund's custodian.
(d) Redemption of Shares. PFPC shall redeem Shares only if that function
is properly authorized by the certificate of trust or resolution of
the Fund's Board of Trustees. Shares shall be redeemed and payment
therefor shall be made in accordance with the Fund's prospectus, when
the recordholder tenders Shares in proper form and directs the method
of redemption. If Shares are received in proper form, Shares shall be
redeemed before the funds are provided to PFPC from the Fund's
custodian (the "Custodian"). If the recordholder has not directed that
redemption proceeds be wired, when the Custodian provides PFPC with
funds, the redemption check shall be sent to and made payable to the
recordholder, unless:
(i) the surrendered certificate is drawn to the order of an assignee
or holder and transfer authorization is signed by the
recordholder; or
(ii) Transfer authorizations are signed by the recordholder when
Shares are held in book-entry form.
When a broker-dealer notifies PFPC of a redemption desired by a
customer, and the Custodian provides PFPC with funds, PFPC shall make
the payment to the broker-dealer on behalf of its customer.
(e) Dividends and Distributions. Upon receipt of a resolution of the
Fund's Board of Trustees authorizing the declaration and payment of
dividends and distributions, PFPC shall issue dividends and
distributions declared by the Fund in Shares, or, upon shareholder
election, pay such dividends and distributions in cash, to the
broker-dealer of record for such shareholder.
(f) Shareholder Account Services. PFPC may arrange, in accordance with the
Fund's prospectus, for a shareholder's exchange of Shares for shares
of another fund with which the Fund has exchange privileges.
(g) Records. PFPC shall maintain records of the accounts for each
shareholder showing the following information:
(i) Name, address and United States Tax Identification or Social
Security number;
(ii) Number of class of Shares held and number and class of Shares for
which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii)Historical information regarding the account of each
shareholder, including dividends and distributions paid and the
date and price for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's
account; and
(v) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(h) Lost or Stolen Certificates. PFPC shall place a stop notice against
any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or
alleged misappropriation. A new certificate shall be registered and
issued only upon:
(i) the shareholder's pledge of a lost instrument bond or such other
appropriate indemnity bond issued by a surety company approved by
PFPC; and
(ii) completion of a release and indemnification agreement signed by
the shareholder to protect PFPC and its affiliates.
(i) Shareholder Inspection of Stock Records. Upon a request from any Fund
shareholder to inspect stock records, PFPC will notify the Fund and
the Fund will issue Oral or Written Instructions granting or denying
each such request. Unless PFPC has acted contrary to the Fund's
instructions, the Fund agrees and does hereby release PFPC from any
liability for refusal of permission for a particular shareholder to
inspect the Fund's stock records.
(j) Withdrawal of Shares and Cancellation of Certificates. Upon receipt of
Written Instructions, PFPC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding
shares by the number of shares surrendered by the Fund.
17. Duration and Termination. This Agreement shall continue until terminated by
the Fund or by PFPC on sixty (60) days' prior written notice to the other
party.
18. Change of Control. Notwithstanding any other provision of this Agreement,
in the event of an agreement to enter into a transaction that would result
in a Change of Control of the Fund's adviser or sponsor, the Fund's ability
to terminate the Agreement will be suspended from the time of such
agreement until two years after the Change of Control, provided that the
Fund may terminate this Agreement if the following have occurred: (i) the
Fund gives PFPC notice that for the preceding thirty (30) days PFPC has
been in material breach of the Agreement (and PFPC has in fact been in such
material breach) and that PFPC has sixty (60) days from receipt of such
notice to cure such material breach; (ii) PFPC fails to cure such material
breach within such sixty (60) day period; and (iii) at the conclusion of
such sixty (60) day period the Fund gives PFPC notice that it is
terminating the Agreement.
19. Registration as a Transfer Agent. PFPC represents that it is currently
registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its
activities without such registration and that it will remain so registered
or able to so conduct such activities for the duration of this Agreement.
PFPC agrees that it will promptly notify the Fund in the event of any
material change in its status as a registered transfer agent. Should PFPC
fail to be registered with the SEC as a transfer agent at any time during
this Agreement and such failure to register does not permit PFPC to
lawfully conduct its activities, the Fund may, on written notice to PFPC,
terminate this Agreement upon five days written notice to PFPC.
20. Notices. All notices and other communications, including Written
Instructions, shall be delivered in writing or by confirming telegram,
cable, telex or facsimile sending device. Notices shall be addressed; (a)
if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Fund, at 2400 Geng Road, Palo Alto, CA 94303, Attn: Joe Van Remortel or
(c) if to neither of the foregoing, at such other address as shall have
been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been
given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered.
21. Amendments. This Agreement, or any term thereof, may be changed or waived
only by a written amendment which has been mutually consented to by the
parties hereto.
22. Additional Series. In the event that the Fund establishes one or more
investment series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and shareholder servicing agent under the terms set forth in this
Agreement, it shall so notify PFPC in writing, and PFPC shall agree in
writing to provide such services, and such investment series shall become a
Portfolio hereunder, subject to such additional terms, fees and conditions
as are agreed to by the parties.
23. Delegation; Assignment. Except as provided below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party
without the written consent of the other party. PFPC may assign, at its own
expense, its rights and delegate its duties hereunder to any affiliate (as
defined in the 1940 Act) or any majority-owned direct or indirect
subsidiary of PFPC or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice of such assignment or delegation,
(ii) the assignee or delegate agrees to comply with the relevant provisions
of the 1940 Act, and (iii) PFPC and such assignee or delegate promptly
provide such information as the Fund may reasonably request, and respond to
such questions as the Fund may reasonably ask, relative to the assignment
or delegation (including, without limitation, the capabilities of the
assignee or delegate). The delegation of any of PFPC's duties under this
paragraph shall not relieve PFPC of any of its responsibilities or
liabilities under this Agreement.
24. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
26. Limitations of Liability of the Trustees and Shareholders. A copy of the
Certificate of Trust of the Fund is on file with the Secretary of State of
the State of Delaware, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Trust as Trustees, and not
individually, and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders individually but are binding only
upon the assets and property of the Fund.
27. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral and
Written Instructions.
(b) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:_____________________________
Title:__________________________
E*TRADE FUNDS
By:_____________________________
Title:__________________________
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of ____________, 1999, is Exhibit A to that
certain Transfer Agency Services Agreement dated as of ____________,, 1999
between PFPC Inc. and E*Trade Funds.
PORTFOLIOS
E*TRADE S & P 500 Index Fund
<PAGE>
AUTHORIZED PERSONS APPENDIX
Name (Type) Signature
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
E*TRADE Group, Inc.
No Transaction Fee Mutual Fund Offering
FORM OF RETAIL SHAREHOLDER SERVICES AGREEMENT
This Agreement is made as of January 29, 1999, between E*TRADE Group, Inc.
("E*TRADE"), a Delaware corporation, E*TRADE Funds, a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
as an open-end management investment company (the "Fund"), and E*TRADE Asset
Management, Inc. ("Fund Affiliate"), a Delaware corporation registered as an
investment adviser under the Investment Advisers Act of 1940, and which serves
as investment adviser to the Fund pursuant to an agreement dated ___________
(Fund and Fund Affiliate are collectively referred to as "Fund Parties").
WHEREAS, Fund Parties wish to engage E*TRADE to perform certain
record-keeping, shareholder communication, and other shareholder administrative
services for Fund's shareholders; and
WHEREAS, E*TRADE agrees to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, E*TRADE and Fund Parties agree as follows:
1 SERVICES
E*TRADE shall perform such services for Fund Parties as are designated in
Schedule A to this Agreement ("Services"), as such Schedule A may from time to
time be amended, such amendments to be evidenced by the signature thereto by a
duly authorized representative of each of the Parties.
2 COMPENSATION
In consideration for the Services rendered by E*TRADE pursuant to this
Agreement, the Fund Parties shall pay a fee to E*TRADE as shall be calculated
pursuant to Schedule B to this Agreement. Both Fund and Fund Affiliate shall be
severally liable for such compensation in the proportions designated on Schedule
D.
3 TRANSACTION CHARGES
E*TRADE shall not assess any of Fund shareholders or prospective
shareholders any fee for executing any purchase or sale order where such order
involves the securities of the Fund. Notwithstanding this provision, E*TRADE
shall have the right to assess customers a fee for executing a purchase or sale
order where the customer has held such position for less than one-hundred and
twenty (120) days, or where E*TRADE provides the customer with a service that is
not contemplated by this Agreement.
4 INDEMNIFICATION
(a) Fund Parties agree to indemnify, defend and hold harmless E*TRADE, its
officers, directors, employees, agents, and affiliates from and against (i) any
and all claims, demands, liabilities and expenses, including legal expenses,
which E*TRADE, its officers, directors, employees, agents, and affiliates may
incur arising out of or based upon any untrue statement, or alleged untrue
statement, of material fact contained in any registration statement, prospectus,
statement of additional information, sales material, or other information
provided by the Fund, or based upon any omission, or alleged omission, to state
a material fact required to be stated to make the statements contained therein
not misleading, except to the extent that E*TRADE has itself produced such
materials; (ii) any breach by either Fund or Fund Affiliate of any
representation, warranty or provision contained herein, or (iii) any willful
misconduct or gross negligence by Fund or Fund Affiliate in the performance of,
or failure to perform, its respective obligations under this Agreement, except
to the extent that such claims, liabilities or expenses are caused by E*TRADE's
breach of this Agreement or willful misconduct or gross negligence in the
performance, or failure to perform, their respective obligations under this
Agreement. This section 4(a) shall survive termination of this Agreement.
(b) E*TRADE agrees to indemnify, defend and hold harmless Fund Parties,
their officers, directors, employees, agents, and affiliates from and against
any and all claims, demands, liabilities and expenses, including legal expenses,
which Fund Parties, their officers, directors, employees, agents, and affiliates
may incur arising out of or based upon (i) any untrue statement, or alleged
untrue statement, of material fact contained in any advertising or sales
literature prepared by E*TRADE without reliance upon information provided by
either Fund Parties or an unaffiliated mutual fund rating or statistical
information agency; (ii) any breach by E*TRADE of any representation, warranty
or provision contained herein, or (iii) any willful misconduct or gross
negligence by E*TRADE in the performance of, or failure to perform, its
obligations under this Agreement, except to the extent that such claims,
liabilities or expenses are caused by Fund Parties' breach of this Agreement or
willful misconduct or gross negligence in the performance, or failure to
perform, their respective obligations under this Agreement. This section 4(b)
shall survive termination of this Agreement.
No party hereto shall be liable for any special, consequential or incidental
damages.
5 ROLE OF E*TRADE
The parties acknowledge and agree that the Services performed by E*TRADE
pursuant to this Agreement are not the services of an underwriter or principal
underwriter of the Fund within the meaning of the 1940 Act or the Securities Act
of 1933, as amended. This Agreement does not grant E*TRADE any right to purchase
shares from the Fund; neither does it preclude E*TRADE's ability to purchase
shares from the Fund. E*TRADE shall not be deemed to be an agent of Fund Parties
or of the Fund for the purposes of selling the Fund's shares to any dealer or
the public. To the extent that E*TRADE is involved in the purchase of shares of
any Fund by E*TRADE's customers, such involvement will be as agent of such
customer only.
6 INFORMATION TO BE PROVIDED
Fund Parties shall provide to E*TRADE prior to the effectiveness of this
Agreement or as soon thereafter as is reasonably practicable:
(a) Certified resolutions of the board of directors or board of trustees,
as applicable, of Fund Parties authorizing the execution of this Agreement and
the performance by the Fund Party pursuant to this Agreement; and
(b) Two (2) written copies of each current prospectus and statement of
additional information relating to any of Fund's shares which may be purchased
by customers of E*TRADE. Fund Parties agree to submit to E*TRADE two (2) written
copies of any amendment or supplement to or any updated version of such
prospectus(es) and statement(s) of additional information no later than the
effective date of such amendment, supplement or updated version.
7 TERMINATION OF AGREEMENT
This Agreement is terminable, without penalty, at any time upon ninety (90)
days' notice by E*TRADE to Fund and Fund Affiliate or by Fund and Fund Affiliate
to E*TRADE. Termination of this Agreement shall terminate E*TRADE's obligations
to perform the Services, as of the effective date of the termination, and shall
terminate Fund Parties' obligations to pay any compensation hereunder, as of the
effective date of the termination. Notwithstanding any provision herein to the
contrary, Fund Parties' obligations pursuant to this Agreement shall not be
terminated with respect to any transactions in Fund's shares commenced prior to
the effective date of the termination of this Agreement.
8 NOTICES
Notices and other communications will be duly given if mailed, telegraphed,
or transmitted by similar telecommunications device to addresses designated on
Schedule C hereto.
9 NON-EXCLUSIVITY
Each Party to this Agreement may enter into agreements similar to this
Agreement with other parties for the performance of services similar to those to
be provided under this Agreement, unless otherwise agreed to in writing by the
Parties.
10 JURISDICTION AND NON-ASSIGNABILITY
This Agreement will be construed in accordance with the laws of the State
of California and is non-assignable by the parties hereto. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the Parties and their respective successors and assigns.
11 FUND PORTFOLIOS AND CLASSES
The portfolios, series and classes of shares of Fund to which this
Agreement shall apply are designated in Schedule C hereto.
12 EXHIBITS AND SCHEDULES
Schedules A, B, C and D, which are attached hereto, are each a part of and
is incorporated by reference into this Agreement. This Agreement shall not be
deemed to be complete absent such Schedules A, B, C or D.
13 ENTIRE AGREEMENT; SEVERABILITY
Each Party recognizes the existence of an Underwriting Agreement between
E*TRADE Securities, Inc. and the Fund dated ____, a Clearing Agreement between
E*TRADE Securities, Inc. and NSCC, dated ____, and a Supplemental Agreement
Regarding Networking dated _____ ("Other Agreements"). To the extent of any
inconsistency or conflict between the provisions of this Agreement and any
provision of the Other Agreements, such provision of the Other Agreements shall
govern, and the provision of this Agreement shall be null and void. Except as
specified in this Section 13, however, this Agreement shall supersede any
existing agreements between the parties containing general terms and conditions
for retail shareholder services. Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein
and shall be enforceable notwithstanding the un-enforceability of any such other
provision or agreement.
14 REPRESENTATIONS OF THE PARTIES
Each Party represents and warrants to each other Party that (i) it is duly
authorized to execute and deliver this Agreement and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so, (iii) it has obtained all authorizations of any
governmental body required in connection with this Agreement and such
authorizations are in full force and effect and (iv) the execution, delivery and
performance of this Agreement will not violate any law, ordinance, charter,
by-law or rule applicable to it or any agreement by which it is bound or by
which any of its assets are affected.
15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original, but all of which together shall constitute one
and the same instrument.
<PAGE>
In witness whereof, each Party has executed this Agreement by a duly
authorized representative of such Party.
_____________________________ _____________________________
(Name of Fund Company) (Name of Fund Affiliate)
By: ________________________ By: ________________________
Name: _______________________ Name: ______________________
Title: _____________________ Title: ______________________
Date: ______________________ Date: ______________________
By:____________________________
E*TRADE Group, Inc.
<PAGE>
SCHEDULE A
Services
1. RECORD MAINTENANCE
E*TRADE shall maintain the following records with respect to a Fund for
each customer who holds Fund shares in an E*TRADE brokerage account:
a. Number of shares;
b. Date, price and amount of purchases and redemptions (including dividend
reinvestments) and dates and amounts of dividends paid for at least the current
year to date;
c. Name and address of the customer, including zip codes and social
security numbers or taxpayer identification numbers;
d. Records of distributions and dividend payments;
e. Any transfers of shares; and f. Overall control records.
2 SHAREHOLDER COMMUNICATIONS
E*TRADE shall:
a. Provide to an approved shareholder mailing agent for the purpose of
providing certain Fund-related materials the names and addresses of all E*TRADE
customers who hold shares of such Fund in their E*TRADE brokerage accounts. The
shareholder mailing agent shall be a person or entity with whom the Fund has
arranged for the distribution of certain Fund-related material in accordance
with the Fund/SERV Agreement. The Fund-related materials shall consist of
updated prospectuses and any supplements and amendments thereto, annual and
other periodic reports, proxy or information statements and other appropriate
shareholder communications. In the alternative, in accordance with the Fund/SERV
Agreement, E*TRADE may distribute the Fund-related materials to its customers.
b. Deliver current Fund prospectuses and statements of additional
information and annual and other periodic reports upon customer request and, as
applicable, with confirmation statements;
c. Deliver statements to customers on a monthly basis (or, as to accounts
in which there has been no activity in a particular month, no less frequently
than quarterly) showing, among other things, the number of shares of each Fund
owned by such customer and the net asset value of such Fund as of a recent date;
d. Produce and provide to customers confirmation statements reflecting
purchases and redemptions of shares of each Fund in E*TRADE brokerage accounts;
e. Respond to customer inquiries regarding, among other things, share
prices, account balances, dividend amounts and dividend payment dates; and
3. TRANSACTIONAL SERVICES
E*TRADE shall communicate, as to shares of each Fund, purchase, redemption
and exchange orders reflecting the orders it receives from its customers.
E*TRADE shall also communicate, as to shares of each Fund, mergers, splits and
other reorganization activities.
4. TAX INFORMATION RETURNS AND REPORTS
E*TRADE shall prepare and file with the appropriate governmental agencies,
such information, returns and reports as are required to be so filed for
reporting (i) dividends and other distributions made, (ii) amounts withheld on
dividends and other distributions and payments under applicable federal and
state laws, rules and regulations, and (iii) gross proceeds of sales
transactions as required.
5. FUND COMMUNICATIONS
E*TRADE shall, on a monthly basis and for each Fund, report the number of
shares on which the Fee is to be paid pursuant to this Agreement. Such summaries
shall be expressed in both shares and dollar amounts.
<PAGE>
SCHEDULE B
Calculation of Fee
The Fee shall be calculated by multiplying the Daily Value of Qualifying Shares
by the appropriate Fee Rate (indicated below). The Fee shall be paid monthly in
arrears.
The Daily Value of Qualifying Shares is the aggregate daily value of all shares
of the Fund held in E*TRADE brokerage accounts, subject to the following
exclusions. There shall be excluded from the shares: (i) shares as to which a
brokerage customer paid E*TRADE a transaction fee upon the purchase of such
shares; (ii) shares held in an E*TRADE brokerage account prior to the effective
date of this Agreement as to the Fund; and, (iii) shares first held in an
E*TRADE brokerage account after the termination of this Agreement as to the
Fund.
The Fee Rate is determined based on the aggregate value of the Qualifying Shares
of all Funds listed on Schedule C, as amended from time to time, as of the prior
review date. The review dates are December 31, and June 30. The Fee Rate is
effective from the next business day following the review date up to and
including the next review date. The Fee Rates are as follows:
Up to and including $750 million 1 basis point
Over $750 million and up to
And including $1.5 billion 1 basis point
Over $1.5 billion 1 basis point
Note: The rate scale is not intended to produce a "blended rate." Rather, once a
threshold is reached, the rate applicable to the total amount of assets will be
used for all assets.
[For purposes of this exhibit, the daily value of the shares of each Fund will
be the net asset value reported by such Fund to the National Association of
Securities Dealers, Inc. Automated Quotation System. No adjustments will be made
to the net asset values to correct errors in the net asset values so reported
for any day unless such error is corrected and the corrected net asset value per
share is reported to E*TRADE before 5 o'clock p.m., Palo Alto time, on the first
business day after the day to which the error relates.]
As soon as is possible after the end of the month, E*TRADE shall provide to the
Fund Parties an invoice for the amount of the Fee due for each Fund. In the
calculation of such Fee, E*TRADE's records shall govern unless an error can be
shown in the number of shares used in such calculation.
Fund Parties shall pay E*TRADE the Fee within thirty (30) days after the Fund
Parties receipt of such statement. Such payment shall be by wire transfer,
unless the amount thereof is less than $250.00. Such wire transfers shall be
separate from wire transfers of redemption proceeds or other distributions.
Amounts less than $250.00 may be paid, at Fund Parties' discretion, by check.
<PAGE>
Schedule C
Fund Portfolios and Classes
Fund Name/Class: Cusip/Ticker Symbol:
E*TRADE S&P 500 Index Fund 269244109
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
Asterisk indicates that Fund is a "No-Load" or "No-Sales Charge" Fund as defined
in Section 26 of the NASD's Rules of Fair Practice.
_________________________________ _________________________
(Name of Fund Company) (Name of Fund Affiliate)
_________________________________ _________________________
(Address) (Address)
_________________________________ _________________________
_________________________________ _________________________
By: ________________________ By: ________________________
Name: _______________________ Name: ______________________
Title: _____________________ Title: _____________________
Date: ______________________ Date: ______________________
By: __________________________
E*TRADE Group, Inc.
Date: ________________________
<PAGE>
Schedule D
Payment of Fee
Up to and Over Over
Including $750MM $1.5BB
$750 MM and under
$1.5 BB
Fund Affiliate:
Name: E*TRADE Funds 0 .05% 0.05% 0.05%
By: E*TRADE Asset Management, Inc.
Signature ____________________
Name: Joseph Van Remortel
Title: Vice President, Operations
Date: January 29, 1999
OPINION AND CONSENT OF COUNSEL
January __, 1999
E*TRADE Funds
2400 Geng Road
Palo Alto, CA 94303
Re: E*TRADE Funds
Registration Statement on Form N-1A
(Registration Nos.: 333-66807, 811-09093)
Dear Sirs:
We have acted as counsel for E*TRADE Funds (the "Fund"), a business trust
organized and validly existing under the laws of the State of Delaware, in
connection with the above-referenced Registration Statement relating to the
issuance and sale by the Fund of an indefinite number of its shares of common
stock under the Securities Act of 1933, as amended and under the Investment
Company Act of 1940, as amended. We have examined such governmental and
corporate certificates and records as we deemed necessary to render this opinion
and we are familiar with the Fund's Certificate of Trust, Trust Instrument and
its Bylaws.
Based upon the foregoing, we are of the opinion that the shares proposed
to be sold pursuant to the Fund's Registration Statement, when paid for as
contemplated in the Fund's registration statement, will be legally and validly
issued, fully paid and non-assessable. We hereby consent to the filing of this
opinion as an exhibit to the Fund's Registration Statement on Form N-1A, to be
filed with the Securities and Exchange Commission, and to the use of our name in
the Fund's Statement of Additional Information of the Fund's Registration
Statement to be dated as of January 28, 1999, and in any revised or amended
versions thereof under the caption "Legal Counsel." In giving such consent,
however, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Very truly yours,
/s/
Dechert Price & Rhoads
INDEPENDENT AUDITORS' CONSENT
E*TRADE Funds:
We consent to the use in this pre-effective Amendment No. 2 to Registration
Statement No. 333-66807 on Form N-1A of E*TRADE S&P 500 Index Fund, a series
of E*TRADE Funds, of our report on the statement of assets and liabilities as
of January 26, 1999 and the reference to us in section "Service Providers"
appearing in the Statement of Additional Information, which is a part of such
Registration Statement.
/s/ Deloitte & Touche LLP
January 27, 1999
Los Angeles, California
E*TRADE ASSET MANAGEMENT, INC.
2400 Geng Road
Palo Alto, CA 94303
____________, 1999
E*TRADE Funds
2400 Geng Road
Palo Alto, CA 94303
Re: Subscription for the Purchase of Shares of
Beneficial Interest of E*TRADE S&P 500 Index Fund
Dear Sirs:
The undersigned hereby subscribes to purchase 10,000 shares of beneficial
interest of the E*TRADE S&P 500 Index Fund, at a price of $10.00 per share, and
agrees to pay therefor upon demand in cash the amount of $100,000. The
undersigned has no present intention of redeeming or reselling the shares.
Very truly yours,
E*TRADE ASSET MANAGEMENT, INC.
By: _________________________________
Name: Brian C. Murray
Title: President
<PAGE>
E*TRADE FUNDS
2400 Geng Road
Palo Alto, CA 94303
_____________, 1999
E*TRADE Asset Management, Inc.
2400 Geng Road
Palo Alto, CA 94303
Re: Acceptance of Subscription for the Purchase of Shares
of Beneficial Interest of E*TRADE S&P 500 Index Fund
(the "Fund")
Dear Sirs:
E*TRADE Funds, on behalf of the Fund, hereby accepts your offer to purchase
10,000 shares of the Fund at a price of $10.00 per share for an aggregate
purchase price of $100,000. This agreement is subject to the understanding that
you have no present intention of selling or redeeming the shares so acquired.
Any redemption of these shares by you will be reduced by a pro rate portion
of any then unamortized organization expenses of the Fund. This proration will
be calculated by dividing the number of shares to be redeemed by the aggregate
number of shares held which represent the initial capital of the Fund.
Sincerely,
E*TRADE FUNDS
By: ______________________________
Brian C. Murray, President
Accepted: E*TRADE ASSET MANAGEMENT, INC.
By: ___________________________________
Brian C. Murray, President
