Registration Nos. 333-66807
811-09093
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 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. / /
Post-Effective Amendment No. 9 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 12 /X/
(Check appropriate box or boxes)
E*TRADE FUNDS
(Exact name of Registrant as specified in charter)
4500 Bohannon Drive
Menlo Park, CA 94025
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (650) 331-5000
Kathy Levinson
E*TRADE Securities, Inc.
4500 Bohannon Drive
Menlo Park, CA 94025
(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 4500 Bohannon Drive
Washington, DC 20006 Menlo Park, CA 94025
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
X Immediately upon filing pursuant to paragraph (b)
- -------
on October __, 1999 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 E-COMMERCE INDEX FUND
Prospectus dated October 20, 1999
This Prospectus concisely sets forth information about the E*TRADE E-Commerce
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 and Principal Strategies.
The Fund's investment objective is to provide investment results that match,
before fees and expenses, the total return of the stocks comprising the Goldman
Sachs E-Commerce (GSEC(TM)) Index. The Fund seeks to achieve its objective by
investing substantially all of its assets in the same stocks and in
substantially the same percentages as the stocks that comprise the GSEC 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 will
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 October 20, 1999
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
FEES AND EXPENSES......................................................6
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS.....................7
YEAR 2000..............................................................8
FUND MANAGEMENT........................................................8
PRICING OF FUND SHARES.................................................9
HOW TO BUY, SELL AND EXCHANGE SHARES..................................10
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................14
TAX CONSEQUENCES......................................................15
<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 match,
before fees and expenses, the total return of the stocks comprising the GSEC
Index.*
Principal Strategies
The Fund seeks to achieve its investment objective by investing substantially
all of its assets in the same stocks and in substantially the same percentages
as the stocks that comprise the GSEC Index.
The GSEC Index was developed by Goldman Sachs & Co. and is an equity benchmark
of selected U.S. traded stocks designed to track the performance of the
e-commerce sector (primarily on-line merchants and the companies that provide
the infrastructure needed to do business on-line). The GSEC Index began
operations on August 5, 1999 and is comprised of stocks of companies that are
traded on either the New York Stock Exchange ("NYSE"), American Stock Exchange
("AMEX") or NASDAQ and meet one of the following objective criteria:
o 80-100% of revenue is generated online;
o a substantial percentage of revenue or transactions is related to the
Internet (defined as either:
(i) 50% of revenue is from the Internet; or
(ii) the dollar amount of revenue is greater than the
median revenue of the companies in the Index that
are 100% e-commerce with market capitalization
greater than $500 million at the inception of the
Index (this cut-off value will be revised
periodically to reflect market values));
o are virtual companies (meaning no bricks and mortar store); or
*"GSEC(TM)" is a registered trademark of Goldman Sachs & Co. and has 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 Goldman
Sachs & Co. and Goldman Sachs & Co. makes no representation regarding the
advisability of investing in the Fund.
<PAGE>
o are key e-commerce infrastructure providers (companies that supply
hardware, software and services to online merchants).
The GSEC Index also uses criteria designed to ensure that a trading market
exists for shares of a company included in the GSEC Index, such as minimum
public trading. The GSEC Index consists primarily of stocks of companies in the
e-commerce sector with capitalizations of at least $1 billion when initially
added to the GSEC Index. The GSEC Index may also include stocks of smaller
capitalized companies that no longer meet the $1 billion capitalization
criterion but continue to have capitalization of at least 50% of the cutoff
value for the GSEC Index.
The GSEC Index may also include common shares of foreign issuers listed on the
NYSE, AMEX or NASDAQ. There is no limit as to how many companies are included in
the GSEC Index and the GSEC Index will be rebalanced on a semi-annual basis.
Performance of the index is compiled by using a modified-cap weighted
calculation to limit the extent that large-cap stocks can dominate the index.
The weight of a single stock in the GSEC Index is capped at 8.5%.
To the extent that 25% or more of the stocks that comprise the GSEC Index are
issued by companies in the e-commerce sector, the Fund will be concentrated in
the stocks of companies in the e-commerce sector. All of the companies in the
GSEC Index are in the e-commerce sector. The composition of the GSEC Index may
also result in the Fund being concentrated in one or more industries or group of
industries. It is important that an investor realize that the Fund's decision to
concentrate or not to concentrate at any given time is not discretionary and
will, in all cases, be a direct result of the stocks of the issuers that
comprise the GSEC Index.
Generally, the Fund attempts to be fully invested at all times in securities
comprising the GSEC Index. The Fund may also invest up to 10% of its total
assets in futures and options on stock index futures covered by liquid assets
and in high-quality money market instruments to provide liquidity for
redemptions.
Principal Risks
E-commerce stocks may rise and fall daily. The stocks in the GSEC Index
represent a significant portion of the U.S. market of the e-commerce sector of
the U.S. market. Thus, the GSEC Index may also rise and fall daily and perform
differently than the broader market. 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
GSEC Index may not appreciate, and could depreciate, during the time you are
invested in the Fund, even if you are a long-term investor.
The Fund is non-diversified which means that the Fund may invest a greater
percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the stocks of a single
issuer or a limited number of issuers, the stocks of the Fund may be more
sensitive to changes in market value of a single issuer or a limited number of
issuers. Such a focused investment strategy may increase the volatility of the
Fund's investment results because it may be more susceptible to risks associated
with a single economic, political or regulatory event than a diversified fund.
To the extent the stocks of companies that comprise the GSEC Index are
concentrated in the e-commerce sector and one or more industries or groups of
industries, the Fund's investments will also be concentrated. Greater risk and
increased volatility is associated with investments in a single sector of the
stock market (as opposed to investments in a broader range of industry sectors).
The value of the Fund's shares in the e-commerce sector may be especially
sensitive to factors and risks that specifically affect the e-commerce sector,
and as a result, the Fund's share price may fluctuate more widely than the value
of the shares of a mutual fund that invests in a broader range of industry
sectors. The e-commerce sector has a large proportion of technology and
telecommunications stocks and may be more volatile than other industries or
groups of industries of the market.
The e-commerce sector also could be subject to greater government regulation
than other industry sectors and therefore, changes in regulatory policies for
the e-commerce sector may have a material effect on the value of stocks issued
by companies in the e-commerce sector. Additionally, the e-commerce sector can
be particularly affected by such specific risks as: aggressive product prices
due to competitive pressure from numerous market entrants, short product cycles,
rapid rate of change, and product obsolescence at a more frequent rate than
other types of companies caused by rapid technological advances; and risks that
new products will fail to meet expectations or even reach the marketplace, among
others. In addition, such companies tend to be capital intensive and as a
result, may not be able to recover all capital investment costs.
In seeking to match the performance of the GSEC Index, the Fund will also be
limited as to its investments in other sectors of the U.S. stock market. As a
result, whenever the e-commerce sector of the U.S. stock market performs worse
than other sectors, the Fund may underperform funds that have exposure to those
sectors of the market. Likewise, whenever e-commerce stocks fall behind other
types of investments--bonds, for instance--the Fund's performance also will lag
behind those investments.
Many stocks of companies of the e-commerce sector have risen in value based on
anticipation of future earnings and company viability and are currently
operating at a loss. If these future projections prove to be overly optimistic,
shares of the corresponding companies may experience significant declines in
market value.
The Fund cannot as a practical matter own all the stocks that make up the GSEC
Index in perfect correlation to the GSEC Index itself. The use of futures and
options on futures is intended to help the Fund better match the GSEC 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 GSEC
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 GSEC Index,
which may also include stocks of smaller-capitalization companies and foreign
issuers.
Investments in smaller-capitalization companies are more risky than investments
in stocks of larger companies (those with a market value of greater than U.S. $1
billion) for the following reasons, among others: less public information is
generally available for smaller-capitalization companies; limited product lines;
less liquidity; less frequent trading; and limited financial resources.
Investments in stocks of foreign issuers also pose additional risks for the
following reasons, among others: there may be less public information available
than is available about U.S. companies; fluctuations in foreign exchange values
and currency risk could adversely affect the value of foreign investments; and
different legal and regulatory systems in foreign countries concerning financial
disclosure, accounting, and auditing standards.
An investment in the Fund is not a deposit in a 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.
Performance
This Fund is expected to commence operations on October 22, 1999. Therefore, the
performance information (including annual total returns and average annual total
returns) for a full calendar is not yet available.
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 six months of purchase) 1.00%
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees None
Other Expenses (Administration) 0.70%*
Total Annual Fund Operating Expenses 0.95%
* 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, Inc. 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, Inc. representative are subject
to a $15 fee. Transactions in Fund shares effected online are not subject to the
$15 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
$99 $202
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS
Under normal market conditions, the Fund invests at least 90% of its total
assets in the stocks of companies that comprise the GSEC Index. That portion of
its assets is not actively managed but simply tries to match, before fees and
expenses, the total return of the GSEC Index. The Fund attempts to achieve, in
both rising and falling markets, a correlation of approximately 95% between the
capitalization-weighted total return of its assets before fees and expenses and
the GSEC Index. 100% correlation would mean the total return of the Fund's
assets would increase and decrease exactly the same as the GSEC Index. The Fund
also may invest up to 10% of its total assets in futures and options on stock
index futures and in high-quality money market instruments to provide liquidity
for purposes such as to pay redemptions and fees.
The Fund is not 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 is managed by utilizing an "indexing" investment approach to determine
which securities are to be purchased or sold to replicate, to the extent
feasible and before fees and expenses, the investment characteristics of the
GSEC Index.
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
industry sectors, such as the e-commerce sector.
The Fund's ability to match its investment performance to the investment
performance of the GSEC Index may be affected by, among other things: the Fund's
expenses; the amount of cash and cash equivalents held by the Fund's investment
portfolio; the manner in which the total return of the GSEC Index is calculated;
the timing, frequency and size of shareholder purchases and redemptions of the
Fund, and the weighting of a particular stock in the GSEC Index. The Fund uses
cash flows from shareholder purchase and redemption activity to maintain, to the
extent feasible, the similarity of its portfolio to the stocks comprising the
GSEC Index.
As do many index funds, the Fund also may invest in futures and options
transactions and other derivative securities transactions to help 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 Fund incurs expenses
and must keep a portion of its assets in cash for paying expenses and processing
shareholders orders. By using futures, the Fund potentially can offset a portion
of the gap attributable to its cash holdings. However, because some of the
effect of expenses remains, the Fund's performance normally will be below that
of the GSEC Index. The Fund uses futures contracts to gain exposure to the GSEC
Index for its cash balances, which could cause the Fund to track the GSEC Index
less closely if the futures contracts do not perform as expected.
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 the Fund's service providers or persons with whom they deal do not
properly process and calculate date-related information and data on 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 Fund's investment
advisor or subadvisor, administrator, custodian and transfer agent 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 Fund's
principal service providers have also advised the Fund 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
the Fund's service providers. In addition, because the Year 2000 Problem affects
virtually all organizations, the issuers in whose securities the Fund invests
also could be adversely impacted by the Year 2000 Problem. The extent of such
impact cannot be predicted. The Year 2000 Problem may have a disproportionate
impact on the e-commerce sector with its emphasis and reliance on computing.
FUND MANAGEMENT
Investment Advisor. Under an investment advisory agreement ("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 4500 Bohannon Drive, Menlo Park, CA 94025.
The Investment Advisor commenced operating in February 1999 and therefore has
limited experience as an investment advisor.
Subject to general supervision of the E*TRADE Funds' Board of Trustees (the
"Board") and in accordance with the investment objective, policies and
restrictions of the Fund, the Investment Advisor provides the Fund with ongoing
investment guidance, policy direction and monitoring of the Fund pursuant to the
Investment Advisory Agreement. For its advisory services, the Fund pays the
Investment Advisor an investment advisory fee at an annual rate equal to 0.25%
of the Fund's average daily net assets.
The Investment Advisor and the Trust are seeking an exemptive order from the SEC
that will permit the Investment Advisor, subject to approval by the Board, to
retain sub-advisors that are unaffiliated with the Investment Advisor without
approval by the Fund's shareholders. The Investment Advisor, subject to Board
oversight, will continue to have the ultimate responsibility for the investment
performance of the Fund due to its responsibility to oversee sub-advisors and
recommend their hiring, termination, and replacement. If granted, such relief
would require shareholder notification in the event of any change in
sub-advisers. There is no assurance the exemptive order will be granted.
The Investment Advisor has entered into a subadvisory agreement ("Subadvisory
Agreement") with Barclays Global Fund Advisors ("BGFA") to delegate the
day-to-day discretionary management of the Fund's assets. 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 asset management,
administration and advisory services for over 25 years. As of December 31, 1998,
BGFA and its affiliates provided investment advisory services for over $615
billion of assets. The Investment Advisor pays BGFA a fee out of its investment
advisory fee at an annual rate equal to 0.20% of the Fund's average daily net
assets on amounts up to $200 million; 0.15% of daily net assets on amounts
between $200 and $500 million; and 0.12% of daily net assets on amounts above
$500 million. BGFA is not compensated directly by the Fund. The Subadvisory
Agreement may be terminated by the Board.
PRICING OF FUND SHARES
The Fund is a true no-load fund, which means you may buy or sell shares directly
at the NAV next 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. The Fund's investments are
valued each day the NYSE is open for business as of the close of trading on the
floor of the NYSE (generally 4:00 p.m., Eastern time). 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. Foreign issuers with common shares included in the GSEC Index may also
have securities that are primarily listed on foreign exchanges that trade on
weekends or other days when the Fund does not price its shares. As a result, the
NAV of the Fund's shares may change on days when you will not be able to
purchase, redeem or exchange the Fund's shares.
Net asset value per share is computed by dividing the value of the Fund's net
assets (i.e., the value of its assets less liabilities) by the total number of
shares of the Fund outstanding. The Fund's assets are valued generally by using
available market quotations or at fair value as determined in good faith by the
Board. Expenses are accrued daily and applied when determining the NAV.
HOW TO BUY, SELL AND EXCHANGE 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 you to consent to receive all
information about the Fund electronically. If you wish to rescind this consent,
the Fund will redeem your position in the Fund, unless a new class of shares of
the Fund has been formed for those shareholders who rescinded consent,
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; and 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 (www.etrade.com). You will be subject to E*TRADE
Securities' general account requirements as described in E*TRADE Securities'
customer agreement.
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.
By Mail. You can request an application by visiting the "Open an Account" area
of our Website, 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 it to
E*TRADE Securities, Inc., P.O. Box 8160, Boston, MA 02266-8160, or if by
overnight mail: 66 Brooks Drive, Braintree, MA 02184-8160.
Telephone. Request a new account kit by calling 1-800-786-2575. E*TRADE's
customer service is available 24 hours, seven days a week.
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., P.O. Box 8160, Boston,
MA 02266-8160, or if by overnight mail: 66 Brooks Drive, Braintree, MA
02184-8160.
Wire. Send wired funds to:
In Person. Investors may visit E*TRADE Securities' self-service center in Menlo
Park, 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.
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/Exchange 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 or
exchanging 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, sell or exchange shares. You can only sell funds that are held in your
E*TRADE Securities account; that means you cannot "short" shares of the Fund.
Whether you are investing in the Fund for the first time, adding to an existing
investment or exchanging shares, the Fund provides you with several methods to
buy its shares. Because the Fund's NAV changes daily, your purchase price will
be the next NAV determined after the Fund receives and accepts your purchase
order.
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 1.00% fee on redemptions of Fund shares held for less than six months.
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, sell or exchange 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 your 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 Website.
Telephone. All initial purchases of Fund shares must be transacted online at the
E*TRADE Website (www.etrade.com). You may place subsequent purchase and
redemption orders with a telephone representative at 1-800-STOCKS1 (1-800-
786-2571) for an additional $15 fee.
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.
If you are already a shareholder, you may also call 1-800-STOCKS5
(1-800-786-2575) to sell or exchange shares by phone through an E*TRADE
Securities broker for an additional $15 fee.
The Fund reserves the right to refuse a telephone redemption or an exchange
request 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). All initial share purchases must be transacted
on line, at www.etrade.com.
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, redemptions or exchanges 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 1.00% fee on redemptions
of fund shares held for less than six months.
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 six-month 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 six months, the fee may be assessed. The fee
may apply to shares held through omnibus accounts or certain retirement plans.
Redemption In-Kind. The Fund reserves the right to honor any request for
redemption or repurchases by making payment in whole or in part in readily
marketable securities ("redemption in-kind"). These securities will be chosen by
the Fund and valued as they are for purposes of computing the Fund's NAV. You
may incur transaction expenses in converting these securities to cash.
Exchange. You may exchange your shares of the Fund for shares of another E*TRADE
fund. An exchange is two transactions: a sale (or redemption) of shares of one
fund and the purchase of shares of a different fund with the redemption
proceeds. After we receive your exchange request, the Fund's transfer agent will
simultaneously process exchange redemptions and exchange purchases at the share
prices next determined, as further explained under "Pricing of Fund Shares."
You must meet the minimum investment requirements for the E*TRADE fund into
which you are exchanging or purchasing shares. The Fund reserves the right to
revise or terminate the exchange privilege, limit the amount of an exchange, or
reject an exchange at any time, without notice.
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 (e.g.,
when the Fund has a gain from the sale of an asset the Fund held for more than
12 months), 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. For example, if you sold at a gain Fund
shares that you had held for more than one year as a capital asset, then your
gain would be taxed at the long-term capital gains tax rate.
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 October 20, 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.
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.
4500 Bohannon Drive
Menlo Park, CA 94025
Telephone: (650) 331-5000
Toll-Free: (800) 786-2575
http://www.etrade.com
Investment Company Act No.: 811-09093
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
E*TRADE Funds
E*TRADE E-COMMERCE INDEX FUND
October 20, 1999
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the E*TRADE E-Commerce Index
Fund (the "Fund"), a separate series of the E*TRADE Funds, dated October 20,
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) or call 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
INVESTMENT STRATEGIES AND RISKS..............................................3
FUND POLICIES...............................................................11
TRUSTEES AND OFFICERS.......................................................13
INVESTMENT MANAGEMENT.......................................................16
SERVICE PROVIDERS...........................................................17
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION..............................19
ORGANIZATION, DIVIDEND AND VOTING RIGHTS....................................20
SHAREHOLDER INFORMATION.....................................................22
TAXATION....................................................................22
UNDERWRITER.................................................................25
PERFORMANCE INFORMATION.....................................................25
GOLDMAN SACHS & CO..........................................................29
APPENDIX....................................................................31
<PAGE>
FUND HISTORY
The E*TRADE E-Commerce Index Fund (the "Fund") is a non-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 an open-end, management investment company. The Fund's
investment objective is to provide investment results that match, before fees
and expenses, the total return of the stocks comprising the Goldman Sachs
E-Commerce (GSEC(TM)) Index.* This investment objective is fundamental and
therefore, cannot be changed without approval of a majority (as defined in the
Investment Company Act of 1940, as amended, and the Rules thereunder ("1940
Act")) of the Fund's outstanding voting interests.
The Fund seeks to achieve its objective by investing substantially all of its
assets in the same stocks and in substantially the same percentages as the
stocks that comprise the GSEC Index.
INVESTMENT STRATEGIES AND RISKS
The following supplements the discussion in the Prospectus of the Fund's
investment strategies, policies and risks. These investment strategies and
policies may be changed without shareholder approval unless otherwise noted.
Bank Obligations. The Fund 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 Fund will not benefit from insurance from the Bank Insurance Fund or
*"GSEC(TM)" is a registered trademark of Goldman Sachs & Co. and has 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 Goldman
Sachs & Co. and Goldman Sachs & Co. makes no representation regarding the
advisability of investing in the Fund.
<PAGE>
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Bankers' acceptances are credit instruments evidencing
the bank's obligation 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 Fund 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 Fund
monitors on an ongoing basis the ability of an issuer of a demand instrument to
pay principal and interest on demand.
The Fund 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 Fund 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 Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The investment adviser to the Fund will consider such
an event in determining whether the Fund should continue to hold the obligation.
To the extent the Fund 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 Fund 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.
Floating- and variable- rate obligations. The Fund 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.
Foreign Securities. Under its compilation guidelines, the GSEC Index can also
include foreign companies with common shares listed on the New York Stock
Exchange, the American Stock Exchange, or the NASDAQ market system. Investments
in stocks of foreign issuers may subject the Fund to additional investment risks
that are different in some respects from those incurred by a fund that invests
only in stocks 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 stocks of a foreign issuer to investors located outside the
country of the issuer, whether from currency blockage or otherwise.
Forward commitments, when-issued purchases and delayed-delivery transactions.
The Fund 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 Fund
will generally purchase securities with the intention of acquiring them, the
Fund may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate.
Certain of the securities in which the Fund 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 Fund 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
Fund currently does not intend on investing more than 5% of its assets in
when-issued securities during the coming year. The Fund will establish a
segregated account in which it will maintain cash or liquid securities in an
amount at least equal in value to the Fund's commitments to purchase when-issued
securities. If the value of these assets declines, the Fund 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.
Futures Contracts and Options Transactions. The Fund may use futures as a
substitute for a comparable market position in the underlying securities.
Although the Fund 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 Fund to
substantial losses. If it is not possible, or if the Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments on variation margin.
The Fund may invest in stock index futures and options on stock index futures as
a substitute for a comparable market position in the underlying securities.
Futures and options on the GSEC Index are not currently available and
may not be liquid if they become available. 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 on or before 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 Fund 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 Fund 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 Fund's futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the Commodity Futures Trading Commission
("CFTC"). In addition, the Fund 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 Fund'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
or published positions of the SEC, the Fund may be required to segregate liquid
portfolio securities, including cash, in connection with its futures
transactions in an amount generally equal to the entire value of the underlying
security.
Future Developments. The Fund 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 Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund will provide any appropriate additional
disclosure in its prospectus.
Investment company securities. The Fund may invest in securities issued by other
open-end management investment companies which principally invest in securities
of the type in which such Fund invests. Under the 1940 Act, a Fund's investment
in such securities currently is limited, subject to certain exceptions, to (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Fund's net assets with respect to any one investment company and (iii) 10% of
the Fund'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 Fund 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 Fund 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 Fund 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.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Fund 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 Fund may be used for letter of credit-backed investments.
Loans of portfolio securities. The Fund 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 Fund's total assets and loans of portfolio securities
are fully collateralized based on values that are marked-to-market daily. The
Fund 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
Fund could experience delays in recovering securities or collateral or could
lose all or part of the value of the loaned securities. The Fund 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
to the borrower or a placing broker.
In determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund'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 Fund will not enter
into any portfolio security lending arrangement having a duration of longer than
one year. Any securities that the Fund may receive as collateral will not become
part of the Fund's investment portfolio at the time of the loan and, in the
event of a default by the borrower, the Fund will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Fund is permitted to invest. During the time securities are on loan, the
borrower will pay the Fund any accrued income on those securities, and the Fund
may invest the cash collateral and earn income or receive an agreed upon fee
from a borrower that has delivered cash-equivalent collateral.
Obligations of Foreign Governments, Banks and Corporations. The Fund 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 Fund may invest.
To the extent that such investments are consistent with its investment
objective, the Fund 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
Fund'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 Fund 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.
Repurchase Agreements. The Fund may enter into a repurchase agreement wherein
the seller of a security to the Fund agrees to repurchase that security from the
Fund 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 Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, 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 Fund 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 Fund's custodian has
custody of, and holds in a segregated account, securities acquired as collateral
by the Fund under a repurchase agreement. Repurchase agreements are considered
loans by the Fund. All repurchase transactions must be collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Fund limits investments in repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Fund's advisor monitors on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price.
Short-term instruments and temporary investments. The Fund 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 Fund 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 Fund'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 Fund's investment advisor are of comparable quality to
obligations of U.S. banks which may be purchased by the Fund.
U.S. Government Obligations. The Fund 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 obligations 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 are
supported 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 Fund 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 Fund. After purchase by
the Fund, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require a sale
of such security by the Fund provided that the amount of such securities held by
the Fund does not exceed 5% of the Fund'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 Fund 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 Fund is not required to sell downgraded securities, the Fund 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
Fund'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 Fund'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 Fund 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 Fund 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 Fund may incur additional expenses to seek
recovery.
Warrants. To the extent that such investments are consistent with its investment
objective, the Fund 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 Fund may only purchase warrants on
securities in which the Fund may invest directly.
Securities Related Businesses. The 1940 Act limits the ability of the Fund to
invest in securities issued by companies deriving more than 15% of their gross
revenues from securities related activities ("financial companies"). If the GSEC
Index provides a higher concentration in one or more financial companies, the
Fund may experience increased tracking error due to the limitations on
investments in such companies.
Portfolio Turnover Rate. The portfolio turnover rate for the Fund 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 issue senior securities, except as permitted under the 1940 Act;
2. may (i) borrow money from banks and (ii) make other investments or engage in
other transactions permissible under the 1940 Act which may involve a borrowing,
provided that the combination of (i) and (ii) 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;
3. 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, as amended, in connection with the disposition of
portfolio securities;
4. may not invest 25% or more of its total assets (taken at market value at the
time of such investment) 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 repurchase agreements thereto) or (ii) any
particular industry or group of closely related industries (such as the
e-commerce sector) to the extent which companies whose stocks comprise the GSEC
Index belong to a particular industry or group of closely related industries to
the approximately same degree during the same period;
5. 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;
6. 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; and
7. 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:
1. may not 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. may not purchase securities of other investment companies, except to the
extent permitted under the 1940 Act;
3. may not 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.
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 Principal Occupation(s) During
the Fund the Past 5 Years
- -----------------------------------------------------------------------------------
<S> <C> <C>
*Kathy Levinson (44) Trustee Ms. Levinson is executive vice
4500 Bohannon Drive, president of E*TRADE Group,
Menlo Park, CA 94025 Inc. and president and chief
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 (51) Trustee Mr. Purkis is chief financial
4500 Bohannon Drive, officer and executive vice
Menlo Park, CA 94025 president of finance and
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 (40) 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
4500 Bohannon Drive, E*TRADE Asset Management, Inc.
Menlo Park, CA 94025 He joined E*TRADE Securities,
Inc. in January 1998. Prior to
that Mr. Murray was Principal
of Alameda Consulting
(Financial Services
Consulting) and prior to that
he was Director, Mutual Fund
Marketplace of Charles Schwab
Corporation (Financial
Services).
*Joe N. Van Remortel Vice President and Mr. Van Remortel is Vice
(34) Secretary President of Operations,
4500 Bohannon Drive, E*TRADE Asset Management, Inc.
Menlo Park, CA 94025 He joined E*TRADE Securities,
Inc. in September 1996. Prior
to that Mr. Van Remortel was
Senior Consultant of KPMG Peat
Marwick and Associate of
Analysis Group, Inc., a
management consulting firm.
</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>
Name of Person, Position Aggregate Total Compensation
Compensation from From Trust and Fund
the Trust Complex Paid 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 and requirements and for compliance purposes, as of October 22, 1999,
E*TRADE Asset Management, Inc. owned 100% of the Fund's outstanding shares.
There are no other shareholders holding 25% or more. E*TRADE Asset Management,
Inc. is a Delaware corporation and is wholly owned by E*TRADE Group, Inc. Its
address is 4500 Bohannon Drive, Menlo Park, CA 94025.
As of September 30, 1999, Softbank America Inc. owned 26.1% of the total
outstanding voting shares of E*TRADE Group, Inc. Softbank America, Inc. is a
Delaware corporation and is located 300 Delaware Ave., Suite 900, Wilmington,
Delaware 19801. It is a wholly owned subsidiary of Softbank Holding, Inc., also
a Delaware corporation, which, in turn, is a wholly owned subsidiary of Softbank
Corporation, a Japanese corporation.
INVESTMENT MANAGEMENT
Investment Advisor. Under an investment advisory agreement ("Investment Advisory
Agreement") with the Fund, E*TRADE Asset Management, Inc. ("E*TRADE Asset
Management" or "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 4500 Bohannon Drive,
Menlo Park, CA 94025. The Investment Advisor commenced operating in February
1999 and therefore has limited experience as an investment advisor. As of
September 30, 1999, the Investment Advisor provided investment advisory services
for over $59 million in assets.
Subject to general supervision of the Trust's Board and in accordance with the
investment objective, policies and restrictions of the Fund, the Investment
Advisor provides the Fund with ongoing investment management guidance, policy
direction and monitoring of the Fund and any sub-advisers pursuant to an
investment advisory agreement. 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 0.25% of the Fund's average daily net assets. The Investment Advisor retains
a portion of that fee not paid to BGFA, as described below.
The Investment Advisor and the Trust are seeking an exemptive order from the SEC
that will permit the Investment Advisor, subject to approval by the Board, to
retain sub-advisers that are unaffiliated with the Investment Advisor without
approval by the Fund's shareholders. The Investment Advisor, subject to Board
oversight, has the ultimate responsibility for the investment performance of the
Fund due to its responsibility to oversee Sub-advisors and recommend their
hiring, termination, and replacement. If granted, such relief would require
shareholder notification in the event of any change in sub-advisers. There is no
assurance the exemptive order will be granted.
Sub-Advisor to the Fund. The Investment Advisor has entered into a sub-advisory
agreement ("Sub-Advisory Agreement") with 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
asset management, administration and advisory services for over 25 years. As of
December 31, 1998, BGFA and its affiliates provided investment advisory services
for over $615 billion of assets.
Under the Sub-Advisory Agreement, BGFA is responsible for the day-to-day
management of the Fund's assets pursuant to the Fund's investment objective and
restrictions. For its services, BGFA receives a fee from the Investment Advisor
at an annual rate equal to 0.20% of the Fund's average daily net assets on
amounts up to $200 million; 0.15% of daily net assets on amounts between $200
and $500 million; and 0.12% of daily net assets on amounts above $500 million.
Additionally, Barclays is entitled to receive a minimum annual fee of $40,000.
The Sub-Advisory Agreement is subject to the same Board of Trustee approval,
oversight and renewal as the Investment Advisory Agreement.
BGFA has agreed to provide to the Fund, among other things, analysis and
statistical and economic data and information concerning the compilation of the
GSEC Index, including portfolio composition.
Both the Investment Advisory Agreement and the Sub-Advisory Agreement will
continue in effect for more than two years provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Fund's Board of Trustees and (ii) by a majority of the
Trustees of the Fund who are not parties to the Investment Advisory Agreement or
the Sub-Advisory Agreement or affiliates of any such party. Both the Investment
Advisory Agreement and the Sub-Advisory Agreement may be terminated on 60 days'
written notice any such party and will terminate automatically if assigned.
Asset allocation, index 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 Fund 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 Fund or the price paid or
received by the Fund.
SERVICE PROVIDERS
Principal Underwriter. E*TRADE Securities, Inc., 4500 Bohannon Drive, Menlo
Park, CA 94025, is the Fund's principal underwriter. The underwriter is a wholly
owned subsidiary of E*TRADE Group, Inc.
Administrator of the Fund. E*TRADE Asset Management, the Fund's Investment
Advisor, also serves as the Fund's administrator. As the Fund's administrator,
E*TRADE Asset Management provides administrative services directly or through
sub-contracting, and general supervision of the operation of the Fund,
including: (i) 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; and (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as management and financial reports to
shareholders, and reports and filings with the SEC and state securities
commissions. E*TRADE Asset Management 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 receives a fee equal to 0.70%
of the average daily net assets of the Fund. This fee is waived to the extent
that fees and expenses of the independent trustees and their counsel equal or
exceed 0.005% of the Fund's average daily net assets. E*TRADE Asset Management
is responsible under that agreement for expenses otherwise payable by the Fund,
including registration and qualification filing, transfer agency, dividend
disbursing, custody, auditing and legal (other than litigation) fees and
expenses, to the extent that those fees and expenses (together with fees and
expenses of the independent trustees and their counsel, if any) would otherwise
equal or exceed 0.005% of the Fund's average daily net assets.
Custodian, Fund Accounting Services Agent and Sub-administrator. PFPC Trust
Company ("PFPC Trust"), 400 Bellevue Parkway, Wilmington, DE 19809, serves as
custodian of the assets of the Fund. As a result, PFPC Trust has custody of all
securities and cash of the Fund, 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. The custodian has no responsibility for any of the investment policies or
decisions of the Fund. PFPC, Inc. ("PFPC") an affiliate of PFPC Trust, also acts
as the Fund's Accounting Services Agent. PFPC Trust also serves as the Fund's
sub-administrator, under an agreement among PFPC Trust, the Trust and E*TRADE
Asset Management, providing management reporting and treasury administration and
financial reporting to Fund Management and the Fund's Board of Trustees and
preparing income tax provisions and tax returns. PFPC Trust and PFPC are
compensated for their services by E*TRADE Asset Management.
Transfer Agent and Dividend Disbursing Agent. PFPC, 400 Bellevue Parkway,
Wilmington, DE 19809, also acts as transfer agent and dividend disbursing agent
for the Fund.
Fund Shareholder Servicing Agent. Under a Shareholder Servicing Agreement with
E*TRADE Securities, Inc. and E*TRADE Asset Management, E*TRADE Securities, Inc.,
4500 Bohannon Drive, Menlo Park, CA 94025, 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, exchanges
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, exchange 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, exchange or redeem shares of the Fund; (vi) verifying purchase,
exchange and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Fund of
the gross amount of purchase, exchange and redemption orders for the Fund's
shares; (viii) providing 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 Fund has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Pursuant to the Sub-Advisory
Agreement and subject to policies established by the Fund's Board of Trustees,
BGFA, as sub-advisor, is responsible for the Fund's investment portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Fund 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 Fund will not necessarily be paying the
lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be combined with
those of other accounts that BGFA manages, and for which they have 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 Fund and other accounts managed by BGFA, BGFA undertakes to
allocate those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Fund, BGFA and their affiliates
are prohibited from dealing with the Fund 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 Fund, 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 Fund 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 Fund'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, affiliates of BGFA or Barclays. 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 Fund, 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 Fund 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 Fund. 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
Fund's Board.
Certain of the brokers or dealers with whom the Fund may transact business offer
commission rebates to the Fund. 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 non-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. Shareholders are
not entitled to any preemptive rights. All shares, when issued, will be fully
paid and non-assessable by the Trust. 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.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon its trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a trustee against any liability to
which a 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.
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 or jurisdictions. 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 or jurisdictions, 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, Inc.
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 Website. 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.
Foreign Taxes. The Fund may be subject to certain taxes imposed by the countries
in which it invests or operates. If the Fund qualifies as a regulated investment
company and if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stocks or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
any foreign taxes paid by the Fund that qualify as income or similar taxes under
U.S. income tax principles as having been paid by the Fund's shareholders. For
any year for which the Fund makes such an election, each shareholder will be
required to include in its gross income an amount equal to its allocable share
of such taxes paid by the Fund and the shareholders will be entitled, subject to
certain limitations, to credit their portions of these amounts against their
U.S. federal income tax liability, if any, or to deduct their portions from
their U.S. taxable income, if any. No deduction for foreign taxes may be claimed
by individuals who do not itemize deductions. In any year in which it elects to
"pass through" foreign taxes to shareholders, the Fund will notify shareholders
within 60 days after the close of the Fund's taxable year of the amount of such
taxes and the sources of its income.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities may have to be treated as derived from U.S. sources
and certain currency fluctuation gains, including Section 988 gains (defined
below), may have to be treated as derived from U.S. sources. The limitation of
the foreign tax credit is applied separately to foreign source passive income,
including foreign source passive income received from the Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit can be applied to
offset no more than 90% of the alternative minimum tax imposed on corporations
and individuals.
The foregoing is only a general description of the foreign tax credit. Because
application of the credit depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
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.
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.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
Passive Foreign Investment Companies. The Fund may invest in shares of foreign
corporations that may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund would be required to include in its gross income its share of the earnings
of a PFIC on a current basis, regardless of whether distributions were received
from the PFIC in a given year. If this election were made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, another election would involve marking to market the Fund's
PFIC shares at the end of each taxable year, with the result that unrealized
gains would be treated as though they were realized and reported as ordinary
income. Any mark-to-market losses and any loss from an actual disposition of
PFIC shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years.
UNDERWRITER
Distribution of Securities. Under a Distribution Agreement with the Fund
("Distribution Agreement"), E*TRADE Securities Inc., 4500 Bohannon Drive, Menlo
Park, CA 94025, 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, exchanging or selling shares of the Fund. The Distribution Agreement
further provides that the Distributor will bear any 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.
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)(To the power of 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)(To the power of 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 the Fund may
purchase and the investments measured by the indices.
The historical GSEC Index 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.
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.
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.
GOLDMAN SACHS & CO
The Fund is not sponsored, endorsed sold or promoted by Goldman Sachs & Co.
Goldman Sachs & Co. 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 GSEC Index to track the e-commerce stock market performance. Goldman Sachs &
Co.'s only relationship to E*TRADE Asset Management or the Fund is the licensing
of certain trademarks and trade names of Goldman Sachs & Co. and of the GSEC
Index which is determined, composed and calculated by Goldman Sachs & Co.
without regard to E*TRADE Asset Management or the Fund. Goldman Sachs & Co. has
no obligation to take the needs of E*TRADE Asset Management, the Fund or the
shareholders into consideration in determining, composing or calculating the
GSEC Index. Goldman Sachs & Co. 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 redemption price per share. Goldman Sachs & Co. has no obligation or
liability in connection with the administration, marketing or trading of the
Fund.
Goldman Sachs & Co. does not guarantee the accuracy and/or the completeness of
the GSEC Index or any data included therein and Goldman Sachs & Co. hereby
expressly disclaims any and all liability for any errors, omissions, or
interruptions therein. Goldman Sachs & Co. 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 GSEC Index or any data included
therein. Goldman Sachs & Co. 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 GSEC Index or any data included
therein. Without limiting any of the foregoing, in no event shall Goldman Sachs
& Co. 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>
4500 Bohannon Drive
Menlo Park, CA 94025
Telephone: (650) 331-6000
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.2
(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)(i) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
S&P 500 Index Fund.2
(d)(ii) Form of Amended and Restated Investment Advisory Agreement
between E*TRADE Asset Management, Inc. and the Registrant with
respect to the E*TRADE S&P 500 Index Fund, E*TRADE Extended
Market Index Fund, E*TRADE Bond Index Fund, and E*TRADE
International Index Fund.4
(d)(iii) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Technology Index Fund.4
(d)(iv) Form of Investment Subadvisory Agreement among E*TRADE Asset
Management, Inc., Barclays Global Fund Advisors and the
Registrant with respect to the E*TRADE Technology Index Fund.4
(d)(v) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
E-Commerce Index Fund.
(d)(vi) Form of Investment Subadvisory Agreement among E*TRADE Asset
Management, Inc., Barclays Global Fund Advisors and the
Registrant with respect to the E*TRADE E-Commerce Index Fund.
(d)(vii) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Global Titans Index Fund.6
(d)(viii) Form of Investment Subadvisory Agreement among E*TRADE Asset
Management, Inc., Barclays Global Fund Advisors and the
Registrant with respect to the E*TRADE Global Titans Index Fund.6
(d)(ix) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Premier Money Fund.6
(e)(i) Form of Underwriting Agreement between E*TRADE Securities, Inc.
and the Registrant with respect to the E*TRADE S&P 500 Index
Fund.2
(e)(ii) Amended and Restated Underwriting Agreement between E*TRADE
Securities, Inc. and the Registrant with respect to E*TRADE
Extended Market Index Fund, E*TRADE Bond Index Fund, E*TRADE
Technology Index Fund, E*Trade International Index Fund, and
E*TRADE E-Commerce Index Fund.4
(e)(iii) Form of Amendment No. 1 to the Amended and Restated Underwriting
Agreement between E*TRADE Securities, Inc. and the Registrant
with respect to E*TRADE Global Titans Index Fund and E*TRADE
Premier Money Fund.6
(f) Bonus or Profit Sharing Contracts: Not applicable.
(g)(i) Form of Custodian Agreement between the Registrant and Investors
Bank & Trust Company with respect to the E*TRADE S&P 500 Index
Fund.2
(g)(ii) Form of Amendment No. 1 to the Custodian Agreement between the
Registrant and Investors Bank & Trust Company with respect to
E*TRADE Extended Market Index Fund, E*TRADE Bond Index Fund, and
E*TRADE International Index Fund.4
(g)(iii) Form of Custodian Services Agreement between Registrant and PFPC
Trust Company with respect to the E*TRADE Technology Index Fund
and E*TRADE E-Commerce Index Fund.4
(g)(iv) Form of Amendment No. 1 to the Custodian Services Agreement
between Registrant and PFPC Trust Company with respect to the
E*TRADE Global Titans Index Fund and E*TRADE Premier Money Fund.6
(h)(1)(i) Form of Third Party Feeder Fund Agreement among the Registrant,
E*TRADE Securities, Inc. and Master Investment Portfolio with
respect to the E*TRADE S&P 500 Index Fund.2
(h)(1)(ii) Form of Third Party Feeder Fund Agreement among the Registrant,
E*TRADE Securities, Inc. and Master Investment Portfolio with
respect to the E*TRADE S&P 500 Index Fund, E*TRADE Extended
Market Index Fund, and E*TRADE Bond Index Fund.4
(h)(1)(iii) Form of Amendment No. 1 of Third Party Feeder Fund Agreement
among the Registrant, E*TRADE Securities, Inc. and Master
Investment Portfolio with respect to the E*TRADE International
Index Fund.6
(h)(2)(i) Form of Administrative Services Agreement between the Registrant
and E*TRADE Asset Management, Inc. with respect to the E*TRADE
S&P 500 Index Fund.2
(h)(2)(ii) Form of Amendment No. 1 to the Administrative Services Agreement
between the Registrant and E*TRADE Asset Management, Inc. with
respect to the E*TRADE Extended Market Index Fund, E*TRADE Bond
Index Fund, E*TRADE Technology Index Fund, International Index
Fund, and E-Commerce Index Fund.4
(h)(2)(iii) Form of the Amended and Restated Administrative Services
Agreement between the Registrant and E*TRADE Asset Management,
Inc. with respect to the E*TRADE Global Titans Index Fund and
E*TRADE Premier Money Fund.6
(h)(3)(i) Sub-Administration Agreement among E*TRADE Asset Management,
Inc., the Registrant and Investors Bank & Trust Company with
respect to the E*TRADE S&P 500 Index Fund.5
(h)(3)(ii) Form of Amendment No. 1 to the Sub-Administration Agreement among
E*TRADE Asset Management, Inc., the Registrant and Investors Bank
& Trust Company with respect to the E*TRADE Extended Market Index
Fund, E*TRADE Bond Index Fund and E*TRADE International Index
Fund.4
(h)(4) Form of Sub-Administration and Accounting Services Agreement
between E*TRADE Funds and PFPC, Inc. with respect to the E*TRADE
Technology Index Fund.4
(h)(4)(i) Exhibit A to the Sub-Administration and Accounting Services
Agreement between E*TRADE Funds and PFPC, Inc. with respect to
the E*TRADE E-Commerce Index Fund.
(h)(4)(ii) Form of Amendment No. 1 to the Sub-Administration and Accounting
Services Agreement between E*TRADE Funds and PFPC, Inc. with
respect to the E*TRADE Global Titans Index Fund and E*TRADE
Premier Money Fund.6
(h)(5)(i) Form of Transfer Agency Services Agreement between PFPC, Inc. and
the Registrant with respect to the E*TRADE S&P 500 Index Fund.2
(h)(5)(ii) Form of Amendment No. 1 to the Transfer Agency Services Agreement
between PFPC, Inc. and the Registrant with respect to the E*TRADE
Extended Market Index Fund, E*TRADE Bond Index Fund, E*TRADE
Technology Index Fund, E*TRADE International Index Fund, and
E*TRADE E-Commerce Index Fund.4
(h)(5)(iii) Form of Amendment No. 2 to the Transfer Agency Services Agreement
between PFPC, Inc. and the Registrant with respect to the E*TRADE
Global Titans Index Fund and E*TRADE Premier Money Fund.6
(h)(6)(i) Retail Shareholder Services Agreement between E*TRADE Securities,
Inc., the Registrant and E*TRADE Asset Management, Inc. with
respect to the E*TRADE S&P 500 Index Fund.5
(h)(6)(ii) Form of Amendment No. 1 to the Retail Shareholder Services
Agreement between E*TRADE Securities, Inc., the Registrant and
E*TRADE Asset Management, Inc. with respect to the E*TRADE
Extended Market Index Fund, E*TRADE Bond Index Fund, E*TRADE
Technology Index Fund, E*TRADE International Index Fund, and
E*TRADE E-Commerce Index Fund.4
(h)(6)(iii) Form of Amendment No. 2 to the Retail Shareholder Services
Agreement between E*TRADE Securities, Inc., the Registrant and
E*TRADE Asset Management, Inc. with respect to the E*TRADE Global
Titans Index Fund and E*TRADE Premier Money Fund.6
(h)(7) State Securities Compliance Services Agreement between E*TRADE
Funds and PFPC, Inc. with respect to S&P 500 Index Fund, E*TRADE
Extended Market Index Fund, E*TRADE Bond Index Fund, E*TRADE
Technology Index Fund, E*TRADE International Index Fund, and
E*TRADE E-Commerce Index Fund.4
(h)(7)(i) Form of Amendment No. 1 to the State Securities Compliance
Services Agreement between E*TRADE Funds and PFPC, Inc. with
respect to E*TRADE Global Titans Index Fund and E*TRADE Premier
Money Fund.6
(i)(1) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE S&P 500 Index Fund.2
(i)(2) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE Extended Market Index Fund, E*TRADE Bond Index Fund and
E*TRADE Technology Index Fund.4
(i)(3) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE E-Commerce Index Fund.
(i)(4) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE International Index Fund.6
(i)(5) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE Global Titans Index Fund and E*TRADE Premier Money Fund.6
(j) Consent of Deloitte &Touche LLP: Not applicable.
(k) Omitted Financial Statements: Not applicable.
(l) Form of Subscription Letter Agreements between E*TRADE Asset
Management, Inc. and the Registrant.2
(m) Rule 12b-1 Plan: Not applicable.
(n) Financial Data Schedules: Not applicable.
(o) Rule 18f-3 Plan: Not applicable.
* Power of Attorney.3
** Power of Attorney for Master Investment Portfolio.2
*** Power of Attorney and Secretary's Certificate of Registrant for signature
on behalf of Registrant.5
1 Incorporated by reference from the Registrant's Initial Registration Statement
on Form N-1A filed with the Securities and Exchange Commission ("SEC") on
November 5, 1998.
2 Incorporated by reference from the Registrant's Pre-effective Amendment No. 2
to the Registration Statement on Form N-1A filed with the SEC on January 28,
1999.
3 Incorporated by reference from the Registrant's Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A filed with the SEC on May 17, 1999.
4 Incorporated by reference from the Registrant's Post-Effective Amendment No. 4
to the Registration Statement on Form N-1A filed with the SEC on August 11,
1999.
5 Incorporated by reference from the Registrant's Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed with the SEC on October 8,
1999.
6 To be filed by amendment.
Item 24. Persons Controlled by or Under Common Control With Registrant
As of September 30, 1999, Softbank America Inc. owned 26.1% of the total
outstanding voting shares of E*TRADE Group, Inc. Softbank America, Inc. is a
Delaware corporation and is located 300 Delaware Ave., Suite 900, Wilmington,
Delaware 19801. It is a wholly owned subsidiary of Softbank Holding, Inc., also
a Delaware corporation, which, in turn, is a wholly owned subsidiary of Softbank
Corporation, a Japanese corporation.
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, 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.
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 4500 Bohannon Drive, Menlo Park, CA 94025. The directors
and officers of the Investment Advisor and their business and other connections
are as follows:
<TABLE>
<CAPTION>
Directors and Officers Title/Status with Other Business
of Investment Adviser Investment Adviser Connections
<S> <C> <C>
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
and Secretary Securities, Inc.,
1997-98
</TABLE>
Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of
Barclays Global Investors, N.A. ("BGI"), is the sub-advisor for the E*TRADE
Technology Index Fund, E*TRADE E-Commerce Index Fund and E*TRADE Global Titans
Index Fund. BGFA is a registered investment adviser to certain open-end,
management investment companies and various other institutional investors. The
directors and officers of the sub-advisor and their business and other
connections are as follows:
<TABLE>
<CAPTION>
Name and Position at BGFA Other Business Connections
<S> <C>
Patricia Dunn Director of BGFA and Co-Chairman and Director of
Director BGI, 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint, Chairman of the Board of Directors of BGFA and
Chairman and Director Chief Executive Officer of BGI, 45 Fremont
Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI
since May 1997, 45 Fremont Street, San Francisco,
CA 94150 Managing Director and Principal Accounting
Officer at Bankers Trust Company from 1988 - 1997,
505 Market Street, San Francisco, CA 94111
</TABLE>
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:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
<S> <C> <C>
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
<FN>
* The business address of all officers of the Distributor is 4500 Bohannon
Drive, Menlo Park, CA 94025.
</FN>
</TABLE>
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 4500 Bohannon Drive, Menlo Park, CA 94025;
(2) the Registrant's custodian, accounting services agent and
sub-administrator with respect to the E*TRADE S&P 500 Index Fund, E*TRADE
Extended Market Index Fund, E*TRADE Bond Index Fund, and E*TRADE International
Index Fund, 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;
(4) the Registrant's custodian, accounting services agent and
sub-administrator with respect to the E*TRADE Technology Index Fund, E*TRADE
E-Commerce Index Fund, E*TRADE Global Titans Index, and E*TRADE Premier Money
Fund, PFPC Inc. at 400 Bellevue Parkway, Wilmington, DE 19809; and
(5) the Master Portfolio's investment advisor and sub-advisor with respect
to the E*TRADE Technology Index Fund, E*TRADE E-Commerce Index Fund and E*TRADE
Global Titans Index Fund, Barclays Global Fund Advisors, 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, as amended,
the Registrant has duly caused this Post-Effective Amendment No. 9 to the
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Menlo Park in the State of California on the 18th day
of October, 1999.
E*TRADE FUNDS (Registrant)
By: /s/
-------------------------------
Name: Brian C. Murray
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 9 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
/s/
- ------------------------------
Kathy Levinson Trustee October 18, 1999
/s/
- ------------------------------
Leonard C. Purkis Trustee and Treasurer October 18, 1999
(Principal Financial and
Accounting Officer)
/s/
- ------------------------------
Brian C. Murray President (Principal October 18, 1999
Executive Officer)
/s/
- ------------------------------
Shelly J. Meyers Trustee October 18, 1999
/s/
- ------------------------------
Ashley T. Rabun Trustee October 18, 1999
/s/
- ------------------------------
Steven Grenadier Trustee October 18, 1999
*By ------------------------------
David A. Vaughan
Attorney-In-Fact
<PAGE>
EXHIBIT LIST
Exhibit
No. DESCRIPTION
(d)(v) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
E-Commerce Index Fund.
(d)(vi) Form of Investment Subadvisory Agreement among E*TRADE Asset
Management, Inc., Barclays Global Fund Advisors and the
Registrant with respect to the E*TRADE E-Commerce Index Fund.
(h)(4)(i) Exhibit A to the Sub-Administration and Accounting Services
Agreement between E*TRADE Funds and PFPC, Inc. with respect to
the E*TRADE E-Commerce Index Fund.
(i)(3) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE E-Commerce Index Fund.
INVESTMENT ADVISORY AGREEMENT
E*TRADE FUNDS
with respect to
E*TRADE E-COMMERCE INDEX FUND
AGREEMENT, effective commencing as of October 22, 1999 between E*TRADE
Asset Management, Inc. (the "Adviser") and E*TRADE Funds (the "Trust") with
respect to E*TRADE E-Commerce 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 a 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 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 all
<PAGE>
subadvised portions of the 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;
<PAGE>
(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 dealing 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 any subadviser of broker-dealers. To the extent permitted by the Adviser's
Form ADV as filed with the SEC, 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
<PAGE>
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
<PAGE>
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
<PAGE>
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 or otherwise for breach of 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. Notwithstanding any other provision of this Agreement, the Adviser
shall not be liable for any loss to the Fund caused directly or indirectly by
circumstances beyond the Adviser's reasonable control including, but not limited
to, government restrictions, exchange or market rulings, suspensions of trading,
acts of civil or military authority, national emergencies, earthquakes, floods
or other catastrophes, acts of God, wars or failures of communication or power
supply.
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
<PAGE>
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
<PAGE>
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 "GSEC(TM) Composite" Name.
It is understood that the Adviser has entered into a licensing agreement
with Goldman Sachs & Co., for use of the terms "GSEC(TM) Composite", "GSEC" or
"Goldman Sachs E-Commerce Index" (the "license"). In accordance with such
license, the Adviser shall permit the Trust, on behalf of the Fund, to use the
terms "GSEC Composite", "GSEC" or "Goldman Sachs E-Commerce Index", 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 without regard to the conflicts of law provisions thereof, 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 the date first set forth
above.
E*TRADE FUNDS
By:
Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Name of Fund Advisory Fee
E*TRADE E-Commerce Index Fund 0.25% of
the Fund's average daily net
assets, calculated as described
in Section 6 of the foregoing
Agreement.
INVESTMENT SUBADVISORY AGREEMENT
E*TRADE FUNDS
with respect to
E*TRADE E-COMMERCE INDEX FUND
AGREEMENT, effective commencing as of October 22, 1999 among Barclays
Global Fund Advisors (the "Subadviser"), E*TRADE Asset Management, Inc. (the
"Adviser") and E*TRADE Funds (the "Trust") with respect to E*TRADE E-Commerce
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 a portfolio of the Trust; and
WHEREAS, the Trust has retained the Adviser to render investment advisory
services to the Trust on behalf of the Fund, pursuant to an Investment Advisory
Agreement dated as of October 22, 1999, among the Adviser and the Trust
("Investment Advisory Agreement");
WHEREAS, the Trust's Board of Trustees, including a majority of the
Trustees who are not "interested persons," as defined in the 1940 Act, and the
Fund shareholders have approved the appointment of the Subadviser to perform
certain investment advisory services for the Trust on behalf of the Fund
pursuant to this Subadvisory Agreement ("the "Subadvisory Agreement") and the
Subadviser is willing to perform such services for the Trust on behalf of the
Fund; and
WHEREAS, the Subadviser 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 Subadviser, the Adviser and the Trust
as follows:
1. Appointment. The Trust and Adviser hereby appoint the Subadviser to act as
investment adviser to the Fund for the periods and on the terms set forth in
this Agreement. The Subadviser 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 and the
Adviser, the Subadviser will, in coordination with the Adviser: (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
<PAGE>
("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 Subadviser
by the Adviser; (ii) make investment decisions for the Fund; and (iii) place
orders to purchase and sell securities and other assets for the Fund.
(b) In performing its investment management services to the Fund
hereunder, the Subadviser will provide the Fund, among other things, as received
by the index compilation provider, analysis of statistical and economic data and
information concerning index compilation, including portfolio composition. The
Subadviser will determine the securities, instruments, repurchase agreements,
futures, 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 Subadviser 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.
(c) The Subadviser's duties shall not include and the Subadviser shall
have no responsibility for tax reporting or securities lending.
(d) The Subadviser 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) 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 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 Subadviser will keep the Trust, the Trustees and
the Adviser informed of developments materially affecting the Fund's portfolio
and shall, when requested meet quarterly with the Trustees to explain its
activities. Further, on the Subadviser's own initiative, furnish to the Trust
from time to time whatever information the Subadviser believes appropriate for
this purpose;
(v) make available to the Trust's administrator (the "Administrator"),
the Adviser 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, the Adviser and the Trust in their compliance with
applicable laws and regulations. The Subadviser will furnish the Trustees with
such periodic and special reports regarding the Fund and any subadviser as they
may reasonably request;
<PAGE>
(vi) immediately notify the Trust in the event that the Subadviser or
any of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Subadviser 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 Subadviser further agrees to notify the Trust immediately of any
material fact known to the Subadviser respecting or relating to the Subadviser
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 Subadviser seek to obtain any such information.
3. Futures and Options. The Subadviser's investment authority shall include
advice with regard to purchasing, selling, covering open positions, and
generally dealing in financial futures contracts and options thereon, in
accordance with Rule 4.5 of the Commodity Futures Trading Commission.
The Subadviser'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 Subadviser may, using such of
the securities and other property in the Brokerage Accounts as the Subadviser
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 Subadviser deems desirable or appropriate.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION (THE
"COMMISSION") IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS, THIS
BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH
THE COMMISSION. THE COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN
A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR
DISCLOSURE. CONSEQUENTLY, THE COMMISSION HAS NOT REVIEWED OR APPROVED THIS
TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT.
The Trust represents and warrants that it is a "qualified eligible client"
within the meaning of CFTC Regulations Section 4.7 and, as such, consents to
treat the Fund in accordance with the exemption contained in CFTC Regulations
Section 4.7(b).
<PAGE>
4. Use of Securities Brokers and Dealers. The Subadviser will monitor the use of
broker-dealers. To the extent permitted by the Subadviser's Form ADV as filed
with the SEC, purchase and sale orders will usually be placed with brokers who
are selected by the Subadviser 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 Subadviser 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 Subadviser is
expressly authorized to consider the fact that a broker or dealer has furnished
statistical, research or other information or services which enhance the
Subadviser'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 Subadviser 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 Subadviser 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 Subadviser's
overall responsibilities to the Subadviser's discretionary accounts.
Neither the Subadviser 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 Subadviser 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
Subadviser 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
Subadviser 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 Subadviser
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 Subadviser shall not be required to pay pursuant to this Agreement
any expenses of the Fund other than those specifically allocated to the
Subadviser in this section 5. In particular, but without limiting the generality
of the foregoing, the Subadviser 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 Subadviser 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 Subadviser's overhead
and employee costs); fees payable to the Subadviser and to any other Fund
<PAGE>
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; 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 Subadviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Trust who are officers,
directors or employees of the Subadviser 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
Subadviser under this Agreement, the Adviser will pay the Subadviser 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, and subject to any minimum fees stated therein. 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
<PAGE>
when the Subadviser's compensation is payable pursuant to this section, then the
Subadviser'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 Subadviser 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 Subadviser
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 Subadviser 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 subadviser
may aggregate sales and purchase orders of securities held in the Fund with
similar orders being made simultaneously for other accounts managed by the
subadviser or with accounts of the affiliates of the Subadviser, if in the
Subadviser'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 subadviser represents the Subadviser'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 Subadviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Subadviser 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
Subadviser against any liability to the Trust, the Fund or to holders of the
Fund's shares to which the Subadviser 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 Subadviser's reckless disregard of
its obligations and duties under this Agreement or otherwise for breach of this
Agreement. As used in this Section 9, the term "Subadviser" shall include any
officers, directors, employees or other affiliates of the Subadviser performing
services with respect to the Fund.
<PAGE>
10. Liability.
(a) Neither Subadviser nor its officers, directors, employees, affiliates,
agents or controlling persons shall be liable to the Trust, the Fund, its
shareholders and/or any other person for the acts, omissions, errors of judgment
and/or mistakes of law of any other fiduciary and/or person with respect to the
Fund.
(b) Neither the Subadviser nor its officers, directors, employees,
affiliates, agents or controlling persons or assigns shall be liable for any
act, omission, error of judgment or mistake of law and/or for any loss suffered
by the Trust, the Fund, its shareholders and/or any other person in connection
with the matters to which this Agreement relates; provided that no provision of
this Agreement shall be deemed to protect the Subadviser against any liability
to the Trust, the Fund and/or its shareholders which it might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of its duties or the reckless disregard of its obligations and
duties under this Subadvisory Agreement.
(c) The Trust on behalf of the Fund, hereby agrees to indemnify and hold
harmless the Subadviser, its directors, officers and employees and agents and
each person, if any, who controls the Subadviser (collectively, the "Indemnified
Parties") against any and all losses, claims damages or liabilities (including
reasonable attorneys fees and expenses), joint or several, relating to the Trust
or Fund, to which any such Indemnified Party may become subject under the
Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act
of 1934, the Investment Advisers Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(1) any act, omission, error and/or mistake of any other fiduciary and/or any
other person; or (2) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a material fact
required to be stated or necessary to make the statements made not misleading in
(a) the Registration Statement, the prospectus or any other filing, (b) any
advertisement or sales literature authorized by the Trust for use in the offer
and sale of shares of the Fund, or (c) any application or other document filed
in connection with the qualification of the Trust or shares of the Fund under
the Blue Sky or securities laws of any jurisdiction, except insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission (i) in a document prepared by the Subadviser, or (ii) made
in reliance upon and in conformity with information furnished to the Trust by or
on behalf of the Subadviser pertaining to or originating with the Subadviser for
use in connection with any document referred to in clauses (a), (b) or (c).
(d) It is understood, however, that nothing in this paragraph 10 shall
protect any Indemnified Party against, or entitle any Indemnified Party to,
indemnification against any liability to the Trust, Fund and/or its shareholders
to which such Indemnified Party is subject, by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of any reckless disregard of its obligations and duties under this
Agreement or any breach of this Agreement.
(e) Notwithstanding any other provision of this Agreement, the Subadviser
shall not be liable for any loss to the Fund or the Adviser caused directly or
indirectly by circumstances beyond the Subadviser's reasonable control
including, but not limited to, government restrictions, exchange or market
<PAGE>
rulings, suspensions of trading, acts of civil or military authority, national
emergencies, earthquakes, floods or other catastrophes, acts of God, wars or
failures of communication or power supply.
11. Services Not Exclusive. It is understood that the services of the Subadviser
are not exclusive, and that nothing in this Agreement shall prevent the
Subadviser 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
Subadviser's ability to meet its obligations to the Fund hereunder. When the
Subadviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Subadviser 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
Subadviser nor any of its directors, officers or employees shall act as a
principal or agent or receive any commission. If the Subadviser provides any
advice to its clients concerning the shares of the Fund, the Subadviser shall
act solely as investment counsel for such clients and not in any way on behalf
of the Trust or the Fund.
12. 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 Subadviser or (b) by the Subadviser
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).
<PAGE>
13. Amendments. This Agreement may be amended at any time but only by the mutual
written agreement of the parties to this Agreement and in accordance with any
applicable legal or regulatory requirements.
14. Proxies. Unless the Trust gives written instructions to the contrary, the
Subadviser 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 Subadviser shall use its
best good faith judgment to vote such proxies in a manner which best serves the
interests of the Fund's shareholders. The Subadviser shall maintain a record of
how the Subadviser voted and such record shall be available to the Trust or
Adviser upon request.
15. Use of Name. The Subadviser hereby consents to the use of its name and the
names of its affiliates in the Fund's disclosure documents, shareholder
communications, advertising, sales literature and similar communications.
16. Confidential Information. The Subadviser shall maintain the strictest
confidence regarding the business affairs of the Fund. Written reports furnished
by the Subadviser to the Trust or the Adviser shall be treated by such entities
as confidential and for the exclusive use and benefit of the Trust except as
disclosure may be required by applicable law.
17. Notices. All notices hereunder shall be provided in writing and delivered by
first class postage pre-paid U.S. mail or by fax. Notices delivered by mail
shall be deemed given three days after mailing and upon receipt if sent by fax.
If to Trust: E*TRADE FUNDS
4500 Bohannon Drive
Menlo Park, CA 94025
Attn: President
Fax No.: (650) 331-6802
If to Adviser: E*TRADE ASSET MANAGEMENT, INC.
4500 Bohannon Drive
Menlo Park, CA 94025
Attn: President
Fax No.: (650) 331-6802
<PAGE>
If to Subadviser: BARCLAYS GLOBAL FUND ADVISORS
45 Fremont Street
San Francisco, CA 94105
Attn: Legal Department
Fax No.: (415) 597-2698
18. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California without regard to the conflicts of law provisions thereof, 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 Subadviser as an
agent of the Adviser, the Trust or the Fund.
(e) All liabilities of the Trust hereunder are limited to the assets of
the Fund.
(f) Concurrently with the execution of this Subadvisory Agreement, the
Subadviser is delivering to the Adviser and the Trust a copy of part II of its
Form ADV, as revised, on file with the SEC. The Adviser and the Trust hereby
acknowledge receipt of such copy.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date first stated above.
E*TRADE FUNDS
By:
--------------------------------
Name:---------------------------
Title:--------------------------
E*TRADE ASSET MANAGEMENT, INC.
By:
--------------------------------
Name:---------------------------
Title:--------------------------
BARCLAYS GLOBAL FUND ADVISORS
By:
--------------------------------
Name:---------------------------
Title:--------------------------
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name of Fund Subadvisory Fee
<S> <C>
E*TRADE E-Commerce Index Fund
Based on an annual basis of the
Fund's daily net assets
calculated as described in
Section 6 of the foregoing
Agreement using the following
rates: 0.20% of daily net assets
on amounts up to $200 million;
0.15% of daily net assets on
amounts between $200 and $500
million; and 0.12% of daily net
assets on amounts above $500
million, provided however, that
if such fee as calculated above
would be less than $40,000 for
any year this Agreement is in
effect, then the fee shall be
$40,000. Any such minimum fee
shall be prorated for any year
in which this Agreement
terminates.
</TABLE>
EXHIBIT A
THIS EXHIBIT A, dated as of August 12, 1999 is Exhibit A to that
Sub-Administration and Accounting Services Agreement dated as of August 12, 1999
between PFPC Inc. and E*Trade Funds.
PORTFOLIOS
E*TRADE Technology Index Fund
E*TRADE E-Commerce Index Fund
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
Telephone: 202-261-3300
October 19, 1999
E*TRADE Funds
4500 Bohannon Drive
Menlo Park, CA 94025
Re: E*TRADE Funds
Post-Effective Amendment No. 9 to the
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
beneficial interest 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 Post-Effective Amendment No. 9 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 Post-Effective Amendment
No. 9 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 October 22, 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
