Registration Nos. 333-66807
811-09093
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 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. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 10 /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):
Immediately upon filing pursuant to paragraph (b)
- -------
on October __, 1999 pursuant to paragraph (b)
- -------
60 days after filing pursuant to paragraph (a)(1)
- -------
X 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.
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<PAGE>
E*TRADE FUNDS
E*TRADE GLOBAL TITANS INDEX FUND
Prospectus dated January __, 2000
This Prospectus concisely sets forth information about the E*TRADE Global Titans
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 Dow
Jones Global Titans (DJGT) 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 DJGT 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 January __, 2000
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
FEES AND EXPENSES......................................................4
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS.....................6
YEAR 2000..............................................................7
FUND MANAGEMENT........................................................8
PRICING OF FUND SHARES.................................................8
HOW TO BUY AND SELL SHARES.............................................9
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................13
TAX CONSEQUENCES......................................................13
<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 DJGT
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 DJGT Index.
The DJGT Index generally includes over 50 companies representing leading global
companies which are industry leaders with respect to a global standard,
headquartered anywhere in the world and have international exposure either from
selling products outside their home markets or provides services to overseas
clients. The DJGT Index began to be calculated on July 14, 1999 and ranks stocks
according to market capitalization, assets, book value, sales/revenue, net
profit and foreign sales. Those stocks with the highest combined rankings are
added to the DJGT Index.
Generally, the Fund attempts to be fully invested at all times in securities
comprising the DJGT Index. The Fund also may 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
Stocks may rise and fall daily. The DJGT Index represents the largest large-cap
companies in the world. Thus, the DJGT Index may also rise and fall daily. As
with any stock investment, the value of your investment in the Fund will
fluctuate, meaning you could lose money.
There is no assurance that the Fund will achieve its investment objective. The
DJGT Index may not appreciate, and could depreciate, during the time you are
invested in the Fund, even if you are a long-term investor.
* "Dow Jones," and "Dow Jones Global Titans IndexSM" are service marks of Dow
Jones & Company, Inc. and have been licensed for use for certain purposes by
E*TRADE Asset Management, Inc. The Fund is not sponsored, endorsed, sold or
promoted by Dow Jones, and Dow Jones makes no representation regarding the
advisability of investing in the Fund.
<PAGE>
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 securities of a
single issuer or a limited number of issuers, the securities 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.
The Fund cannot as a practical matter own all the stocks that comprise the DJGT
Index in perfect correlation to the DJGT Index itself. The use of futures and
options on futures is intended to help the Fund better match the DJGT 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 DJGT
Index during down markets as well as during up markets. The Fund's returns will
be directly affected by the volatility of the stocks comprising the DJGT Index.
In seeking to follow the DJGT Index, the Fund will be limited as to its
investments in other segments of the stock market. As a result, whenever the
large-cap stock market performs worse than other segments, the Fund may
underperform funds that have exposure to those segments of the market. Likewise,
whenever large-cap stocks fall behind other types of investments--bonds, for
instance--the Fund's performance also will lag behind those investments.
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 January __, 2000. Therefore, the
performance information (including annual total returns and average annual total
returns) for a full calendar year 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 []%
Distribution (12b-1) Fees None
Other Expenses (Administration) []%*
Total Annual Fund Operating Expenses []%
* The administrative fee is payable by the Fund to E*TRADE Asset Management,
Inc. The administrative fee is based on estimated amounts for the current fiscal
year.
You should also know that the Fund does not charge investors any account
maintenance fees, account set-up fees, low balance fees, transaction fees or
customer service fees. E*TRADE Securities charges $20 for wire transfers out of
your E*TRADE Securities account. Also, transactions in Fund shares effected by
speaking with an E*TRADE Securities representative are subject to a $15 fee.
Transactions in Fund shares effected online 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
$[] $[]
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS
Under normal market conditions, the Fund invests at least 90% of its total
assets in the stocks comprising the DJGT Index. That portion of its assets is
not actively managed but simply tries to match the total return of the DJGT
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 DJGT Index. A 100%
correlation would mean the total return of the Fund's assets would increase and
decrease exactly the same as the DJGT 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 to pay redemptions
and fees, among other reasons.
The DJGT Index includes the largest of the large companies from around the
world. The DJGT Index generally includes over 50 companies representing nine
different sectors of the global marketplace selected by Dow Jones (including
consumer non-cyclicals, financials, technology, utilities, energy, consumer
cyclicals, conglomerate, basic materials and industrials). The securities
included in the DJGT Index represents market leadership, multinational exposure,
high liquidity, low turnover, sufficients market coverage, competitive
performance, independent characteristics and systematic procedures. The stocks
included in the DJGT Index have a total market capitalization of nearly $5.6
trillion, representing approximately 21% of the global market. The DJGT Index
primarily consists of stocks of companies with capitalization of over $40
billion. A capitalization-weighted approach is used to calculate the index
value.
The Fund invests in securities of foreign issuers to the extent such issuers are
included in the DJGT Index. The DJGT Index currently includes companies from the
United States, Switzerland, UK, Germany, Netherlands, Japan, France and Italy.
The DJGT Index may include companies from other countries in the future. U.S.
companies account for roughly 60% of the DJGT's components and two-thirds of its
market value. Investments in securities of foreign issuers may expose the Fund
to special risks and considerations not typically associated with investing in
U.S. companies. Such risks may include, among others, different accounting,
auditing and financial reporting standards, higher commission rates and adverse
changes in regulatory structures. Foreign and international political, social
and monetary developments around the world that could affect U.S. investments in
foreign countries.
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, the investment characteristics of the DJGT Composite 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.
The Fund's ability to match its investment performance to the investment
performance of the DJGT Composite 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 DJGT 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 DJGT
Composite 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 DJGT 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 their cash holdings. However, because some of the
effect of expenses remains, the Fund's performance normally will be below that
of the DJGT Index. The Fund uses futures contracts to gain exposure to the DJGT
Index for its cash balances, which could cause the Fund to track the DJGT 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 whose securities the Fund invests also
could be adversely impacted by the Year 2000 Problem. The extent of such impact
cannot be predicted.
In addition, many foreign countries are less prepared than the United States to
properly process and calculate information related to dates from and after
January 1, 2000, which could result in difficulty pricing foreign investments
and failure by foreign issuers to pay timely dividends, interest or principal.
All of these factors can make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than U.S. investments. The
extent of such impact cannot be predicted.
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 [ ]% of
the Fund's average daily net assets.
The Investment Advisor is 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,
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 the Investment
Adviser fee at an annual rate equal to [ ]. 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.
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 AND SELL SHARES
This Fund is designed and built specifically for on-line investors. In order to
become a shareholder of the Fund, you will need to open an E*TRADE Securities
account. In addition, the Fund requires 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 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.
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.
Wire. Send wired funds to:
The Bank of New York
48 Wall Street
New York, NY 10286
ABA #021000018
FBO: E*TRADE Securities, Inc.
A/C #8900346256 for further credit to (your name and account number).
After your account is opened, E*TRADE Securities will contact you with an
account number so that you can immediately wire funds.
STEP 3: Execute an Order to Buy/Sell Shares
Minimum Investment Requirements:
For your initial investment in the Fund $ 1,000
To buy additional shares of the Fund $ 250
Continuing minimum investment* $ 1,000
To invest in the Fund for your IRA, Roth IRA,
or one-person SEP account $ 250
To invest in the Fund for your Education IRA account $ 250
To invest in the Fund for your UGMA/UTMA account $ 250
To invest in the Fund for your SIMPLE, SEP-IRA,
Profit Sharing or Money Purchase Pension Plan,
or 401(a) account $ 250
* Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet a Fund's minimum balance requirements. Before taking such
action, the Fund will provide you with written notice and at least 30 days to
buy more shares to bring your investment up to $1,000.
After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell funds that are held in your E*TRADE
Securities account; that means you cannot "short" shares of the Fund.
Whether you are investing in the Fund for the first time or adding to an
existing investment, the Fund provides you with several methods to buy its
shares. Because the Fund's 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 or sell order for shares
in the Fund. You will be prompted to enter your trading password whenever you
perform a transaction so that we can be sure each buy or sell is secure. It is
for your own protection to make sure you or 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.
Our built-in verification system lets you double-check orders before they are
sent to the markets, and you can change or cancel any unfilled order subject to
prior execution.
You can place an initial purchase order with a telephone representative at
1-800-STOCKS1 (1-800-786-2571) between 5:00 a.m. and 9:00 p.m. (pacific time)
for no additional charge. You may place subsequent purchase and redemption
orders with a telephone representative for an additional $15 fee. If you are
already a shareholder, you may also call 1-800-STOCKS5 (1-800-786-2575) to sell
shares by phone through an E*TRADE Securities broker for an additional $15 fee.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so.
Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow these
procedures.
Due to increased telephone volume during periods of dramatic economic or market
changes, you may experience difficulty in implementing a broker-assisted
telephone redemption. In these situations, investors may want to consider
trading online by accessing our Website or use TELE*MASTER, E*TRADE Securities'
automated telephone system, to effect such a transaction by calling
1-800-STOCKS1 (1-800-786-2571). 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 and redemptions can disrupt the Fund's investment program and
create additional transaction costs that are borne by all shareholders. For
these reasons, the Fund may assess a 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.
Closing your account. If you close your E*TRADE Securities account, you will be
required to redeem your shares in your Fund account.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to pay dividends from net investment income quarterly and
distribute capital gains, if any, annually. The Fund may make additional
distributions if necessary.
Unless you choose otherwise, all your dividends and capital gain distributions
will be automatically reinvested in additional Fund shares. Shares are purchased
at the net asset value determined on the payment date.
TAX CONSEQUENCES
The following information is meant as a general summary for U.S. taxpayers.
Please see the Fund's Statement of Additional Information for more information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in the Fund.
The Fund generally will not have to pay income tax on amounts it distributes to
shareholders, although shareholders will be taxed on distributions they receive.
The Fund will distribute substantially all of its income and gains to its
shareholders every year. If the Fund declares a dividend in October, November or
December but pays it in January, you may be taxed on the dividend as if you
received it in the previous year.
You will generally be taxed on dividends you receive from the Fund, regardless
of whether they are paid to you in cash or are reinvested in additional Fund
shares. If the Fund designates a dividend as a capital gain distribution, you
will pay tax on that dividend at the long-term capital gains tax rate, no matter
how long you have held your Fund shares.
If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax advisor about investment through a tax-deferred account.
There may be tax consequences to you if you dispose of your Fund shares, for
example, through redemption, exchange or sale. The Fund does not currently offer
any special exchange rights. You will generally have a capital gain or loss from
a disposition. The amount of the gain or loss and the rate of tax will depend
mainly upon how much you pay for the shares, how much you sell them for, and how
long you hold them.
The Fund will send you a tax report each year that will tell you which dividends
must be treated as ordinary income and which (if any) are long-term capital
gain.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax,
but is a method in which the IRS ensures that it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Fund, dated January __, 2000
("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>
E*TRADE FUNDS
E*TRADE PREMIER MONEY FUND
Prospectus dated ______________
This Prospectus concisely sets forth information about the E*TRADE Premier Money
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 current income while offering liquidity and stability of capital. The
Fund seeks to achieve its investment objective by investing in short-term U. S.
Treasury bills and notes and other short-term obligations issued or guaranteed
by the U. S. Government, its agencies or instrumentalities, that have a
remaining maturity of 397 calendar days (13 months or less).
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 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.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Prospectus dated _____________, 1999
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
FEES AND EXPENSES......................................................4
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS.....................5
YEAR 2000..............................................................5
FUND MANAGEMENT........................................................6
PRICING OF FUND SHARES.................................................6
HOW TO BUY AND SELL SHARES.............................................7
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................11
TAX CONSEQUENCES......................................................11
<PAGE>
DRAFT
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 current income while offering
liquidity and stability of capital.
Principal Strategies
The Fund seeks to achieve its investment objective by investing in short-term
U. S. Treasury bills and notes and other high quality short-term obligations
issued or guaranteed by the U. S. Government, its agencies or
instrumentalities, that have a remaining maturity of 397 calendar days (13
months or less).
The Fund may also invest in high-quality short-term money market investments
issued by U.S. and foreign issuers, such as commercial paper, including asset
backed commercial paper, certificates of deposit, variable- and floating-rate
debt securities, bank notes and repurchase agreements. Generally, the Fund
attempts to be fully invested at all times in short-term high-quality money
market instruments to provide liquidity for redemptions.
Principal Risks
There is no assurance that the Fund will achieve its investment objective.
Interest rates rise and fall over time. As with any investment whose yield
reflects current interest rates, the Fund's yield will change over time. During
periods when interest rates are low, the Fund's yield (and total return) also
will be low.
The Fund could lose money or underperform as a result of default. Although the
risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the Fund's share price or yield to fall. The
additional risks of foreign investments are due to reasons ranging from a lack
of issuer information to the risk of political uncertainties.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
Performance
This Fund is expected to commence operations on ____________. Therefore, the
performance information (including annual total returns and average annual total
returns) for a full calendar year 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 None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees []%
Distribution (12b-1) Fees None
Other Expenses (Administration) []%*
Total Annual Fund Operating Expenses []%
* The administrative fee is payable by the Fund to E*TRADE Asset Management,
Inc. The administrative fee is based on estimated amounts for the current fiscal
year.
You should also know that the Fund does not charge investors any account
maintenance fees, account set-up fees, low balance fees, transaction fees or
customer service fees. E*TRADE Securities charges $20 for wire transfers out of
your E*TRADE Securities account. Also, transactions in Fund shares effected by
speaking with an E*TRADE Securities representative are subject to a $15 fee.
Transactions in Fund shares effected online 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
$[] $[]
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS
The Fund's investment objective is to provide current income while offering
liquidity and stability of capital.
The Fund invests primarily in U. S. Treasury bills and notes and other
short-term obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, that have a remaining maturity of 397 calendar days (13
months or less).
The Fund may also invest in master demand notes and repurchase agreements with
respect to U.S. Government obligations and in high-quality short-term money
market investments issued by U.S. and foreign issuers, such as commercial paper,
including asset backed commercial paper, certificates of deposit, variable- and
floating-rate debt securities, bank notes and repurchase agreements.
The Fund must maintain an average portfolio maturity of no more than 90 days,
and cannot invest in any security whose effective maturity is longer than 397
days. The Fund must invest exclusively in high-quality money market instruments,
generally those that are in the top two rating categories. The Fund is
diversified and may not invest more than 5% of its assets in the securities of a
single issuer, other than in U.S. government securities.
The Fund's Investment Advisor's maturity decisions will also effect the Fund's
yield, and in unusual circumstances potentially could affect its share price. To
the extent that the Investment Advisor anticipates interest rate trends
imprecisely, the Fund's yields at times could lag those of other money market
funds. The Fund's emphasis on quality and stability also could cause it to
underperform other money market funds, particularly those that take greater
maturity and credit risks.
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
adviser, 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 whose securities the Fund invests also
could be adversely impacted by the Year 2000 Problem. The extent of such impact
cannot be predicted.
FUND MANAGEMENT
Investment Advisor. Under an investment advisory agreement ("Investment Advisory
Agreement") with the Fund, E*TRADE Asset Management, Inc. ("Investment Advisor"
or "E*TRADE Asset Management"), a registered investment advisor, provides
investment advisory services to the Fund. E*TRADE Asset Management is a wholly
owned subsidiary of E*TRADE Group, Inc. and is located at 4500 Bohannon Drive,
Menlo Park, CA 94025. E*TRADE Asset Management 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, E*TRADE Asset Management 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 E*TRADE Asset Management an investment advisory fee at an annual rate
equal to [ ]% of the Fund's average daily net assets.
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.
The Fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of the Fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the Fund uses market quotes
if they are readily available. In cases where quotes are not readily available,
the Fund may value securities based on fair values developed using methods
approved by the Fund's Board of Trustees Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values or values obtained from yield data relating to
classes of portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share ("NAV") of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
HOW TO BUY AND SELL SHARES
This Fund is designed and built specifically for on-line investors. In order to
become a shareholder of the Fund, you will need to open an E*TRADE Securities
account. In addition, the Fund requires 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.
Whether you are investing in the Fund for the first time or adding to an
existing investment, the Fund provides you with several methods to buy its
shares. Because the Fund's NAV changes daily, your purchase price will be the
next NAV determined after the Fund receives and accepts your purchase order.
On-line. You can access E*TRADE Securities' online application through multiple
electronic gateways, including the Internet, WebTV, Prodigy, AT&T Worldnet,
Microsoft Investor, by GO ETRADE on CompuServe, with the keyword ETRADE on
America Online and via personal digital assistant. For more information on how
to access E*TRADE Securities electronically, please refer to our online
assistant E*STATION at www.etrade.com, available 24 hours a day.
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 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.
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. Wire.
Send wired funds to:
The Bank of New York
48 Wall Street
New York, NY 10286
ABA #021000018
FBO: E*TRADE Securities, Inc.
A/C #8900346256 for further credit to (your name and account number).
After your account is opened, E*TRADE Securities will contact you with an
account number so that you can immediately wire funds.
STEP 3: Execute an Order to Buy/Sell Shares
Minimum Investment Requirements:
For your initial investment in the Fund $ []
To buy additional shares of the Fund $ []
Continuing minimum investment* $ []
To invest in the Fund for your IRA, Roth IRA,
or one-person SEP account $ []
To invest in the Fund for your Education IRA account $ []
To invest in the Fund for your UGMA/UTMA account $ []
To invest in the Fund for your SIMPLE, SEP-IRA,
Profit Sharing or Money Purchase Pension Plan,
or 401(a) account $ []
* Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet a Fund's minimum balance requirements. Before taking such
action, the Fund will provide you with written notice and at least 30 days to
buy more shares to bring your investment up to $[ ].
After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell funds that are held in your E*TRADE
Securities account; that means you cannot "short" shares of the Fund.
You can access the money you have invested in the Fund at any time by selling
some or all of your shares back to the Fund. As soon as E*TRADE Securities
receives the shares or the proceeds from the Fund, the transaction will appear
in your account. This usually occurs the business day following the transaction,
but in any event, no later than three days thereafter.
On-line. You can access E*TRADE Securities' secure trading pages at
www.etrade.com via the Internet, WebTV, Prodigy, AT&T Worldnet, Microsoft
Investor, by GO ETRADE on CompuServe, with the keyword ETRADE on America Online
and via personal digital assistant. By clicking on one of several mutual fund
order buttons, you can quickly and easily place a buy or sell order for shares
in the Fund. You will be prompted to enter your trading password whenever you
perform a transaction so that we can be sure each buy or sell is secure. It is
for your own protection to make sure you or 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.
Our built-in verification system lets you double-check orders before they are
sent to the markets, and you can change or cancel any unfilled order subject to
prior execution.
You can place an initial purchase order with a telephone representative at
1-800-STOCKS1 (1-800-786-2571) between 5:00 a.m. and 9:00 p.m. (pacific time)
for no additional charge. You may place subsequent purchase and redemption
orders with a telephone representative for an additional $15 fee.
If you are already a shareholder, you may also call 1-800-STOCKS5
(1-800-786-2575) to sell shares by phone through an E*TRADE Securities broker
for an additional $15 fee.
The Fund reserves the right to refuse a telephone redemption if it believes it
advisable to do so.
Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow these
procedures.
Due to increased telephone volume during periods of dramatic economic or market
changes, you may experience difficulty in implementing a broker-assisted
telephone redemption. In these situations, investors may want to consider
trading online by accessing our Website or use TELE*MASTER, E*TRADE Securities'
automated telephone system, to effect such a transaction by calling
1-800-STOCKS1 (1-800-786-2571). 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.
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 monthly. The Fund
does not expect to distribute any capital gains. The Fund may make additional
distributions if necessary.
Unless you choose otherwise, all your dividends 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 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 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.
The Fund will send you a tax report each year that will tell you which dividends
must be treated as ordinary income.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax,
but is a method in which the IRS ensures that it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S.
federal income tax liability.
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Fund, dated __________, 1999
("SAI"), contains further information about the Fund. The SAI is incorporated
into this Prospectus by reference (that means it is legally considered part of
this Prospectus). Additional information about the Fund's investments will be
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its fiscal year.
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 GLOBAL TITANS INDEX FUND
____________, 2000
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the E*TRADE Global Titans Index
Fund (the "Fund"), a separate series of the E*TRADE Funds, dated __________,
2000 (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.......................................................17
SERVICE PROVIDERS...........................................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION..............................20
ORGANIZATION, DIVIDEND AND VOTING RIGHTS....................................21
SHAREHOLDER INFORMATION.....................................................22
TAXATION....................................................................23
UNDERWRITER.................................................................26
PERFORMANCE INFORMATION.....................................................26
APPENDIX....................................................................32
<PAGE>
FUND HISTORY
The E*TRADE Global Titans 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 that comprise the Dow Jones Global
(DJGT) 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 DJGT Index.
The DJGT Index generally includes over 50 companies representing nine different
sectors of the global marketplace selected by Dow Jones (including consumer
non-cyclicals, financials, technology, utilities, energy, consumer cyclicals,
conglomerate, basic materials and industrials).
INVESTMENT STRATEGIES AND RISKS
The following supplements the discussion in the Prospectus of the Fund's
investment strategies, policies and risks.
Since the Fund will be investing in only large-cap stocks that may offer the
opportunity for above average growth, investors may also be exposed to greater
financial and market risk. An investment in the Fund is not a balanced
investment program.
These investment strategies and policies may be changed without shareholder
approval unless otherwise noted.
Foreign Securities. The DJGT Composite Index includes securities of foreign
issuers. The foreign securities in which the Fund may invest include common
stocks, preferred stocks, warrants, convertible securities and other securities
of issuers organized under the laws of countries other than the United States.
Such securities also include equity interests in foreign investment funds or
trusts, real estate investment trust securities and any other equity or
equity-related investment whether denominated in foreign currencies or U.S.
dollars.
* "Dow Jones," and "Dow Jones Global Titans IndexSM" are service marks of Dow
Jones & Company, Inc. and have been licensed for use for certain purposes by
E*TRADE Asset Management, Inc. The Fund is not sponsored, endorsed, sold or
promoted by Dow Jones, and Dow Jones makes no representation regarding the
advisability of investing in the Fund.
<PAGE>
Investments in foreign obligations involve certain considerations that are not
typically associated with investing in domestic securities. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. Generally,
multinational companies may be more susceptible to effects caused by changes in
the economic climate and overall market volatility.
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 DJGT Composite 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.
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.
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.
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
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay the
face amount of the instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed, floating- or
variable-interest rates.
Commercial Paper and Short-Term Corporate Debt Instruments. The 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.
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.
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.
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.
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.
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.
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.
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 DJGT
Composite 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 with respect to 75% of its total assets, invest in a security if, as
a result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding securities of any one issuer;
2. may not issue senior securities, except as permitted under the 1940 Act;
3. 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;
4. 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;
5. 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
industry in which the DJGT Composite Index is concentrated to the approximately
same degree during the same period.
6. 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;
7. 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
8. 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, Inc. 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 (55) 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(34) Vice President and Mr. Van Remortel is Vice
4500 Bohannon Drive Secretary President of Operations,
Menlo Park, CA 94025 E*TRADE Asset Management, Inc.
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 Trustees for travel and other expenses incurred in connection
with attendance at such meetings. Other officers and Trustees of the Trust
receive no compensation or expense reimbursement. The following table provides
an estimate of each Trustee's compensation for the current fiscal year:
Estimated Compensation Table
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Total Compensation
Name of Person, Position Aggregate From Trust and Fund
Compensation from Complex Paid to
the Trust Directors
Expected to be Paid
to Trustees (1)
- -----------------------------------------------------------------------------
<S> <C> <C>
Kathy Levinson, Trustee None None
Leonard C. Purkis, None None
Trustee
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 __________, 2000,
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. For its advisory services, the Fund pays the
Investment Advisor an investment advisory fee at an annual rate equal to []% 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 is 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.
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 []. 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
DJGT Composite 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, Inc. also furnishes office space and
certain facilities required for conducting the business of the Fund. Pursuant to
an agreement with the Fund, E*TRADE Asset Management, Inc. receives a fee equal
to [ ]% of the average daily net assets of the Fund. E*TRADE Asset Management is
responsible under that agreement for expenses otherwise payable by the Fund,
including registration and qualification filing for 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 also serves as the Fund's
sub-administrator, under an agreement among PFPC, 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 Retail 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 and
redemptions of the Fund's shares may be effected, and certain other matters
pertaining to the Fund; (ii) assisting shareholders in designating and changing
dividend options, account designations and addresses; (iii) providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; (iv)
transmitting shareholders' purchase and redemption orders to the Fund's transfer
agent; (v) arranging for the wiring or other transfer of funds to and from
shareholder accounts in connection with shareholder orders to purchase or redeem
shares of the Fund; (vi) verifying purchase and redemption orders, transfers
among and changes in shareholder-designated accounts; (vii) informing the
distributor of the Fund of the gross amount of purchase and redemption orders
for the Fund's shares; (viii) 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, Inc. 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.
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.
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
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 DJGT 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.
The Funds are not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones
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. Dow Jones' only relationship
to E*TRADE Asset Management is the licensing of certain trademarks, trade names
and service marks of Dow Jones and of the Dow Jones Global Titans IndexSM, which
is determined, composed and calculated by Dow Jones without regard to E*TRADE
Asset Management or the Fund. Dow Jones has no obligation to take the needs of
E*TRADE Asset Management or the owners of the Fund into consideration in
determining, composing or calculating the Dow Jones Global Titans IndexSM. Dow
Jones is not responsible for and has not participated in the determination or
calculation of the redemption price per share. Dow Jones has no obligation or
liability in connection with the administration, marketing or trading of the
Fund.
Dow Jones does not guarantee the accuracy and/or the completeness of the Dow
Jones Global Titans IndexSM or any data included therein and Dow Jones disclaim
liability for any errors, omissions, or interruptions therein. Dow Jones makes
no warranty, express or implied, as to results to be obtained by E*TRADE Asset
Management, owners of the Fund, or any other person or entity from the use of
the Dow Jones Global Titans IndexSM or any data included therein. Dow Jones
disclaims any express or implied warrants, and expressly disclaims all
warranties, of merchantability fitness for a particular purpose or use with
respect to the Dow Jones Global Titans IndexSM or any data included therein.
Without limiting any of the foregoing, Dow Jones disclaims any liability for any
lost profits or indirect, punitive, special or consequential damages or losses,
even if notified of the possibility thereof. Any agreements or arrangements
between Dow Jones and the Fund provided that there are no third party
beneficiaries.
<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) 331-5000
Toll-Free: (800) 786-2575
Internet: http://www.etrade.com
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
E*TRADE Funds
E*TRADE PREMIER MONEY FUND
------------------
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the E*TRADE Premier Money Fund
(the "Fund"), as a separate series of the E*TRADE Funds, dated __________, 1999
(as amended from time to time).
To obtain a copy of the Fund's Prospectus and the Fund's most recent
shareholders report (when issued) free of charge, please access our Website
online (www.etrade.com) 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................................................................8
TRUSTEES AND OFFICERS........................................................9
INVESTMENT MANAGEMENT.......................................................13
SERVICE PROVIDERS...........................................................14
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION..............................15
ORGANIZATION, DIVIDEND AND VOTING RIGHTS....................................16
SHAREHOLDER INFORMATION.....................................................18
TAXATION....................................................................19
UNDERWRITER.................................................................21
PERFORMANCE INFORMATION.....................................................21
APPENDIX....................................................................26
<PAGE>
FUND HISTORY
The E*TRADE Premier Money Fund (the "Fund") is a diversified series of E*TRADE
Funds (the "Trust"). The Trust is organized as a Delaware business trust and was
formed on November 4, 1998.
THE FUND
The Fund is classified as an open-end, management investment company. The Fund's
investment objective is to provide current income while offering liquidity and
stability of capital. 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.
INVESTMENT STRATEGIES AND RISKS
The following supplements the discussion in the Prospectus of the Fund's
investment strategies, policies and risks.
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.
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.
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
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay the
face amount of the instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed, floating- or
variable-interest rates.
Commercial Paper and Short-Term Corporate Debt Instruments. The 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.
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.
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 of 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.
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.
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.
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.
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 with respect to 75% of its total assets, invest more than 5% of its
assets in the obligations of any single issuer, except that up to 25% of the
value of its total assets may be invested, and securities issued or guaranteed
by the U.S. Government, or its agencies or instrumentalities may be purchased,
without regard to any such limitation;
2. may not issue senior securities, except as permitted under the 1940 Act;
3. 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. The Fund may also borrow money from
other persons to the extent permitted by applicable law;
4. 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;
5. 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 obligations of the U.S. government, its agencies
or instrumentalities (or repurchase agreements thereto);
6. 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;
7. may not purchase or sell physical commodities or commodities contracts or
oil, gas or mineral programs.
8. may not lend any funds or other assets, except that the Fund may, consistent
with its investment objective and policies: (a) invest in certain short-term or
temporary debt obligations, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements, and (c)
lend its portfolio securities in an amount not to exceed 33 1/3% of the Fund's
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the
directors of the Fund.
Non-Fundamental Operating Restrictions
The following are the Fund's non-fundamental operating restrictions, which may
be changed by the Fund's Board of Trustees without shareholder approval.
Unless indicated otherwise below, the Fund may not:
1. pledge, mortgage or hypothecate its assets, except to the extent necessary to
secure permitted borrowings and to the extent related to the purchase of
securities on a when-issued or forward commitment basis and the deposit of
assets in escrow in connection with writing covered put and call options and
collateral and initial or variation margin arrangements with respect to options,
forward contracts, futures contracts, including those relating to indexes, and
options on futures contracts or indexes;
2. purchase securities of other investment companies, except to the extent
permitted under the 1940 Act;
3. 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 (55) 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(34) Vice President and Mr. Van Remortel is Vice
4500 Bohannon Drive Secretary President of Operations,
Menlo Park, CA 94025 E*TRADE Asset Management, Inc.
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 Trustees for travel and other expenses incurred in connection
with attendance at such meetings. Other officers and Trustees of the Trust
receive no compensation or expense reimbursement. The following table provides
an estimate of each Trustee's compensation for the current fiscal year:
Estimated Compensation Table
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Total Compensation
Name of Person, Position Aggregate From Trust and Fund
Compensation from Complex Paid to
the Trust Directors
Expected to be Paid
to Trustees (1)
- -----------------------------------------------------------------------------
<S> <C> <C>
Kathy Levinson, Trustee None None
Leonard C. Purkis, None None
Trustee
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 ___________,
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. ("Investment Advisor"
or "E*TRADE Asset Management"), a registered investment advisor, provides
investment advisory services to the Fund. E*TRADE Asset Management is a wholly
owned subsidiary of E*TRADE Group, Inc. and is located at 4500 Bohannon Drive,
Menlo Park, CA 94025. E*TRADE Asset Management commenced operating in February
1999 and therefore has limited experience as an investment advisor. As of
September 30, 1999, E*TRADE Asset Management 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, E*TRADE Asset
Management provides the Fund with ongoing investment management guidance, policy
direction and monitoring of the Fund. For its advisory services, the Fund pays
E*TRADE Asset Management an investment advisory fee at an annual rate equal to [
]% of the Fund's average daily net assets..
The Investment 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 affiliates of any such party. The
Investment Advisory Agreement may be terminated on 60 days' written notice to
any such party and will terminate automatically if assigned.
Asset allocation strategies may be employed by E*TRADE Asset Management for
other investment companies and accounts advised or sub-advised by E*TRADE Asset
Management. 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 E*TRADE Asset Management. 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, Inc. ("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, including: (i)
general supervision of the operation of the Fund, including coordination of the
services performed by the investment advisor, transfer and dividend disbursing
agent, custodian, sub-administrator, shareholder servicing agent, independent
auditors and legal counsel; (ii) general supervision of regulatory compliance
matters, including the compilation of information for documents such as reports
to, and filings with, the SEC and state securities commissions; and (iii)
periodic reviews of management reports and financial reporting. E*TRADE Asset
Management 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 [ ]% of the average daily net
assets of the Fund. E*TRADE Asset Management is responsible under that agreement
for the expenses otherwise payable by the Fund for transfer agency, dividend
disbursing, custody, auditing and legal fees, to the extent that those expenses
would otherwise equal or exceed 0.005% of the Fund's average daily net assets.
Custodian, Fund Accounting Services Agent and Sub-administrator. 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 also serves as the Fund's
sub-administrator, under an agreement among PFPC, the Trust and E*TRADE Asset
Management, providing management reporting and treasury administration,
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 and
redemptions of the Fund's shares may be effected, and certain other matters
pertaining to the Fund; (ii) assisting shareholders in designating and changing
dividend options, account designations and addresses; (iii) providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; (iv)
transmitting shareholders' purchase and redemption orders to the Fund's transfer
agent; (v) arranging for the wiring or other transfer of funds to and from
shareholder accounts in connection with shareholder orders to purchase or redeem
shares of the Fund; (vi) verifying purchase and redemption orders, transfers
among and changes in shareholder-designated accounts; (vii) informing the
distributor of the Fund of the gross amount of purchase and redemption orders
for the Fund's shares; (viii) 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 Advisory
Agreement and subject to policies established by the Fund's Board of Trustees,
E*TRADE Asset Management 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 Investment Advisor 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 E*TRADE Asset Management manages, and for which
they have brokerage placement authority, in the interest of seeking the most
favorable overall net results. When E*TRADE Asset Management determines that a
particular security should be bought or sold for the Fund and other accounts
managed by E*TRADE Asset Management, E*TRADE Asset Management undertakes to
allocate those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Fund, the Investment Advisor and
its 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.
Purchases and sales of portfolio securities for the Fund usually are principal
transactions. Portfolio securities ordinarily are purchased directly from the
issuer or from an underwriter or market maker. Usually no brokerage commissions
are paid by the Fund for such purchases and sales. 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 prices paid to the underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of securities from market makers may include the
spread between the bid and asked price.
In placing orders for portfolio securities of the Fund, the Investment Advisor
is required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that the Investment Advisor 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 the Investment Advisor 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, the Investment Advisor seeks to obtain the best overall terms
available for the Fund. In assessing the best overall terms available for any
transaction, the Investment Advisor 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 of Trustees.
Certain of the brokers or dealers with whom the Fund may transact business offer
commission rebates to the Fund. The Investment Advisor considers such rebates in
assessing the best overall terms available for any transaction. The overall
reasonableness of brokerage commissions paid is evaluated by the Investment
Advisor based upon its knowledge of available information as to the general
level of commission paid by other institutional investors for comparable
services.
ORGANIZATION, DIVIDEND AND VOTING RIGHTS
The Fund is a diversified series of E*TRADE Funds (the "Trust"), an open-end
investment company, organized as a Delaware business trust on November 4, 1998.
The Trust may issue additional series and classes.
All shareholders may vote on each matter presented to shareholders. Fractional
shares have the same rights proportionately as do full shares. 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.
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.
The Fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of the Fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the Fund uses market quotes
if they are readily available. In cases where quotes are not readily available,
the Fund may value securities based on fair values developed using methods
approved by the Fund's Board of Trustees Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values or values obtained from yield data relating to
classes of portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share ("NAV") of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and the Fund's $1.00 NAV calculated using amortized cost or
if there were any other deviation that the Board of Trustees believed would
result in a material dilution to shareholders or purchasers, the Board of
Trustees would promptly consider what action, if any, should be initiated. If
the Fund's NAV calculated using market values declined, or were expected to
decline, below the Fund's $1.00 NAV calculated using amortized cost, the Board
of Trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the Board of Trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if the
Fund's NAV (calculated using market values) were to increase, or were
anticipated to increase above the Fund's $1.00 (calculated using amortized
cost), the Board of Trustees might supplement dividends in an effort to maintain
the Fund's $1.00 NAV.
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
securities or currencies, or other income derived with respect to its business
of investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's total assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. Government securities and the securities of other
regulated investment companies).
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
Distributions. Distributions of investment company taxable income (including net
short-term capital gains) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by the Fund to a corporate
shareholder, to the extent such dividends are attributable to dividends received
by the Fund from U.S. corporations, may, subject to limitation, be eligible for
the dividends received deduction. However, the alternative minimum tax
applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term capital gain, regardless of
how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Dispositions. Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for not more than one
year. Any loss realized on a redemption, sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days, beginning 30 days before and ending 30
days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.
Constructive Sales. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
UNDERWRITER
Distribution of Securities. Under a Distribution Agreement with the Fund
("Distribution Agreement"), E*TRADE Securities Inc., 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
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,
E*TRADE Asset Management 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.
Current Yield. The yield will be calculated based on a 7-day period, by
determining the net change, exclusive of capital changes and income other than
investment income, in the value of a hypothetical pre-existing account having a
balance of one shares at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
(365/7) with the resulting yield figure carried to at least the nearest
hundredth of one percent.
Effective Yield. The Fund's effective yield is calculated as the current yield,
except the annualization of the return for the seven day period reflects the
results of compounding. The following formula will be used to calculate the
effective yield:
Effective yield = [(Base period return + 1) (To the power of 365-1)] -1
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 other money market funds. Money market fund yields will fluctuate and
shares are not insured, but share values usually remain stable.
Lipper Analytical Services, Inc. ("Lipper") and Other Independent Ranking
Organizations. From time to time, in marketing and other fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value, with
all income and capital gains dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. The Fund may be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. The Fund's performance may also be compared to the average
performance of its Lipper category.
Morningstar, Inc. The Fund's performance may also be compared to the performance
of other mutual funds by Morningstar, Inc., which rates funds on the basis of
historical risk and total return. Morningstar's ratings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3, 5,
and 10 year periods. Ratings are not absolute and do not represent future
results.
Independent Sources. Evaluations of fund performance made by independent sources
may also be used in advertisements concerning the Fund, including reprints of,
or selections from, editorials or articles about the Fund, especially those with
similar objectives. Sources for fund performance and articles about the Fund may
include publications such as Money, Forbes, Kiplinger's, Smart Money, Financial
World, Business Week, U.S. News and World Report, The Wall Street Journal,
Barron's, and a variety of investment newsletters.
Indices. The Fund may compare its performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.
Historical Asset Class Returns. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations will
typically compare the average annual rates of return of inflation, U.S. Treasury
bills, bonds, common stocks, and small stocks. There are important differences
between each of these investments that should be considered in viewing any such
comparison. The market value of stocks will fluctuate with market conditions,
and small-stock prices generally will fluctuate more than large-stock prices.
Stocks are generally more volatile than bonds. In return for this volatility,
stocks have generally performed better than bonds or cash over time. Bond prices
generally will fluctuate inversely with interest rates and other market
conditions, and the prices of bonds with longer maturities generally will
fluctuate more than those of shorter-maturity bonds. Interest rates for bonds
may be fixed at the time of issuance, and payment of principal and interest may
be guaranteed by the issuer and, in the case of U.S. Treasury obligations,
backed by the full faith and credit of the U.S. Treasury.
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.
<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) 331-5000
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.4
(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.4
(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.5
(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.5
(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.5
(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.5
(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)(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 Amendment No. 2 to the Administrative Services Agreement
between the Registrant and E*TRADE Asset Management, Inc. with respect
to the E*TRADE Global Titans Index Fund.5
(h)(3)(i)Form of 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.2
(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 and E*TRADE E-Commerce Index Fund.4
(h)(4)(i)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.5
(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.5
(h)(6)(i)Form of Retail Shareholder Services Agreement between E*TRADE Group,
Inc., the Registrant and E*TRADE Asset Management, Inc. with respect to
the E*TRADE S&P 500 Index Fund.2
(h)(6)(ii) Form of Amendment No. 1 to the Retail Shareholder Services Agreement
between E*TRADE Group, 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 Group, Inc., the Registrant and E*TRADE Asset
Management, Inc. with respect to the E*TRADE Global Titans Index Fund.5
(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.5
(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 International Index Fund.5
(i)(4) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE E-Commerce Index Fund.5
(i)(5) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE Global Titans Index Fund.5
(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.
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 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 and Secretary Sr. Manager, E*TRADE
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>
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, PFPC Inc. at 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. 7 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 8th day
of October, 1999.
E*TRADE FUNDS
(Registrant)
By: /s/
---------------------------
Name: Leonard C. Purkis
Title: Trustee and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 7 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
*
- -------------------------------
Kathy Levinson Trustee October 8, 1999
/s/
- -------------------------------
Leonard C. Purkis Trustee and Treasurer October 8, 1999
(Principal Financial and
Accounting Officer)
*
- -------------------------------
Brian C. Murray President (Principal October 8, 1999
Executive Officer)
*
- -------------------------------
Shelly J. Meyers Trustee October 8, 1999
*
- -------------------------------
Ashley T. Rabun Trustee October 8, 1999
*
- -------------------------------
Steven Grenadier Trustee October 8, 1999
*By /s/
---------------------------
David A. Vaughan
Attorney-In-Fact
<PAGE>
EXHIBIT LIST
Exhibit
No. DESCRIPTION
Secretary's Certificate of Registrant for signature on behalf of
Registrant.
(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.
(h)(6)(i)Retail Shareholder Services Agreement between E*TRADE Group, Inc., the
Registrant and E*TRADE Asset Management, Inc. with respect to the
E*TRADE S&P 500 Index Fund.
SECRETARY'S CERTIFICATE
The undersigned hereby certifies that he is the Secretary of E*TRADE Funds
("Trust"), a business trust organized and existing under the laws of the State
of Delaware. The undersigned further certifies that: (1) the following
resolution is a true and correct copy of a resolution duly adopted by unanimous
approval of the Board of Trustees of the Trust on the 5th day of May 1999 and
(2) that such resolution is in effect as of the date hereof and has not been
rescinded, amended or modified.
RESOLVED: That the officers of the Trust who may be required to execute
the Trust's Registration Statement and any amendments thereto be, and each of
them hereby is, authorized to execute a power of attorney appointing Robert W.
Helm and David A. Vaughan as their true and lawful attorneys-in-fact, to execute
in their name, place and stead on behalf of the Trust, unless otherwise
designated as Trustee or officer of the Trust, the Registration Statement and
any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the SEC; and said
attorneys-in-fact shall have full power and authority to do and perform in the
name and on behalf of each of said officers, or any or all of them, in any and
all capacities with respect to the Trust, every act whatsoever requisite or
necessary to be done, said acts of said attorney-in-fact, being hereby ratified
and approved.
Dated this 8th day of October, 1999.
Joe N. Van Remortel
Secretary
SUB-ADMINISTRATION AGREEMENT
AGREEMENT made as of February 3, 1999 by and between E*TRADE FUNDS, a
business trust organized under the laws of Delaware (the "Fund"), E*TRADE ASSET
MANAGEMENT, INC. an corporation organized under the laws of Delaware (the
"Administrator"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust
company (the "Bank").
WHEREAS, the Fund, a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of the separate
portfolios, has retained the Administrator to render certain administrative
services to the Fund to with respect to the Portfolios; and
WHEREAS, the Administrator desires to retain the Bank to render certain
administrative services to the Fund with respect to the portfolios designated by
the Administrator (each a "Portfolio") as Sub-Administrator and the Bank is
willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Bank to act as
Sub-Administrator of the Fund with respect to the Portfolios on the
terms set forth in this Agreement. The Bank accepts such appointment
and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Fund has furnished the Bank with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of the Bank to provide certain administrative
services to the Fund and approving this Agreement;
(b) The Fund's incorporating documents filed with the state of
Delaware on November 4, 1998 and all amendments thereto (the
"Articles");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory
agreements, custody agreements, distribution agreements and
transfer agency agreements (collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A
(the "Registration Statement") under the Securities Act of
1933 and under the 1940 Act and all amendments thereto; and
(f) The Fund's most recent prospectus and statement of additional
information (the "Prospectus"); and
(g) Such other certificates, documents or opinions as may mutually
be deemed necessary or appropriate for the Bank in the proper
performance of its duties hereunder.
The Fund will immediately furnish the Bank with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund
will notify the Bank as soon as possible of any matter which may
materially affect the performance by the Bank of its services under
this Agreement.
3. Duties of Sub-Administrator. Subject to the supervision and
direction of the Board of Directors of the Fund, the Bank, as
Sub-Administrator, will assist in conducting various aspects of the
Fund's administrative operations and undertakes to perform the
services described in Appendix B hereto. The Bank may, from time to
time, perform additional duties and functions which shall be set
forth in an amendment to such Appendix B executed by both parties.
At such time, the fee schedule included in Appendix C hereto shall
be appropriately amended.
In performing all services under this Agreement, the Bank shall act
in conformity with the Fund's Articles and By-Laws and the 1940 Act,
as the same may be amended from time to time, and the investment
objectives, investment policies and other practices and policies set
forth in the Fund's Registration Statement, as the same may be
amended from time to time. Notwithstanding any item discussed
herein, the Bank has no discretion over the Fund's assets or choice
of investments and cannot be held liable for any dispute relating to
such investments.
4. Duties of the Fund.
(a) The Fund is solely responsible (through its transfer agent
or otherwise) for (i) providing timely and accurate reports
of the daily purchase and redemption of shares of each
portfolio ("Daily Sales Reports") which will enable the
Bank as Sub-Administrator to monitor the total number of
shares sold in each state on a daily basis and (ii)
identifying any exempt transactions ("Exempt Transactions")
which are to be excluded from the Daily Sales Reports.
(b) The Fund agrees to make its legal counsel available to the
Bank for reasonable instruction with respect to any matter of
law arising in connection with the Bank's duties hereunder,
and the Fund further agrees that the Bank shall be entitled to
rely on such instruction without further investigation on the
part of the Bank.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to be furnished
by the Bank, as provided for in this Agreement, the Administrator
will compensate the Bank in accordance with the fee schedule
attached as Appendix C hereto; provided, however, that the fees with
respect to each Portfolio will be payable only out of the assets of
that Portfolio. Such fees do not include out-of-pocket disbursements
(as delineated on the fee schedule or other expenses with the prior
approval of the Fund's management) of the Bank for which the Bank
shall be entitled to bill the Administrator separately and for which
the Administrator shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses incurred by the
Fund or the Administrator.
6. Limitation of Liability.
(a) The Bank, its directors, officers, employees and agents shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its
obligations and duties under this Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence in the
performance of such obligations and duties, or by reason of its
reckless disregard thereof. The Administrator and Fund will
indemnify the Bank, its directors, officers, employees and agents
against and hold it and them harmless from any and all losses,
claims, damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit (i)
arising out of the actions or omissions of the Fund, including, but
not limited to, inaccurate Daily Sales Reports and misidentification
of Exempt Transactions; (ii) arising out of the offer or sale of any
securities of the Fund in violation of (x) any requirement under the
federal securities laws or regulations, (y) any requirement under
the securities laws or regulations of any state, or (z) any stop
order or other determination or ruling by any federal or state
agency with respect to the offer or sale of such securities; or
(iii) not resulting from the willful misfeasance, bad faith or gross
negligence of the Bank in the performance of such obligations and
duties or by reason of its reckless disregard thereof.
(b) Notwithstanding anything in this Agreement to the contrary, in no
event shall the Funds be liable to the Bank or any third party, and
the Bank shall indemnify and hold the Funds harmless from and
against any Claims arising as a result of gross negligence, willful
misfeasance or bad faith of the Bank.
(c) The Bank may apply to the Administrator at any time for instructions
and may consult counsel for the Administrator, or its own counsel,
and with accountants and other experts with respect to any matter
arising in connection with its duties hereunder, and the Bank shall
not be liable or accountable for any action reasonably taken or
omitted by it in good faith in accordance with such instruction, or
with the opinion of such counsel, accountants, or other experts. The
Bank shall not be liable for any act or omission taken or not taken
in reliance upon any document, certificate or instrument which it
reasonably believes to be genuine and to be signed or presented by
the proper person or persons. The Bank shall not be held to have
notice of any change of authority of any officers, employees, or
agents of the Fund or Administrator until receipt of written notice
thereof has been received by the Bank from the Fund or
Administrator.
(d) In the event the Bank is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement
because of acts of God, strikes, legal constraint, government
actions, war, emergency conditions, interruption of electrical power
or other utilities, equipment or transmission failure or damage
reasonably beyond its control or other causes reasonably beyond its
control, the Bank shall not be liable to the Fund for any damages
resulting from such failure to perform, delay in performance, or
otherwise from such causes. The Bank will, however, take all
reasonable steps to minimize service interruption for any period
that such interruption continues beyond the Bank's control.
(e) The Bank represents that the occurrence in or use by the Bank's own
proprietary internal systems (the "Systems") of dates on or after
January 1, 2000 (the "Millennial Dates") will not adversely affect
the performance of the Systems with respect to date dependent data,
computations, output or other functions (including, without
limitation, calculating, computing and sequencing) and that the
Systems will create, store and generate output data related to or
including Millennial Dates without errors or omissions ("Year 2000
Compliance").
(f) The parties to this Agreement acknowledge that the Bank can make no
certification as to the Year 2000 Compliance of third-party systems
utilized by the Bank in its day to day operations or with which the
Systems interact or communicate, from which the Systems receive data
or to which the Systems send data. The parties further acknowledge
that while the Bank has contacted such third-party providers
regarding Year 2000 Compliance and will use reasonable efforts to
monitor the status of such third-party providers' Year 2000
Compliance, failure by such third-party providers to achieve timely
Year 2000 Compliance could adversely affect the Bank's performance
of its obligations hereunder.
(g) Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank be liable for special, incidental or
consequential damages, even if advised of the possibility of such
damages.
7. Termination of Agreement.
(a) The term of this Agreement shall be an initial term of 2 years
commencing upon the date hereof (the "Initial Term"), unless earlier
terminated as provided herein. After the expiration of the Initial
Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless notice of
non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the
Initial Term or any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party
violates any material provision of this Agreement, provided
that the violating party does not cure such violation within
ninety days of receipt of written notice from the
non-violating party of such violation.
(ii) Either party may terminate this Agreement during any Renewal
Term upon ninety days written notice to the other party. Any
termination pursuant to this paragraph 7(a)(ii) shall be
effective upon expiration of such ninety days, provided,
however, that the effective date of such termination may be
postponed, at the request of the Fund, to a date not more than
one hundred twenty days after delivery of the written notice
in order to give the Fund an opportunity to make suitable
arrangements for a successor administrator.
(b) At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the
Bank relating to its performance of its duties as Sub-Administrator.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or the Bank shall be
sufficiently given if addressed to that party and received by it at
its office set forth below or at such other place as it may from
time to time designate in writing.
To the Fund:
E*TRADE Funds Four Embarcadero Road 2400 Geng Road Palo Alto,
CA 94303 Attention:
To the Administrator:
E*TRADE Asset Management, Inc.
Four Embarcadero Road
2400 Geng Road
Palo Alto, CA 94303
Attention:
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Alex Chaloff, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the
written consent of the other party.
(c) This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, without regard to its conflict of
laws provisions.
(d) This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original and which collectively shall
be deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
9. Confidentiality. All books, records, information and data pertaining
to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required in the performance of
duties hereunder or as otherwise required by law.
10. Use of Name. The Fund shall not use the name of the Bank or any of
its affiliates in any prospectus, sales literature or other material
relating to the Fund in a manner not approved by the Bank prior
thereto in writing; provided however, that the approval of the Bank
shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory,
governmental or judicial authority; provided further, that in no
event shall such approval be unreasonably withheld or delayed.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
E*TRADE FUNDS
By:
Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
Name:
Title:
<PAGE>
Appendices
Appendix A................................. Portfolios
Appendix B................................. Services
Appendix C................................. Fee Schedule
<PAGE>
APPENDIX A
PORTFOLIOS
E*TRADE S&P 500 INDEX FUND
<PAGE>
Appendices to Sub-Administration Agreement
Appendix A.................................. Portfolios
Appendix B.................................. Services
Appendix C.................................. Fee Schedule
<PAGE>
APPENDIX A
to the
SUB-ADMINISTRATION AGREEMENT
Portfolios
E*TRADE S&P 500 Index Fund
<PAGE>
APPENDIX B
E * Trade Group, Inc.
Annual Fee Schedule
For One Equity Fund - 2 Classes
October 28, 1998
==============================================================================
Fund Accounting, Custody and Calculation of N.A.V., Fund Administration,
Financial Statement Preparation.
==============================================================================
A. Fund Accounting, Custody and Calculation of N.A.V., Fund
Administration, Financial Statement Preparation.
The Annual Fee for Fund Accounting, Custody and Calculation of N.A.V., Fund
Administration, Financial Statement Preparation for the one (1) E * Trade
Group, Inc. S&P 500 Equity Fund (including two classes) will be charged
according to the following schedule. The following schedule is exclusive of
transaction costs and out-of-pocket expenses.
Fee Annual
Annual Fee per fund $42,000
For each additional class added beyond the first class there will be an
annual fee of $18,000 for the above services.
==============================================================================
Miscellaneous
==============================================================================
A. Out-of-Pocket
These charges consist of:
- Telephone
- Ad Hoc Reporting
- TA - Non-current Day Inquiry ($1.00 per inquiry)
- Third Party Review
- Forms and Supplies
- Printing/Postage/Delivery
- Systems Development/Reports/Transmissions
- Equipment Rental
- Legal costs associated with substantial alterations of IBT's
standard agreements
B. Balance Credits
We allow use of balance credit against fees (excluding out-of-pocket
charges) for collected fund balances arising out of the custody
relationship. The monthly earnings allowance is equal to 75% of the 90-day
T-bill rate.
C. Systems
The details of any systems work required to service this fund will be
determined after a thorough business analysis. All systems work, including
creating customized reports and establishing systems/communications
interfaces with E * Trade, other providers, etc., will be billed on a time
and materials basis.
D. Other
Assumptions:
The fee schedule assumes that there will be two (2) classes of shares.
The above fees will be charged against the funds' custodian checking account
five business days after the invoice is mailed to the fund.
This annual fee schedule is valid for 30 days and assumes the execution of
IBT's standard contractual agreements for a minimum term of three (3) years.
All charges will be billed monthly. The fee schedule will be effective upon
start-up of the fund.
Agreed:
- ---------------------------------
E * Trade Group, Inc.
<PAGE>
WIRE INSTRUCTIONS FOR E*TRADE S&P 500 INDEX FUND:
INVESTORS BANK & TRUST COMPANY
BOSTON, MASSACHUSETTS
ABA # 011001438
ACCOUNT # 5819-1000
ACCOUNT: BGI CAP STOCK
REFERENCE: E*TRADE FUND - 10755
<PAGE>
<TABLE>
<CAPTION>
Appendix C Investors Bank & Trust Summary of
Administration Functions 1/99 E *
Trade Group, Inc.
Suggested Fund
Function Investors Bank & Trust E * Trade Auditor or Counsel
- --------------------------------- ----------------------------- ------------------------ -----------------------
<S> <C> <C> <C>
- ---------------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- ---------------------------------
C - Review agenda,
Prepare agenda and board Prepare agenda and board material and
materials for quarterly board resolutions and board and committee
meetings. assemble board meeting minutes.
materials for Ensure BOD material
quarterly board contains all required
meetings. Prepare information that the
supporting information BOD must review
and materials when and/or approve to
necessary. Attend perform their duties
Frequency: Quarterly board and committee as directors.
meetings and prepare
minutes.
Monitor portfolio compliance in Perform tests of certain Continuously monitor A/C - Provide
accordance with the current specific portfolio activity portfolio activity and consultation as
Prospectus and SAI. designed from provisions of Fund operations in needed on compliance
the Fund's Prospectus and conjunction with 1940 issues.
SAI at the Master level Act, Prospectus, SAI
only. Follow-up on and any other
potential violations. applicable laws and
Frequency: Daily regulations. Monitor
testing results and
approve resolution of
compliance issues.
Provide compliance summary Provide a report of Review report. A/C - Provide
package. compliance testing results. consultation as
needed.
Frequency: Monthly
A - Provide
Perform asset diversification Perform asset Continuously monitor consultation as
testing to establish diversification tests at portfolio activity in needed in
qualification as a RIC. each tax quarter end. conjunction with IRS establishing
Follow-up on issues. requirements. Review positions to be taken
test results and take in tax treatment of
any necessary action. particular issues.
Frequency: Quarterly Approve tax positions Review quarter end
taken. tests on a current
basis.
Perform qualifying income Perform qualifying income Continuously monitor A- Consult as needed
testing to establish testing (on book basis portfolio activity in on tax accounting
qualification as a RIC. income, unless material conjunction with IRS positions to be
differences are requirements. Review taken. Review in
anticipated) on quarterly test results and take conjunction with
basis and as may otherwise any necessary action. year-end audit.
Frequency: Quarterly be necessary. Follow-up Approve tax positions
on issues. taken.
Prepare the Fund's annual Prepare preliminary expense Provide asset level
expense budget. Establish budget. Notify fund projections. Approve
daily accruals. accounting of new accrual expense budget.
rates.
Frequency: Annually
Monitor the Fund's expense Monitor actual expenses Provide asset level C/A - Provide
budget. updating budgets/ expense projections consultation as
Review the Fund's multi-class accruals. Review expense quarterly. Provide requested.
expense differentials. differentials among classes vendor information as
to ensure consistency with necessary. Review
Rule 18f-3 or the Fund's expense analysis and
exemptive application and approve budget
Frequency: Quarterly the Fund's private letter revisions.
ruling or published ruling.
Receive and coordinate payment Propose allocations of Approve invoices and
of fund expenses. invoice among Funds and allocations of
obtain authorized approval payments. Send
Frequency: As often as to process payment. invoices to IBT in a
necessary timely manner.
Calculate periodic dividend Calculate amounts available Establish and maintain C - Review dividend
rates to be declared in for distribution. dividend and resolutions in
accordance with management Coordinate review by distribution conjunction with
guidelines. management and/or policies. Approve Board approval.
auditors. Notify custody distribution rates per
and transfer agent of share and aggregate A - Review and concur
authorized dividend rates amounts. Obtain Board with proposed
in accordance with Board approval when required. distributions
Frequency: Annually approved policy. Report
dividends to Board as
required.
Calculate total return Provide total return Review total return
information on Funds as defined calculations. information.
in the current Prospectus and
SAI.
Frequency: Monthly
Prepare responses to major Prepare, coordinate as Identify the services
industry questionnaires. necessary, and submit to which the Funds
responses to the report. Provide
Frequency: As often as appropriate agency. information as
necessary requested.
Prepare disinterested Summarize amounts paid to Provide social
director/trustee Form 1099-Misc. directors/trustees during security numbers and
the calendar year. Prepare current mailing
and mail Form 1099-Misc. address for trustees.
Frequency: Annually Review and approve
information provided
for Form 1099-Misc.
<PAGE>
- ---------------------------------
FINANCIAL REPORTING
- ---------------------------------
Prepare financial information Prepare selected
for presentation to Fund portfolio and
Management and Board of financial information
Directors. for inclusion in board
material.
Frequency: Quarterly
Coordinate the annual audit and Coordinate the creation of Provide past F/S and A - Perform audit and
semi-annual preparation and templates reflecting other information issue opinion on
printing of financial client-selected required to create annual financial
statements and notes with standardized appearance and templates, including statements.
management, fund accounting and text of financial report style and
the fund auditors. statements and footnotes. graphics. Approve
Draft and manage production format and text as
cycle. Coordinate with IBT standard. Approve A/C - Review reports.
fund accounting the production cycle and
electronic receipt of assist in managing to
portfolio and general the cycle. Coordinate
ledger information. Assist review and approval by
in resolution of accounting portfolio managers of
issues. Using templates, portfolio listings to
draft financial statements, be included in
coordinate auditor and financial statements.
management review, and Prepare appropriate
clear comments. Coordinate management letter and
printing of reports and coordinate production
EDGAR conversion with of Management
outside printer and filing Discussion and
with the SEC via EDGAR. Analysis. Review and
approve entire
report. Make
appropriate
representations in
conjunction with audit.
Frequency:
Annually/semi-annually
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------
TAX
- -----------------------------
<S> <C> <C>
Prepare income tax Calculate investment Provide transaction A - Provide
provisions. company taxable income, information as consultation as needed
net tax exempt interest, requested. Identify in establishing
net capital gain and Passive Foreign positions to be taken
spillback dividend Investment Companies in tax treatment of
requirements. Identify (PFICs). Approve particular issues.
book-tax accounting tax accounting Perform review in
differences. Track positions to be conjunction with the
required information taken. Approve year-end audit.
relating to accounting provisions.
differences.
Frequency: Annually
Calculate excise tax Calculate required Provide transaction A - Provide
distributions distributions to avoid information as consultation as needed
imposition of excise tax. requested. Identify in establishing
Passive Foreign positions to be taken
- Calculate capital Investment Companies in tax treatment of
gain net income (PFICs). Approve particular issues.
and foreign currency tax accounting Review and concur with
gain/loss through positions to be proposed distributions
October 31. taken. Review and per share.
approve all income
- Calculate ordinary and distribution
income and calculations,
distributions through including projected
a specified cut off income and dividend
date . shares. Approve
distribution rates
- Project ordinary per share and
income from cut off aggregate amounts.
date to December 31. Obtain Board
approval when
- Ascertain dividend required.
shares.
Identify book-tax accounting differences. Track
required information relating to accounting
differences. Coordinate review by management and
fund auditors. Notify custody and transfer agent
of authorized dividend rates in accordance with
Board approved policy. Report dividends to Board
as required.
Frequency: Annually
Prepare tax returns Prepare excise and RIC tax Review and sign tax A - Review and sign tax
returns for Feeder. return. return as preparer.
Frequency: Annually
Prepare Form 1099 Obtain yearly distribution Review and approve
information. Calculate information provided
1099 reclasses and for Form 1099.
Frequency: Annually coordinate with transfer
agent.
Prepare other year-end Obtain yearly income Review and approve
tax-related disclosures distribution information provided.
information. Calculate
disclosures
(i.e., dividend received
Frequency: Annually deductions,
foreign tax credits,
tax-exempt
income, income by
jurisdiction) and
coordinate with transfer
agent.
</TABLE>
Review and Approval
The attached Summary of Administration Functions has been reviewed and
represents the services currently being provided.
- --------------------------------- ------------------------
Signature of Account Manager Date
- ---------------------------------- ------------------------
Signature of Authorized Date
Client Representative
E*TRADE Securities, Inc.
No Transaction Fee Mutual Fund Offering
RETAIL SHAREHOLDER SERVICES AGREEMENT
This Agreement is made as of February 3, 1999, between E*TRADE
Securities, Inc. ("E*TRADE Securities"), a Delaware corporation, E*TRADE Funds,
a Delaware business trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act") as an open-end management investment company (the
"Fund"), and E*TRADE Asset Management, Inc. ("Fund Affiliate"), a Delaware
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, and which serves as investment adviser to the Fund pursuant to an
agreement dated February 3, 1999 (Fund and Fund Affiliate are collectively
referred to as "Fund Parties").
WHEREAS, Fund Parties wish to engage E*TRADE Securities to perform
certain record-keeping, shareholder communication, and other shareholder
administrative services for Fund's shareholders; and
WHEREAS, E*TRADE Securities agrees to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, E*TRADE Securities and Fund Parties agree as follows:
1. SERVICES
E*TRADE Securities shall perform such services for Fund Parties as
are designated in Schedule A to this Agreement ("Services"), as such Schedule A
may from time to time be amended, such amendments to be evidenced by the
signature thereto by a duly authorized representative of each of the Parties.
2. COMPENSATION
In consideration for the Services rendered by E*TRADE Securities
pursuant to this Agreement, the Fund Affiliate shall pay a fee to E*TRADE
Securities as shall be calculated pursuant to Schedule B to this Agreement.
3. TRANSACTION CHARGES
E*TRADE Securities shall not assess any of Fund shareholders or
prospective shareholders any fee for executing any purchase or sale order where
such order involves the securities of the Fund. Notwithstanding this provision,
E*TRADE Securities shall have the right to assess customers a fee that is
payable to the Fund where E*TRADE Securities provides the customer with a
service that is not contemplated by this Agreement.
4. INDEMNIFICATION
(a) Fund Parties severally agree to indemnify, defend and hold harmless
E*TRADE Securities, its officers, directors, employees, agents, and affiliates
from and against (i) any and all claims, demands, liabilities and expenses,
including legal expenses, which E*TRADE Securities, its officers, directors,
employees, agents, and affiliates may incur arising out of or based upon any
untrue statement, or alleged untrue statement, of material fact contained in any
registration statement, prospectus, statement of additional information, sales
material, or other information provided by the Fund, or based upon any omission,
or alleged omission, to state a material fact required to be stated to make the
statements contained therein not misleading, except to the extent that E*TRADE
Securities has itself produced such materials; (ii) any breach by either Fund or
Fund Affiliate of any representation, warranty or provision contained herein, or
(iii) any willful misconduct or gross negligence by Fund or Fund Affiliate in
the performance of, or failure to perform, its respective obligations under this
Agreement, except to the extent that such claims, liabilities or expenses are
caused by E*TRADE Securities' breach of this Agreement or willful misconduct or
gross negligence in the performance, or failure to perform, their respective
obligations under this Agreement. This section 4(a) shall survive termination of
this Agreement.
(b) E*TRADE Securities agrees to indemnify, defend and hold harmless Fund
Parties, their officers, directors, employees, agents, and affiliates from and
against any and all claims, demands, liabilities and expenses, including legal
expenses, which Fund Parties, their officers, directors, employees, agents, and
affiliates may incur arising out of or based upon (i) any untrue statement, or
alleged untrue statement, of material fact contained in any advertising or sales
literature prepared by E*TRADE Securities without reliance upon information
provided by either Fund Parties or an unaffiliated mutual fund rating or
statistical information agency; (ii) any breach by E*TRADE Securities of any
representation, warranty or provision contained herein, or (iii) any willful
misconduct or gross negligence by E*TRADE Securities in the performance of, or
failure to perform, its obligations under this Agreement, except to the extent
that such claims, liabilities or expenses are caused by Fund Parties' breach of
this Agreement or willful misconduct or gross negligence in the performance, or
failure to perform, their respective obligations under this Agreement. This
section 4(b) shall survive termination of this Agreement.
No party hereto shall be liable for any special, consequential or incidental
damages.
5. ROLE OF E*TRADE SECURITIES
The parties acknowledge and agree that the Services performed by
E*TRADE Securities pursuant to this Agreement are not the services of an
underwriter or principal underwriter of the Fund within the meaning of the 1940
Act or the Securities Act of 1933, as amended. This Agreement does not grant
E*TRADE Securities any right to purchase shares from the Fund; neither does it
preclude E*TRADE Securities' ability to purchase shares from the Fund. E*TRADE
Securities shall not be deemed to be an agent of Fund Parties or of the Fund for
the purposes of selling the Fund's shares to any dealer or the public. To the
extent that E*TRADE Securities is involved in the purchase of shares of any Fund
by E*TRADE Securities' customers, such involvement will be as agent of such
customer only.
6. INFORMATION TO BE PROVIDED
Fund Parties shall provide to E*TRADE Securities prior to the
effectiveness of this Agreement or as soon thereafter as is reasonably
practicable:
(a) Certified resolutions of the board of directors or board of trustees,
as applicable, of Fund Parties authorizing the execution of this Agreement and
the performance by the Fund Party pursuant to this Agreement; and
(b) Two (2) written copies of each current prospectus and statement of
additional information relating to any of Fund's shares which may be purchased
by customers of E*TRADE Securities. Fund Parties agree to submit to E*TRADE
Securities two (2) written copies of any amendment or supplement to or any
updated version of such prospectus(es) and statement(s) of additional
information no later than the effective date of such amendment, supplement or
updated version.
7. TERMINATION OF AGREEMENT
This Agreement is terminable, without penalty, at any time upon
ninety (90) days' notice by E*TRADE Securities to Fund and Fund Affiliate or by
Fund and Fund Affiliate to E*TRADE Securities. Termination of this Agreement
shall terminate E*TRADE Securities' obligations to perform the Services, as of
the effective date of the termination, and shall terminate Fund Parties'
obligations to pay any compensation hereunder, as of the effective date of the
termination. Notwithstanding any provision herein to the contrary, Fund Parties'
obligations pursuant to this Agreement shall not be terminated with respect to
any transactions in Fund's shares commenced prior to the effective date of the
termination of this Agreement.
8. NOTICES
Notices and other communications will be duly given if mailed,
telegraphed, or transmitted by similar telecommunications device to addresses
designated on Schedule C hereto.
9. NON-EXCLUSIVITY
Each Party to this Agreement may enter into agreements similar to
this Agreement with other parties for the performance of services similar to
those to be provided under this Agreement, unless otherwise agreed to in writing
by the Parties.
10. JURISDICTION AND NON-ASSIGNABILITY
This Agreement will be construed in accordance with the laws of the
State of California and is non-assignable by the parties hereto. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the Parties and their respective successors and assigns.
11. FUND PORTFOLIOS AND CLASSES
The portfolios, series and classes of shares of Fund to which this
Agreement shall apply are designated in Schedule C hereto.
12. EXHIBITS AND SCHEDULES
Schedules A, B and C, which are attached hereto, are each a part of
and is incorporated by reference into this Agreement. This Agreement shall not
be deemed to be complete absent such Schedules A, B or C.
13. ENTIRE AGREEMENT; SEVERABILITY
Each Party recognizes the existence of an Underwriting Agreement
between E*TRADE Securities and the Fund dated February 3, 1999, a Clearing
Agreement between E*TRADE Securities and NSCC, dated January 27, 1999
("Fund/SERV Agreement"), and a Supplemental Agreement Regarding Networking dated
_____ (collectively, the "Other Agreements"). To the extent of any inconsistency
or conflict between the provisions of this Agreement and any provision of the
Other Agreements, such provision of the Other Agreements shall govern, and the
provision of this Agreement shall be null and void. Except as specified in this
Section 13, however, this Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for retail
shareholder services. Each provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and shall
be enforceable notwithstanding the un-enforceability of any such other provision
or agreement.
14. REPRESENTATIONS OF THE PARTIES
Each Party represents and warrants to each other Party that (i) it
is duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance, (ii) the person signing this Agreement on
its behalf is duly authorized to do so, (iii) it has obtained all authorizations
of any governmental body required in connection with this Agreement and such
authorizations are in full force and effect and (iv) the execution, delivery and
performance of this Agreement will not violate any law, ordinance, charter,
by-law or rule applicable to it or any agreement by which it is bound or by
which any of its assets are affected.
15. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
In witness whereof, each Party has executed this Agreement by a duly
authorized representative of such Party.
---------------------------- ---------------------------
E*TRADE Funds E*TRADE Asset Management, Inc.
By: ________________________ By: _______________________
Name: ______________________ Name: _____________________
Title: ______________________ Title: ______________________
Date: ______________________ Date: ______________________
By:____________________________
E*TRADE Securities, Inc.
<PAGE>
SCHEDULE A
Services
1. RECORD MAINTENANCE
E*TRADE Securities shall maintain the following records with respect
to a Fund for each customer who holds Fund shares in an E*TRADE Securities
brokerage account:
a. Number of shares;
b. Date, price and amount of purchases and redemptions (including
dividend reinvestments) and dates and amounts of dividends paid for at least the
current year to date;
c. Name and address of the customer, including zip codes and social
security numbers or taxpayer identification numbers;
d. Records of distributions and dividend payments; e. Any transfers
of shares; and f. Overall control records.
2. SHAREHOLDER COMMUNICATIONS
E*TRADE Securities shall:
a. Provide to an approved shareholder mailing agent for the purpose
of providing certain Fund-related materials the names and contact information of
all E*TRADE Securities customers who hold shares of such Fund in their E*TRADE
Securities brokerage accounts. The shareholder mailing agent shall be a person
or entity with whom the Fund has arranged for the distribution of certain
Fund-related material in accordance with the Fund/SERV Agreement. The
Fund-related materials shall consist of updated prospectuses and any supplements
and amendments thereto, annual and other periodic reports, proxy or information
statements and other appropriate shareholder communications. In the alternative,
in accordance with the Fund/SERV Agreement, E*TRADE Securities may distribute
the Fund-related materials to its customers.
b. Deliver current Fund prospectuses and statements of additional
information and annual and other periodic reports upon customer request and, as
applicable, with confirmation statements;
c. Deliver statements to customers on a monthly basis (or, as to
accounts in which there has been no activity in a particular month, no less
frequently than quarterly) showing, among other things, the number of shares of
each Fund owned by such customer and the net asset value of such Fund as of a
recent date;
d. Produce and provide to customers confirmation statements
reflecting purchases and redemptions of shares of each Fund in E*TRADE
Securities brokerage accounts;
e. Respond to customer inquiries regarding, among other things,
share prices, account balances, dividend amounts and dividend payment dates; and
3. TRANSACTIONAL SERVICES
E*TRADE Securities shall communicate, as to shares of each Fund,
purchase, redemption and exchange orders reflecting the orders it receives from
its customers. E*TRADE Securities shall also communicate, as to shares of each
Fund, mergers, splits and other reorganization activities.
4. TAX INFORMATION RETURNS AND REPORTS
E*TRADE Securities shall prepare and file with the appropriate
governmental agencies, such information, returns and reports as are required to
be so filed for reporting (i) dividends and other distributions made, (ii)
amounts withheld on dividends and other distributions and payments under
applicable federal and state laws, rules and regulations, and (iii) gross
proceeds of sales transactions as required.
5. FUND COMMUNICATIONS
E*TRADE Securities shall, on a monthly basis and for each Fund,
report the number of shares on which the Fee is to be paid pursuant to this
Agreement. Such summaries shall be expressed in both shares and dollar amounts.
<PAGE>
SCHEDULE B
Calculation of Fee
The Fee shall be calculated by multiplying the Daily Value of Qualifying Shares
by the appropriate Fee Rate (indicated below). The Fee shall be paid monthly in
arrears.
The Daily Value of Qualifying Shares is the aggregate daily value of all shares
of the Fund held in E*TRADE Securities brokerage accounts, subject to the
following exclusions. There shall be excluded from the shares: (i) shares as to
which a brokerage customer paid E*TRADE Securities a transaction fee upon the
purchase of such shares; (ii) shares held in an E*TRADE Securities brokerage
account prior to the effective date of this Agreement as to the Fund; and, (iii)
shares first held in an E*TRADE Securities brokerage account after the
termination of this Agreement as to the Fund.
The Fee Rate is determined based on the aggregate value of the Qualifying Shares
of all Funds listed on Schedule C, as amended from time to time, as of the prior
review date. The review dates are December 31, and June 30. The Fee Rate is
effective from the next business day following the review date up to and
including the next review date. The Fee Rates are as follows:
Up to and including $750 million 1 basis point
Over $750 million and up to
And including $1.5 billion 1 basis point
Over $1.5 billion 1 basis point
Note: The rate scale is not intended to produce a "blended rate." Rather, once a
threshold is reached, the rate applicable to the total amount of assets will be
used for all assets.
For purposes of this exhibit, the daily value of the shares of each Fund will be
the net asset value reported by such Fund to the National Association of
Securities Dealers, Inc. Automated Quotation System. No adjustments will be made
to the net asset values to correct errors in the net asset values so reported
for any day unless such error results in a higher Fee to E*TRADE Securities or
is corrected and the corrected net asset value per share is reported to E*TRADE
Securities before 5 o'clock p.m., Palo Alto time, on the first business day
after the day to which the error relates.
As soon as is possible after the end of the month, E*TRADE Securities shall
provide to the Fund Parties an invoice for the amount of the Fee due for each
Fund. In the calculation of such Fee, E*TRADE Securities' records shall govern
unless an error can be shown in the number of shares used in such calculation.
Fund Affiliate shall pay E*TRADE Securities the Fee within thirty (30) days
after the Fund Parties receipt of such statement. Such payment shall be by wire
transfer, unless the amount thereof is less than $250.00. Such wire transfers
shall be separate from wire transfers of redemption proceeds or other
distributions. Amounts less than $250.00 may be paid, at Fund Affiliate's
discretion, by check.
<PAGE>
Schedule C
Fund Portfolios and Classes
Fund Name/Class: Cusip/Ticker Symbol:
E*TRADE S&P 500 Index Fund 269244109
- --------------------------------- -------------------------
- --------------------------------- -------------------------
- --------------------------------- -------------------------
- --------------------------------- -------------------------
Asterisk indicates that Fund is a "No-Load" or "No-Sales Charge" Fund as defined
in Section 26 of the NASD's Rules of Fair Practice.
---------------------------- ---------------------------
E*TRADE Funds E*TRADE Asset Management, Inc.
2400 Geng Road 2400 Geng Road
Palo Alto, CA 94303 Palo Alto, CA 94303
By: ________________________ By: _______________________
Name: ______________________ Name: _____________________
Title: ______________________ Title: ______________________
Date: ______________________ Date: ______________________
By:____________________________
E*TRADE Securities, Inc.
Date: ______________________
