Registration Nos. 333-66807
811-09093
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 17 /X/
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 20 /X/
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(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) 331-6000
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)
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X on February 16, 2000 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2) of Rule 485
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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 February 16, 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 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 TitansSM (DJGTSM) IndexSM. 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 February 16, 2000
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY....................................................3
FEES AND EXPENSES......................................................5
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS.....................6
YEAR 2000..............................................................7
FUND MANAGEMENT........................................................8
PRICING OF FUND SHARES.................................................9
HOW TO BUY, SELL AND EXCHANGE SHARES...................................9
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................14
TAX CONSEQUENCES......................................................14
<PAGE>
RISK/RETURN SUMMARY
This is a summary. You should read this section along with the rest of this
Prospectus.
Investment Objectives/Goals
The Fund's investment objective is to provide investment results that 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 consists of securities of 50 companies, and includes some of the
world's most well known and well established blue-chip companies. The DJGT Index
includes only the largest of large-cap companies in the world and currently
consists of stocks of companies with capitalization of at least $20 billion. The
DJGT Index began to be calculated in July 1999 and consists of securities of
companies that are selected based on a global or multinational standard and,
therefore, (i) may be headquartered anywhere in the world; (ii) are market and
industry leaders on a global level, rather than merely at a local level; and
(iii) have international exposure either from selling products outside their
home markets or providing services to overseas clients. The DJGT Index selects
the 50 companies whose securities comprise the DJGT Index out of the 100 largest
companies selected globally, as measured by assets, book value, sales/revenue,
net profit and foreign sales rankings.
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 includes only global or
multi-national large-cap companies in the world, and therefore, the value of
the Fund's shares could decline in reaction to both domestic and global stock or
bond movements or during extended market downturns. The DJGT Index may also rise
and fall daily. Many of the companies whose securities are included in the DJGT
Index are non-U.S. companies and those securities may be traded principally
outside the United States. As a result, the Fund may be subject to different or
greater risks than if it were invested
* "Dow JonesSM," "Global TitansSM" 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 such Fund. Please see the Statement
of Additional Information.
<PAGE>
solely in U.S. companies. Such risks may include, among others, different
accounting, auditing and financial reporting standards, higher commission rates
on the purchases and sales of securities in the DJGT Index and adverse changes
in regulatory and market structures. 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, while you are invested in
the Fund, even if you are a long-term investor.
The Fund is non-diversified which means that the Fund may invest a greater
percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the 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, a limited number
of issuers or large companies generally. 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, e.g., small-cap companies, 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 in February 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 under the Annual Fund Operating Expenses 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 (as a % of redemption proceeds, 1.00%
payable only if shares are redeemed within four
months of purchase)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees None
Other Expenses 0.40%
Administration 0.35%*
Trustee Expenses 0.05%**
Total Annual Fund Operating Expenses 0.65%
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Fee Waiver and/or Reimbursement (0.05%)***
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Net Expenses 0.60%
* The administration fee of 0.35% is payable by the Fund to E*TRADE Asset
Management, Inc. as the Fund's administrator.
** The Fund bears its pro rata portion of the fees and expenses of the Trustees
of E*TRADE Funds who are not affiliated with E*TRADE and counsel, if any, to the
independent trustees.
*** The administration fee is waived and/or E*TRADE Asset Management, Inc. will
reimburse the Fund to the extent that the expenses and costs of the Fund would
otherwise exceed 0.60%. This waiver and/or reimbursement agreement has the same
term as the administrative services agreement with E*TRADE Asset Management,
Inc., which has an initial term of two years and is renewable annually
thereafter, subject to termination on 60 days' written notice.
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, redemptions of Fund shares effected by
speaking with an E*TRADE Securities representative are subject to a $15 fee.
Redemptions of 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
$63 ............ $204
INVESTMENT OBJECTIVE, STRATEGIES AND RELATED RISKS
Under normal market conditions, the Fund invests at least 90% of its total
assets in the stocks of companies comprising the DJGT Index. That portion of its
assets is not actively managed but simply tries to match, before fees and
expenses, 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 consists of securities issued by 50 companies and includes the
largest companies out of the 100 largest cap companies selected globally, as
measured by assets, book value, sales/revenue, net profit and foreign sales
rankings. Any domestic-focused companies without multinational operations are
ineligible for the index, no matter how large or successful within domestic
markets. Securities in the DJGT Index are also screened for liquidity, although
the liquidity of a security can change over time.
It is intended by Dow Jones that the major characteristics of the DJGT Index be:
market leadership; multinational exposure; global diversification (at both a
regional/country level and the industry/sector level); high liquidity; low
turnover; and sufficient market coverage. Sufficient market coverage is
demonstrated by the fact that, currently, the companies whose securities are
included in the DJGT Index have a current total market capitalization of nearly
$5.6 trillion, representing approximately 21% of the global market. Currently,
the DJGT Index consists of stocks of companies with a market capitalization of
at least $20 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. Currently, U.S. companies account for over 60% of
the DJGT Index's components and two-thirds of its market value. The DJGT Index
currently includes companies from the United States, Switzerland, United
Kingdom, Germany, Netherlands, Japan, France and Italy and may include companies
from other countries in the future.
Investments in securities of foreign issuers may expose the Fund to increased
volatility and other 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
on purchases and sales of securities in the DJGT Index, and adverse changes in
regulatory and market structures. Foreign and international political, social
and monetary developments around the world could also affect the Fund's
investments. Foreign securities markets may be less transparent (i.e., a higher
chance that key information will be unavailable, incomplete, or inaccurate) and
less liquid than the U.S. market.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund is managed by utilizing an "indexing" investment approach to determine
which securities are to be purchased or sold to replicate, to the extent
feasible, and before fees and expenses, the investment characteristics of the
DJGT 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 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 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 its 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.
The Fund relies on a license related to the DJGT Index. Although not
anticipated, the license can be terminated for various reasons, including if the
Fund does not have at least $50 million in average assets during its third year
of operations.
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 after January
1, 2000. This possibility is commonly known as the "Year 2000 Problem." The Year
2000 Problem could have an adverse impact into the Year 2000 or beyond.
Virtually all operations of the Fund are computer reliant. The investment
advisor or subadvisor, administrator, transfer agent and custodian have informed
the Fund that they have taken steps to address the Year 2000 Problem with regard
to their respective computer systems. The Fund also obtained assurances that
comparable steps are being taken by the Fund's other significant service
providers. There can be no assurance that the Fund's service providers are Year
2000 compliant. In addition, because the Year 2000 Problem affects virtually all
organizations, the issuers in whose securities the Fund invests and the economy
as a whole also could be adversely impacted by the Year 2000 Problem and cost of
remediation. 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. As of December 31, 1999, the
Investment Advisor provided investment advisory services for over $166 million
in assets.
Subject to general supervision of the E*TRADE Funds' Board of Trustees (the
"Board") and in accordance with the investment objective, policies and
restrictions of the Fund, the Investment Advisor provides the Fund with ongoing
investment guidance, policy direction and monitoring of the Fund pursuant to the
Investment Advisory Agreement. For its advisory services, the Fund pays the
Investment Advisor an investment advisory fee at an annual rate equal to 0.25%
of the Fund's average daily net assets.
The Investment Advisor and the Trust are seeking an exemptive order from the SEC
that will permit the Investment Advisor, subject to approval by the Board, to
retain sub-advisors that are unaffiliated with the Investment Advisor without
approval by the Fund's shareholders. The Investment Advisor, subject to Board
oversight, will continue to have the ultimate responsibility for the investment
performance of the Fund due to its responsibility to oversee sub-advisors and
recommend their hiring, termination, and replacement. If granted, such relief
would require shareholder notification in the event of any change in
sub-advisers. There is no assurance the exemptive order will be granted.
The Investment Advisor has entered into a subadvisory agreement ("Subadvisory
Agreement") with Barclays Global Fund Advisors ("BGFA") to delegate the
day-to-day discretionary management of the Fund's assets. BGFA is a direct
subsidiary of Barclays Global Investors, N.A. (which, in turn, is an indirect
subsidiary of Barclays Bank PLC) and is located at 45 Fremont Street, San
Francisco, California 94105. BGFA has provided asset management, administration
and advisory services for over 25 years. As of November 30, 1999, Barclays
Global Investors and its affiliates, including BGFA, provided investment
advisory services for over $738 billion of assets. The Investment Advisor pays
BGFA a fee out of its investment advisory fee at an annual rate equal to 0.20%
of the Fund's average daily net assets on amounts up to $200 million; 0.15% of
daily net assets on amounts between $200 million and $500 million; and 0.12% of
daily net assets on amounts above $500 million. Additionally, BGFA is entitled
to receive a minimum annual fee of $40,000. 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. Shares will not be priced on the days on which the NYSE is closed for
trading. Foreign issuers with common shares included in the DJGT Index may also
have securities that are primarily listed on foreign exchanges that trade on
weekends or other days when the Fund does not price its shares. As a result, the
NAV of the Fund's shares may change on days when you will not be able to
purchase, redeem or exchange the Fund's shares.
Net asset value per share is computed by dividing the value of the Fund's net
assets (i.e., the value of its assets less liabilities) by the total number of
shares of the Fund outstanding. The Fund's assets are valued generally by using
available market quotations or at fair value as determined in good faith by the
Board. Expenses are accrued daily and applied when determining the NAV.
HOW TO BUY, SELL AND EXCHANGE SHARES
This Fund is designed and built specifically for on-line investors. In order to
become a shareholder of the Fund, you will need to have 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.
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: E*TRADE Securities, Inc., 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: E*TRADE Securities, Inc., 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/Exchange Shares
Minimum Investment Requirements:
For your initial investment in the Fund $ 1,000
To buy additional shares of the Fund $ 250
Continuing minimum investment* $ 1,000
To invest in the Fund for your IRA, Roth $ 250
IRA, or one-person SEP account
To invest in the Fund for your Education $ 250
IRA account
To invest in the Fund for your UGMA/UTMA $ 250
account
To invest in the Fund for your SIMPLE,
SEP-IRA, Profit Sharing or Money
Purchase Pension Plan, or 401(a) account $ 250
* Your shares may be automatically redeemed if, as a result of selling or
exchanging shares, you no longer meet the 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 the methods described below to
buy, sell or exchange shares. You can only sell funds that are held in your
E*TRADE Securities account; that means you cannot "short" shares of the Fund.
Whether you are investing in the Fund for the first time or adding to an
existing investment, you can only buy Fund shares on-line. 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 will
assess a 1.00% fee on redemptions of Fund shares held for less than four months.
As soon as E*TRADE Securities receives the shares or the proceeds from the Fund,
the transaction will appear in your account. This usually occurs the business
day following the transaction, but in any event, no later than three days
thereafter.
On-line. You can access E*TRADE Securities' secure trading pages at
www.etrade.com via the internet, WebTV, Prodigy, AT&T Worldnet, Microsoft
Investor, by GO ETRADE on CompuServe, with the keyword ETRADE on America Online
and via personal digital assistant. By clicking on one of several mutual fund
order buttons, you can quickly and easily place a buy, sell or exchange order
for shares in the Fund. You will be prompted to enter your trading password
whenever you perform a transaction so that we can be sure each buy or sell is
secure. It is for your own protection to make sure you or your co-account
holder(s) are the only people who can place orders in your E*TRADE account. When
you buy shares, you will be asked to: 1) affirm your consent to receive all Fund
documentation electronically, 2) provide an e-mail address and 3) affirm that
you have read the prospectus. The prospectus will be readily available for
viewing and printing on our Website.
Our built-in verification system lets you double-check orders before they are
sent to the markets, and you can change or cancel any unfilled order subject to
prior execution.
If you are already a shareholder, you may 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 request if it
believes it advisable to do so.
Investors will bear the risk of loss from fraudulent or unauthorized
instructions received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Fund and its transfer agent
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund may incur liability if it does not follow these
procedures.
Due to increased telephone volume during periods of dramatic economic or market
changes, you may experience difficulty in implementing a broker-assisted
telephone redemption. In these situations, investors may want to consider
trading online by accessing our Website or use TELE*MASTER, E*TRADE Securities'
automated telephone system, to effect such a transaction by calling
1-800-STOCKS1 (1-800-786-2571).
Signature Guarantee. For your protection, certain requests may require a
signature guarantee.
A signature guarantee is designed to protect you and the Fund against fraudulent
transactions by unauthorized persons. In the following instances, the Fund will
require a signature guarantee for all authorized owners of an account:
1. If you transfer the ownership of your account to another individual or
organization.
2. When you submit a written redemption for more than $25,000.
3. When you request that redemption proceeds be sent to a different name
or address than is registered on your account.
4. If you add or change your name or add or remove an owner on your
account.
5. If you add or change the beneficiary on your transfer-on-death account.
For other registrations, access E*STATION through our Website or call
1-800-786-2575 for instructions.
You will have to wait to redeem your shares until the funds you use to buy them
have cleared (e.g., your check has cleared).
The right of redemption may be suspended during any period in which (i) trading
on the NYSE is restricted, as determined by the SEC, or the NYSE is closed for
other than weekends and holidays; (ii) the SEC has permitted such suspension by
order; or (iii) an emergency as determined by the SEC exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
Redemption Fee. The Fund can experience substantial price fluctuations and is
intended for long-term investors. Short-term "market timers" who engage in
frequent purchases, redemptions or exchanges can disrupt the Fund's investment
program and create additional transaction costs that are borne by all
shareholders. For these reasons, the Fund will assess a 1.00% fee on redemptions
of Fund shares held for less than four months, calculated as a percentage of
redemption proceeds.
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 four 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 four months, the fee will be assessed. The
fee may apply to shares held through omnibus accounts or certain retirement
plans.
Redemption In-Kind. The Fund reserves the right to honor any request for
redemption or repurchases by making payment in whole or in part in readily
marketable securities ("redemption in-kind"). These securities will be chosen by
the Fund and valued as they are for purposes of computing the Fund's NAV. You
may incur transaction expenses in converting these securities to cash.
Exchange. You may exchange your shares of the Fund for shares of another E*TRADE
fund. An exchange is two transactions: a sale (or redemption) of shares of one
fund and the purchase of shares of a different fund with the redemption
proceeds. After we receive your exchange request, the Fund's transfer agent will
simultaneously process exchange redemptions and exchange purchases at the share
prices next determined, as further explained under "Pricing of Fund Shares."
Shares still subject to a redemption fee will be assessed that fee if exchanged.
You must meet the minimum investment requirements for the E*TRADE fund into
which you are exchanging or purchasing shares. The Fund reserves the right to
revise or terminate the exchange privilege, limit the amount of an exchange, or
reject an exchange at any time, without notice.
Closing your account. If you close your E*TRADE Securities account, you will be
required to redeem your shares in your Fund account.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to pay dividends from net investment income annually and
distribute capital gains, if any, annually. The Fund may make additional
distributions if necessary.
Unless you choose otherwise, all your dividends and capital gain distributions
will be automatically reinvested in additional Fund shares. Shares are purchased
at the net asset value determined on the payment date.
TAX CONSEQUENCES
The following information is meant as a general summary for U.S. taxpayers.
Please see the Fund's Statement of Additional Information for more information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in the Fund.
The Fund generally will not have to pay income tax on amounts it distributes to
shareholders, although shareholders will be taxed on distributions they receive.
The Fund will distribute substantially all of its income and gains to its
shareholders every year. If the Fund declares a dividend in October, November or
December but pays it in January, you may be taxed on the dividend as if you
received it in the previous year.
You will generally be taxed on dividends you receive from the Fund, regardless
of whether they are paid to you in cash or are reinvested in additional Fund
shares. If the Fund designates a dividend as a capital gain distribution, (e.g.,
when the Fund has a gain from the sale of an asset the Fund held for more than
12 months), you will pay tax on that dividend at the long-term capital gains tax
rate, no matter how long you have held your Fund shares.
If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax advisor about investment through a tax-deferred account.
There may be tax consequences to you if you dispose of your Fund shares, for
example, through redemption, exchange or sale. You will generally have a capital
gain or loss from a disposition. The amount of the gain or loss and the rate of
tax will depend mainly upon how much you pay for the shares, how much you sell
them for, and how long you hold them. For example, if you sold at a gain Fund
shares that you had held for more than one year as a capital asset, then your
gain would be taxed at the long-term capital gains tax rate.
The Fund will send you a tax report each year that will tell you which dividends
must be treated as ordinary income and which (if any) are long-term capital
gain.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax,
but is a method in which the IRS ensures that it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
DOW JONES
"Dow JonesSM" and "Dow Jones Global Titans IndexSM" are service marks of Dow
Jones & Company, Inc. Dow Jones has no relationship to the Fund, other than the
licensing of the Dow Jones Global Titans Index and its service marks for use in
connection with the Fund.
Dow Jones does not:
|X| Sponsor, endorse, sell or promote the Fund.
|X| Recommend that any person invest in the Fund or any other securities.
|X| Have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the Fund.
|X| Have any responsibility or liability for the administration, management or
marketing of the Fund.
|X| Consider the needs of the Fund or the owners of the Fund in determining,
composing or calculating the Dow Jones Global Titans IndexSM or have
any obligation to do so.
- -------------------------------------------------------------------------------
Dow Jones disclaims any liability in connection with the Fund. Specifically,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
o The results to be obtained by the Fund, the owner of the Fund or any other
person in connection with the use of the Dow Jones Global Titans IndexSM and
the data included in the Dow Jones Global Titans IndexSM;
o The accuracy or completeness of the Dow Jones Global Titans IndexSM and its
data;
o The merchantability and the fitness for a particular purpose or use of the
Dow Jones Global Titans IndexSM;
o Dow Jones will have no liability for any errors, omissions or interruptions
in the Dow Jones Global Titans IndexSM or its data;
o Under no circumstances will Dow Jones be liable for any lost profits or
indirect, punitive, special or consequential damages or losses, even if Dow
Jones knows that they might occur.
The licensing agreement between Dow Jones and E*TRADE Asset Management with
respect to the Fund is solely for their benefit and not for the benefit of the
owners of the Fund or any other third parties.
- -------------------------------------------------------------------------------
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Fund, dated February 16, 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 notified when a prospectus,
prospectus update, 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
1-202-942-8090 for information about the operations of the public reference
room. Reports and other information about the Fund are also available on the
SEC's Internet site at http://www.sec.gov or copies can be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected] or by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-0102.
E*TRADE Securities, Inc.
4500 Bohannon Drive
Menlo Park, CA 94025
Telephone: (650) 331-6000
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
February 16, 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 E*TRADE Funds, dated February 16, 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.......................................................16
SERVICE PROVIDERS...........................................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION..............................19
ORGANIZATION, DIVIDEND AND VOTING RIGHTS....................................21
SHAREHOLDER INFORMATION.....................................................22
TAXATION....................................................................23
UNDERWRITER.................................................................28
PERFORMANCE INFORMATION.....................................................29
DOW JONES...................................................................33
APPENDIX....................................................................35
<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 comprising 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.
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, 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 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.
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.
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.
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.
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 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.
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 the Fund invests. Under the 1940 Act, a Fund's investment
in such securities currently is limited, subject to certain exceptions, to (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Fund's net assets with respect to any one investment company and (iii) 10% of
the Fund's net assets in the aggregate. Investments in the securities of other
investment companies generally will involve duplication of advisory fees and
certain other expenses. The Fund may also purchase shares of exchange-listed
closed-end funds.
Illiquid securities. To the extent that such investments are consistent with its
investment objective, the Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist. Such
securities may include securities that are not readily marketable, such as
privately issued securities and other securities that are subject to legal or
contractual restrictions on resale, floating- and variable-rate demand
obligations as to which the Fund cannot exercise a demand feature on not more
than seven days' notice and as to which there is no secondary market and
repurchase agreements providing for settlement more than seven days after
notice.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion 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.
Loans of portfolio securities. The Fund may lend securities from its portfolios
to brokers, dealers and financial institutions (but not individuals) in order to
increase the return on its portfolio. The value of the loaned securities may not
exceed one-third of the Fund's total assets and loans of portfolio securities
are fully collateralized based on values that are marked-to-market daily. The
Fund will not enter into any portfolio security lending arrangement having a
duration of longer than one year. The principal risk of portfolio lending is
potential default or insolvency of the borrower. In either of these cases, the
Fund could experience delays in recovering securities or collateral or could
lose all or part of the value of the loaned securities. The Fund may pay
reasonable administrative and custodial fees in connection with loans of
portfolio securities and may pay a portion of the interest or fee earned thereon
to the borrower or a placing broker.
In determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's investment advisor considers all relevant
facts and circumstances, including the size, creditworthiness and reputation of
the broker, dealer, or financial institution. Any loans of portfolio securities
are fully collateralized and marked to market daily. The Fund will not enter
into any portfolio security lending arrangement having a duration of longer than
one year. Any securities that the Fund may receive as collateral will not become
part of the Fund's investment portfolio at the time of the loan and, in the
event of a default by the borrower, the Fund will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Fund is permitted to invest. During the time securities are on loan, the
borrower will pay the Fund any accrued income on those securities, and the Fund
may invest the cash collateral and earn income or receive an agreed upon fee
from a borrower that has delivered cash-equivalent collateral.
Obligations of Foreign Governments, Banks and Corporations. The Fund may invest
in U.S. dollar-denominated short-term obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by its investment adviser to be of
comparable quality to the other obligations in which the Fund may invest.
To the extent that such investments are consistent with its investment
objective, the Fund may also invest in debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of the
Fund's assets invested in obligations of foreign governments and supranational
entities will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries.
The Fund may also invest a portion of its total assets in high quality,
short-term (one year or less) debt obligations of foreign branches of U.S.
banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
Repurchase Agreements. The Fund may enter into a repurchase agreement wherein
the seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually-agreed upon time and price. The period of maturity is usually
quite short, often overnight or a few days, although it may extend over a number
of months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, including government
securities and mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be deposited with the
custodian if the value of the securities purchased should decrease below the
repurchase price.
The Fund may incur a loss on a repurchase transaction if the seller defaults and
the value of the underlying collateral declines or is otherwise limited or if
receipt of the security or collateral is delayed. The Fund's custodian has
custody of, and holds in a segregated account, securities acquired as collateral
by the Fund under a repurchase agreement. Repurchase agreements are considered
loans by the Fund. All repurchase transactions must be collateralized.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Fund limits investments in repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Fund's advisor monitors on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price.
Short-term instruments and temporary investments. The Fund may invest in
high-quality money market instruments on an ongoing basis to provide liquidity
or for temporary purposes when there is an unexpected level of shareholder
purchases or redemptions. The instruments in which the Fund may invest include:
(i) short-term obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including government-sponsored enterprises); (ii)
negotiable certificates of deposit ("CDs"), bankers' acceptances, fixed time
deposits and other obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of investment and
that are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC; (iii)
commercial paper rated at the date of purchase "Prime-1" by Moody's or "A-1+" or
"A-1" by S&P, or, if unrated, of comparable quality as determined by Fund's
investment advisor; (iv) non-convertible corporate debt securities (e.g., bonds
and debentures) with remaining maturities at the date of purchase of not more
than one year that are rated at least "Aa" by Moody's or "AA" by S&P; (v)
repurchase agreements; and (vi) short-term, U.S. dollar-denominated obligations
of foreign banks (including U.S. branches) that, at the time of investment have
more than $10 billion, or the equivalent in other currencies, in total assets
and in the opinion of the Fund's investment advisor are of comparable quality to
obligations of U.S. banks which may be purchased by the Fund.
U.S. Government Obligations. The Fund may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S. Government and supported by
the full faith and credit of the U.S. Treasury. U.S. Government 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
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.
Index Changes. The securities comprising the DJGT Index are changed from time to
time. Announcements of those changes and related market activity may result in
reduced returns or volatility for the Fund.
FUND POLICIES
Fundamental Investment Restrictions
The following are the Fund's fundamental investment restrictions which, along
with the Fund's investment objective, cannot be changed without shareholder
approval by a vote of a majority of the outstanding shares of the Fund, as set
forth in the 1940 Act.
Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in the Fund's assets (i.e., due to cash inflows or redemptions) or in market
value of the investment or the Fund's assets will not constitute a violation of
that restriction.
Unless indicated otherwise below, the Fund:
1. may not issue senior securities, except as permitted under the 1940 Act
and as interpreted and modified by regulatory authority having jurisdiction,
from time to time;
2. may not borrow money, except as permitted under the 1940 Act and as
interpreted and modified by regulatory authority having jurisdiction, from
time to time;
3. may not engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
4. may not concentrate its investments in a particular industry, as that term is
used in the 1940 Act and as interpreted or modified by regulatory authority
having jurisdiction, from time to time except that there shall be no limitation
with respect to investments in (i) obligations of the U.S. Government, its
agencies or instrumentalities (or repurchase agreements thereto); or (ii) any
particular industry or group of closely related industries to the extent that
the companies whose stocks comprise the DJGT Index belong to a particular
industry or group of closely related industries;
5. may not purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities;
6. may not purchase physical commodities or contracts relating to physical
commodities; and
7. may not make loans, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
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 as
permitted under the 1940 Act and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
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 as interpreted or
modified by regulatory authority having jurisdiction, from time to time; 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>
*Leonard C. Purkis (51) Trustee Mr. Purkis is chief financial
4500 Bohannon Drive officer and executive vice
Menlo Park, CA 94025 president of finance and
administration of E*TRADE
Group, Inc. He previously
served as chief financial
officer for Iomega
Corporation (Hardware
Manufacturer) from 1995 to
1998. Prior to joining
Iomega, he served in numerous
senior level domestic and
international finance
positions for General
Electric Co. and its
subsidiaries, culminating his
career there as senior vice
president, finance, for GE
Capital Fleet Services
(Financial Services).
*Shelly J. Meyers (40)(1) Trustee Ms. Meyers is the Manager,
4500 Bohannon Drive Chief Executive Officer,
Menlo Park, CA 94025 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
4500 Bohannon Drive Chief Executive Officer of
Menlo Park, CA 94025 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
4500 Bohannon Drive Professor of Finance at the
Menlo Park, CA 94025 Graduate School of Business
at Stanford University, where
he has been employed as a
professor since 1992.
George J. Rebhan (65) Trustee Mr. Rebhan has been a Trustee
4500 Bohannon Drive for the Trust For Investment
Menlo Park, CA 94025 Managers (investment company)
since August 30, 1999. Mr.
Rebhan retired in December
1993, and prior to that he
was President of Hotchkis and
Wiley Funds (investment
company) from 1985 to 1993.
*Brian C. Murray (42) President Mr. Murray is President of
4500 Bohannon Drive E*TRADE Asset Management,
Menlo Park, CA 94025 Inc. 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).
*W. David Moore (39) Vice President Mr. Moore is Vice President
4500 Bohannon Drive and Secretary of Operations, E*TRADE Asset
Menlo Park, CA 94025 Management, Inc. He joined
E*TRADE Securities, Inc. in
February 1999. Prior to that,
Mr. Moore was a Sales
Consultant of BARRA Inc.
(investment analytics)
beginning in 1998. From 1995
to 1997, he was Client
Services Manager of Templeton
Europe (investment
management).
<FN>
- ------------
(1) Ms. Meyers may be considered an "interested person," but she is not an
"affiliated person", as defined in the 1940 Act.
</FN>
</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 from the Trust. The following
table provides an estimate of each Trustee's compensation from the Fund for the
current fiscal year ending December 31, 2000 and the total compensation received
from the Trust for the fiscal year ended December 31, 1999:
Compensation Table
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Aggregate Total Compensation
Name of Person, Position Compensation from From Fund and Fund
the Fund (1) Complex Paid to
Trustees (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Leonard C. Purkis, Trustee None None
Shelly J. Meyers (3) $6,000 $22,500
Ashley T. Rabun $6,000 $22,500
Steven Grenadier $6,000 $22,500
George J. Rebhan $6,000 -0-
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 from the Fund for service on the Board of
Trustees for the fiscal year ending December 31, 2000.
(2) The Fund Complex consists of eight series of the Trust, six of which began
operations in 1999.
(3) Ms. Meyers may be considered an "interested person," but she is not an
"affiliated person", as defined in the 1940 Act and is compensated by the
Trust for serving as Trustee.
</FN>
</TABLE>
Control Persons and Principal Holders of Securities
A shareholder that owns 25% or more of the Fund's voting securities is deemed to
control the Fund on matters submitted to a vote of shareholders. To satisfy
regulatory requirements and for compliance purposes, as of February 16, 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.
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
December 31, 1999, the Investment Advisor provided investment advisory services
for over $166 million in assets.
Subject to the 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 0.25%
of the Fund's average daily net assets. The Investment Advisor retains a portion
of that fee not paid to BGFA, as described below.
The Investment Advisor and the Trust are seeking an exemptive order from the SEC
that will permit the Investment Advisor, subject to approval by the Board, to
retain sub-advisors that are unaffiliated with the Investment Advisor without
approval by the Fund's shareholders. The Investment Advisor, subject to Board
oversight, has the ultimate responsibility for the investment performance of the
Fund due to its responsibility to oversee sub-advisors and recommend their
hiring, termination, and replacement. If granted, such relief would require
shareholder notification in the event of any change in sub-advisers. There is no
assurance the exemptive order will be granted.
Sub-Advisor to the Fund. The Investment Advisor has entered into a sub-advisory
agreement ("Sub-Advisory Agreement") with Barclays Global Fund Advisors
("BGFA"). BGFA is a direct subsidiary of Barclays Global Investors, N.A. (which,
in turn, is an indirect subsidiary of Barclays Bank PLC) 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
November 30, 1999, Barclays Global Investors and its affiliates, including BGFA,
provided investment advisory services for over $738 billion of assets.
Under the Sub-Advisory Agreement, BGFA is responsible for the day-to-day
management of the Fund's assets pursuant to the Fund's investment objective and
restrictions. For its services, BGFA receives a fee from the Investment Advisor
at an annual rate equal to 0.20% of the Fund's average daily net assets on
amounts up to $200 million; 0.15% of daily net assets on amounts between $200
million and $500 million; and 0.12% of daily net assets on amounts above $500
million. Additionally, BGFA is entitled to receive a minimum annual fee of
$40,000. The Sub-Advisory Agreement is subject to the same Board of Trustee
approval, oversight and renewal as the Investment Advisory Agreement.
BGFA has agreed to provide to the Fund, among other things, analysis and
statistical and economic data and information concerning the compilation of the
DJGT 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, including: (i) coordinating the services performed by the
investment advisor, transfer and dividend disbursing agent, custodian,
sub-administrator, shareholder servicing agent, independent auditors and legal
counsel; (ii) preparing or supervising the preparation of periodic reports to
the Fund's shareholders; (iii) generally supervising regulatory compliance
matters, including the compilation of information for documents such as reports
to, and filings with, the SEC and other federal or state governmental agencies;
and (iv) monitoring and reviewing the Fund's contracted services and
expenditures. E*TRADE Asset Management also furnishes office space and certain
facilities required for conducting the business of the Fund. Pursuant to the
administrative services agreement with the Fund, E*TRADE Asset Management
receives an administration fee equal to 0.35% of the average daily net assets of
the Fund. This fee is waived and/or reimbursed under the administrative services
agreement to the extent the non-affiliated and independent trustees' fees and
expenses and fees and expenses of the independent trustees' counsel, if any,
equal or exceed 0.005% of the Fund's average daily net assets. (The
administrator currently also waives its fee with respect to those expenses of
less than 0.005%, as described below.) E*TRADE Asset Management is responsible
under the administrative services agreement for expenses otherwise payable by
the Fund other than investment advisory fees, legal fees related to litigation,
the administration fee, non-affiliated and independent trustee fees and
expenses, fees and expenses of independent trustees' counsel, if any, and the
expenses of any master fund in which the Fund may invest. The Fund's
administrator has agreed to waive its administration fee and/or reimburse the
Fund to the extent the expenses and costs of the Fund would otherwise exceed
0.60% of average daily net assets of the Fund, and this agreement has the same
term as the administrative services agreement. The administrative services
agreement is subject to annual renewal after the first two years, subject to
termination on 60 days' written notice. The agreement terminates automatically
if assigned.
Custodian, Fund Accounting Services Agent and Sub-administrator. PFPC Trust
Company ("PFPC Trust"), 400 Bellevue Parkway, Wilmington, DE 19809, serves as
custodian of the assets of the Fund. As a result, PFPC Trust has custody of all
securities and cash of the Fund, delivers and receives payment for securities
sold, receives and pays for securities purchased, collects income from
investments, and performs other duties, all as directed by the officers of the
Fund. The custodian has no responsibility for any of the investment policies or
decisions of the Fund. PFPC, Inc. ("PFPC"), an affiliate of PFPC Trust, also
acts as the Fund's Accounting Services Agent. PFPC Trust also serves as the
Fund's sub-administrator, under an agreement among PFPC Trust, the Trust and
E*TRADE Asset Management, providing management reporting and treasury
administration and financial reporting to Fund Management and the Fund's Board
of Trustees and preparing income tax provisions and tax returns. PFPC Trust and
PFPC are compensated for their services by E*TRADE Asset Management.
Transfer Agent and Dividend Disbursing Agent. PFPC, 400 Bellevue Parkway,
Wilmington, DE 19809, also acts as transfer agent and dividend disbursing agent
for the Fund.
Retail Shareholder Servicing Agent. Under a Retail Shareholder Servicing
Agreement with E*TRADE Securities and E*TRADE Asset Management, E*TRADE
Securities, 4500 Bohannon Drive, Menlo Park, CA 94025, acts as shareholder
servicing agent for the Fund. As shareholder servicing agent, E*TRADE Securities
provides personal services to the Fund's shareholders and maintains the Fund's
shareholder accounts. Such services include: (i) providing to an approved
shareholder mailing agent for the purpose of providing certain Fund-related
materials the names and contact information of all shareholders; (ii) delivering
current Fund prospectuses, statements of additional information, annual and
other periodic reports upon shareholder requests; (iii) delivering statements to
shareholders on a monthly basis; (iv) producing and providing confirmation
statements reflecting purchases and redemptions; (v) answering shareholder
inquiries regarding, among other things, share prices, account balances,
dividend amounts and dividend payment dates; (vi) communicating purchase,
redemption and exchange orders reflecting orders received from shareholders;
(vii) preparing and filing with the appropriate governmental agencies returns
and reports required to be reported for dividends and other distributions made,
amounts withheld on dividends and other distributions and payments under
applicable federal and state laws, rules and regulations, and, as required,
gross proceeds of sales transactions; and (viii) 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 under 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. Shares of the
Trust have no preemptive, conversion, or subscription rights. All shares, when
issued, will be fully paid and non-assessable by the Trust. 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 the 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 the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
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 series of the Trust. 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.
The Fund only recently commenced operations. Like any venture, there can be no
assurance that the Fund as an enterprise will be successful or will continue to
operate indefinitely.
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. Assets in which the Fund invests may
trade and fluctuate in value after the close and before the opening of the NYSE.
The securities of the Fund, except as otherwise noted, that are traded on one or
more than one U.S. national securities exchange are valued at the last sale
price on the business day as of which such value is being determined at the
close of the exchange representing the principal market for such securities. If
there is no sale that day then the value will be based on a price that is the
mean between the closing bid and asked prices. Other securities that are traded
on the OTC markets are priced using NASDAQ (National Association of Securities
Dealers Automated Quotations), which provides information on bid and asked
prices quoted by major dealers in such stocks at a price that is the mean
between the closing bid and asked prices. Bonds, other than convertible bonds,
are valued using a third-party pricing system. Convertible bonds are valued
using this pricing system only on days when there is no sale reported.
Short-term debt securities are valued at amortized cost, which approximates
market. When market quotations are not readily available, securities and other
assets are valued at fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Trust's Board. Puts, calls and futures contracts purchased and held by the Fund
are valued at the close of the securities or commodities exchanges on which they
are traded. (Ordinarily, the close of the regular session for options trading on
national securities exchanges is 4:15 p.m. Eastern Time and the close of the
regular trading session of commodities exchanges is 4:15 p.m. Eastern Time).
Options on securities and indices purchased by the Fund generally are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. Futures contracts will be valued with reference to
established futures exchanges. The value of a futures contract purchased by the
Fund will be either the closing price of that contract or the bid price.
Conversely, the value of a futures contract sold by the Fund will be either the
closing price or the asked price. The value of options on futures contracts is
determined based upon the current settlement price for a like option acquired on
the day on which the option is being valued. A settlement price may not be used
for the foregoing purposes if the market makes a limit move with respect to a
particular commodity.
Telephone and Internet Redemption Privileges. The Fund employs reasonable
procedures to confirm that instructions communicated by telephone or the
Internet are genuine. The Fund may not be liable for losses due to unauthorized
or fraudulent instructions. Such procedures include but are not limited to
requiring a form of personal identification prior to acting on instructions
received by telephone or the Internet, providing written confirmations of such
transactions to the address of record, tape recording telephone instructions and
backing up Internet transactions.
Retirement Plans. You can find information about the retirement plans offered by
E*TRADE Securities by accessing our Website. You may fill out an IRA application
online or request our IRA application kit by mail.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
Taxation of the Fund. The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
Distributions. Distributions of investment company taxable income (including net
short-term capital gains) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by the Fund to a corporate
shareholder, to the extent such dividends are attributable to dividends received
by the Fund from U.S. corporations, may, subject to limitation, be eligible for
the dividends received deduction. However, the alternative minimum tax
applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term capital gain, regardless of
how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Foreign Taxes. The Fund may be subject to certain taxes imposed by the countries
in which it invests or operates. If the Fund qualifies as a regulated investment
company and if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stocks or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
any foreign taxes paid by the Fund that qualify as income or similar taxes under
U.S. income tax principles as having been paid by the Fund's shareholders. For
any year for which the Fund makes such an election, each shareholder will be
required to include in its gross income an amount equal to its allocable share
of such taxes paid by the Fund and the shareholders will be entitled, subject to
certain limitations, to credit their portions of these amounts against their
U.S. federal income tax liability, if any, or to deduct their portions from
their U.S. taxable income, if any. No deduction for foreign taxes may be claimed
by individuals who do not itemize deductions. In any year in which it elects to
"pass through" foreign taxes to shareholders, the Fund will notify shareholders
within 60 days after the close of the Fund's taxable year of the amount of such
taxes and the sources of its income.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities may have to be treated as derived from U.S. sources
and certain currency fluctuation gains, including Section 988 gains (defined
below), may have to be treated as derived from U.S. sources. The limitation of
the foreign tax credit is applied separately to foreign source passive income,
including foreign source passive income received from the Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit can be applied to
offset no more than 90% of the alternative minimum tax imposed on corporations
and individuals.
The foregoing is only a general description of the foreign tax credit. Because
application of the credit depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
Dispositions. Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for not more than one
year. Any loss realized on a redemption, sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days, beginning 30 days before and ending 30
days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.
Market Discount. If the Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the Fund
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Fund may make with respect to its straddle
positions may also affect the amount, character and timing of the recognition of
gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
Passive Foreign Investment Companies. The Fund may invest in shares of foreign
corporations that may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund would be required to include in its gross income its share of the earnings
of a PFIC on a current basis, regardless of whether distributions were received
from the PFIC in a given year. If this election were made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, another election would involve marking to market the Fund's
PFIC shares at the end of each taxable year, with the result that unrealized
gains would be treated as though they were realized and reported as ordinary
income. Any mark-to-market losses and any loss from an actual disposition of
PFIC shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years.
UNDERWRITER
Distribution of Securities. Under a Distribution Agreement with the Fund
("Distribution Agreement"), E*TRADE Securities Inc., 4500 Bohannon Drive,
Menlo Park, CA 94025, acts as underwriter of the Fund's shares. The Fund
pays no compensation to E*TRADE Securities, Inc. for its distribution
services. The Distribution Agreement provides that the Distributor will use
its best efforts to distribute the Fund's shares.
The Fund is a no-load fund, therefore investors pay no sales charges when buying
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.
Historical data on the DJGT Index may be used to promote the Fund. 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.
DOW JONES
The Fund relies on a license related to the Dow Jones Global Titans Index. In
the absence of the license, the Fund may not be able to pursue its investment
objective. Although not anticipated, the license can be terminated.
"Dow JonesSM" and "Dow Jones Global Titans IndexSM" are service marks of Dow
Jones & Company, Inc. Dow Jones has no relationship to the Fund, other than the
licensing of the Dow Jones Global Titans Index and its service marks for use in
connection with the Fund.
Dow Jones does not:
|X| Sponsor, endorse, sell or promote the Fund.
|X| Recommend that any person invest in the Fund or any other securities.
|X| Have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the Fund.
|X| Have any responsibility or liability for the administration, management or
marketing of the Fund.
|X| Consider the needs of the Fund or the owners of the Fund in determining,
composing or calculating the Dow Jones Global Titans IndexSM or have any
obligation to do so.
- -------------------------------------------------------------------------------
Dow Jones disclaims any liability in connection with the Fund. Specifically,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
o The results to be obtained by the Fund, the owner of the Fund or any other
person in connection with the use of the Dow Jones Global Titans IndexSM and
the data included in the Dow Jones Global Titans IndexSM;
o The accuracy or completeness of the Dow Jones Global Titans IndexSM and its
data;
o The merchantability and the fitness for a particular purpose or use of the
Dow Jones Global Titans IndexSM;
o Dow Jones will have no liability for any errors, omissions or interruptions
in the Dow Jones Global Titans IndexSM or its data;
o Under no circumstances will Dow Jones be liable for any lost profits or
indirect, punitive, special or consequential damages or losses, even if Dow
Jones knows that they might occur.
The licensing agreement between Dow Jones and E*TRADE Asset Management with
respect to the Fund is solely for their benefit and not for the benefit of the
owners of the Fund or any other third parties.
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
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 obligations in higher rated
categories.
"BBB"
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 for bonds in higher rated categories.
"BB, B, CCC, CC or C"
Bonds rated "BB, B, CCC, CC or C" are 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.
"C1"
Bonds rated "C1" is reserved for income bonds on which no interest is
being paid.
"D"
Bonds rated "D" are in default and payment of interest and/or payment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
"Aaa"
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
edge." 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.
"Aa"
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are 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.
"A"
Bonds which are rated A possess many favorable 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 sometime in the future.
"Baa"
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.
"Ba"
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.
"B"
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.
"Caa"
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.
"Ca"
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.
"C"
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 the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating ("P-1") Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers of "P-1" paper must have a superior capacity for repayment
of short-term promissory obligations, and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated "AA" are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated "F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable variability
in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength
of the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
4500 Bohannon Drive
Menlo Park, CA 94025
Telephone: (650) 331-6000
Toll-Free: (800) 786-2575
Internet: http://www.etrade.com
<PAGE>
PART C:
OTHER INFORMATION
Item 23. Exhibits
(a)(i) Certificate of Trust.1
(a)(ii) Trust Instrument.1
(b) By-laws.2
(c) Certificates for Shares will not be issued. Articles II, VII, IX and
X of the Trust Instrument, previously filed as exhibit (a)(ii),
define the rights of holders of the Shares.1
(d)(i) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE S&P
500 Index Fund.2
(d)(ii) Form of Amended and Restated Investment Advisory Agreement between
E*TRADE Asset Management, Inc. and the Registrant with respect to
the E*TRADE S&P 500 Index Fund, E*TRADE Extended Market Index Fund,
E*TRADE Bond Index Fund, and E*TRADE International Index Fund.3
(d)(iii) Form of Amendment No. 1 to Amended and Restated Investment Advisory
Agreement between E*TRADE Asset Management, Inc. and the Registrant
with respect to the E*TRADE International Index Fund.7
(d)(iv) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Technology Index Fund.3
(d)(v) 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.3
(d)(vi) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
E-Commerce Index Fund.5
(d)(vii) 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.5
(d)(viii) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Global Titans Index Fund.7
(d)(ix) 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.7
(d)(x) Form of Investment Advisory Agreement between E*TRADE Asset
Management, Inc. and the Registrant with respect to the E*TRADE
Premier Money Market Fund.7
(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.3
(e)(iii) Form Amendment No. 1 to the Underwriting Agreement between E*TRADE
Securities, Inc. and the Registrant with respect to E*TRADE Global
Titans Index Fund and E*TRADE Premier Money Fund.7
(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.3
(g)(iii) Form of Amendment No. 2 to the Custodian Agreement between the
Registrant and Investors Bank & Trust Company with respect to
E*TRADE Premier Money Market Fund.7
(g)(iv) 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.3
(g)(v) Form of Amended Exhibit A to the Custodian Services Agreement
between Registrant and PFPC Trust Company with respect to the
E*TRADE Global Titans Index Fund.7
(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.3
(h)(1)(iii) Form of Amended and Restated to the 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, E*TRADE Bond Index Fund, and
E*TRADE International Index Fund.7
(h)(1)(iv) Form of Amendment No. 1 to the Amended and Restated Third Party
Feeder Agreement among the Registrant, E*TRADE Securities Inc., and
Master Investment Portfolio with respect to E*TRADE Premier Money
Market Fund.7
(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, E*TRADE International
Index Fund, and E*TRADE E-Commerce Index Fund.3
(h)(2)(iii) Form of the Amended and Restated Administrative Services Agreement
between the Registrant and E*TRADE Asset Management, Inc. with
respect to the E*TRADE Extended Market Index Fund, E*TRADE Bond
Index Fund, E*TRADE Technology Index Fund, E*TRADE International
Index Fund, E*TRADE E-Commerce Index Fund.7
(h)(2)(iv) Form of Amendment No. 1 to the Amended and Restated Administrative
Services Agreement between the Registrant and E*TRADE Asset
Management, Inc. with respect to the E*TRADE Global Titans Index
Fund and E*TRADE Premier Money Market Fund.7
(h)(2)(v) Form of Waiver and Modification to the Amended and Restated
Administrative Services Agreement between the Registrant and E*TRADE
Asset Management.
(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.4
(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.3
(h)(3)(iii) Form of Amendment No. 2 to the Sub-Administration Agreement among
E*TRADE Asset Management, Inc., the Registrant and Investors Bank &
Trust Company with respect to the E*TRADE Premier Money Market
Fund.7
(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.3
(h)(4)(i) Exhibit A to the Sub-Administration and Accounting Services
Agreement between E*TRADE Funds and PFPC, Inc. with respect to the
E*TRADE E-Commerce Index Fund.5
(h)(4)(ii) Form of Amended Exhibit A 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.7
(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 Amended Exhibit A 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.3
(h)(5)(iii) Form of Amended Exhibit A to the Transfer Agency Services Agreement
between PFPC, Inc. and the Registrant with respect to the E*TRADE
Global Titans Index Fund and E*TRADE Premier Money Market Fund.7
(h)(6)(i) Form of Retail Shareholder Services Agreement among E*TRADE
Securities, Inc., the Registrant and E*TRADE Asset Management, Inc.
with respect to the E*TRADE S&P 500 Index Fund.4
(h)(6)(ii) Form of Amendment No. 1 to the Retail Shareholder Services Agreement
among E*TRADE Securities, Inc., the Registrant and E*TRADE Asset
Management, Inc. with respect to the E*TRADE Extended Market Index
Fund, E*TRADE Bond Index Fund, E*TRADE Technology Index Fund,
E*TRADE International Index Fund, and E*TRADE E-Commerce Index
Fund.3
(h)(6)(iii) Form of Amendment No. 2 to the Retail Shareholder Services Agreement
among E*TRADE Securities, Inc., the Registrant and E*TRADE Asset
Management, Inc. with respect to the E*TRADE Global Titans Index
Fund and E*TRADE Premier Money Market Fund.7
(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.3
(h)(7)(i) Form of Amended Exhibit A to the State Securities Compliance
Services Agreement between E*TRADE Funds and PFPC, Inc. with respect
to E*TRADE Global Titans Index Fund and E*TRADE Premier Money Market
Fund.7
(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.3
(i)(3) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE E-Commerce Index Fund.5
(i)(4) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE International Index Fund.6
(i)(5) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE Premier Money Market Fund.7
(i)(6) Opinion and Consent of Dechert Price & Rhoads with respect to the
E*TRADE Global Titans Index Fund.8
(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) Rule 18f-3 Plan: Not applicable.
(p) Code of Ethics9
(p)(1) Code of Ethics for Master Portfolio9
* Form of Power of Attorney for the Registrant.7
** Power of Attorney for Master Investment Portfolio.2
*** Power of Attorney and Secretary's Certificate of Registrant for
signature on behalf of Registrant.4
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. 4
to the Registration Statement on Form N-1A filed with the SEC on August 11,
1999.
4 Incorporated by reference from the Registrant's Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed with the SEC on October 8,
1999.
5 Incorporated by reference from the Registrant's Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A filed with the SEC on October 20,
1999.
6 Incorporated by reference from the Registrant's Post-Effective Amendment No.
10 to the Registration Statement on Form N-1A filed with the SEC on October 20,
1999.
7 Incorporated by reference from the Registration's Post-Effective Amendment No.
15 to the Registration Statement on Form N-1A filed with the SEC on February 3,
2000.
8 Incorporated by reference from the Registration's Post-Effective Amendment No.
16 to the Registration Statement on Form N-1A filed with the SEC on February 3,
2000.
9 To be filed by amendment in next Post-Effective Amendment to the Registration
Statement on Form N-1A filed with the SEC on or after March 1, 2000.
Item 24. Persons Controlled by or Under Common Control With Registrant
E*TRADE Asset Management, Inc. ("E*TRADE Asset Management") (a Delaware
corporation), may own more than 25% of one or more series of the Registrant, as
described in the Statement of Additional Information, and thus may be deemed to
control that series. E*TRADE Asset Management is a wholly owned subsidiary of
E*TRADE Group, Inc. ("E*TRADE Group") (a Delaware corporation). Other companies
of which E*TRADE Group owns greater than 25% include: E*TRADE Securities, Inc.,
Clearstation, Inc. Sharedata, Inc., Confluent, Inc., OptionsLink, TIR (Holdings)
Limited, Telebanc Financial Corporation and E*Offering Corp.
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 of Title/Status with Other Business
- -------------------------- ------------------ --------------
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, Secretary and Corporate Secretary and
Treasurer 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
W. David Moore Vice President Sr. Manager - Third
and Secretary Party Funds, E*TRADE
Securities Inc.,
February 1999 - December
1999
</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:
Name and Position at BGFA Other Business Connections
Patricia Dunn Director of BGFA and Co-Chairman and
Director Director of BGI, 45 Fremont Street, San
Francisco, CA 94105
Lawrence G. Tint, Chairman of the Board of Directors of
Chairman and Director BGFA and 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
Item 27. Principal Underwriters
(a) E*TRADE Securities, Inc. (the "Distributor") serves as Distributor of
Shares of the Trust. The Distributor is a wholly owned subsidiary of
E*TRADE Group, Inc.
(b) The officers and directors of E*TRADE Securities, Inc. are:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
<S> <C> <C>
Kathy Levinson Director, President and None
Chief 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) E*TRADE Asset Management, Inc., the Registrant's investment advisor,
is located at 4500 Bohannon Drive, Menlo Park, CA 94025;
(2) Investors Bank & Trust Company, 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, E*TRADE
International Index Fund and E*TRADE Premier Money Market Fund, is located at
200 Clarendon Street, Boston, MA 02111;
(3) PFPC Inc., the Registrant's transfer agent and dividend disbursing
agent, is located at 400 Bellevue Parkway, Wilmington, DE 19809;
(4) PFPC Trust Company, 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 and E*TRADE Global Titans Index, is located at 400
Bellevue Parkway, Wilmington, DE 19809; and
(5) Barclays Global Fund Advisors, 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, is located
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. 17 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 16th day
of February, 2000.
E*TRADE FUNDS
(Registrant)
By: *
---------------------------
Name: Brian C. Murray
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 17 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
*
- ---------------------------
Leonard C. Purkis Trustee and Treasurer February 16, 2000
(Principal Financial and
Accounting Officer)
*
- ---------------------------
Brian C. Murray President (Principal February 16, 2000
Executive Officer)
*
- ---------------------------
Shelly J. Meyers Trustee February 16, 2000
*
- ---------------------------
Ashley T. Rabun Trustee February 16, 2000
*
- ---------------------------
Steven Grenadier Trustee February 16, 2000
*
- ---------------------------
George J. Rebhan Trustee February 16, 2000
*By /s/
------------------------
David A. Vaughan
Attorney-In-Fact
<PAGE>
EXHIBIT LIST
Exhibit
No. DESCRIPTION
(h)(2)(v) Form of Waiver and Modification to the Amended and Restated
Administrative Services Agreement between the Registrant and E*TRADE
Asset Management.
E*TRADE Funds
4500 Bohannon Drive
Menlo Park, CA 94025
_______________, 2000
E*TRADE Asset Management, Inc.
4500 Bohannon Drive
Menlo Park, CA 94025
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
E*TRADE Asset Management, Inc. (the "Administrator") as follows:
1. The Trust is an open-end investment company which currently has eight
separate investment portfolios, listed on Exhibit A, all of which are subject
to this agreement (each a "Portfolio").
2. In exchange for good and sufficient consideration receipt of which is hereby
acknowledged, the Administrator hereby agrees to pay directly, waive its fees
under its Administrative Services Agreement with respect to each Portfolio
and reimburse each Portfolio to the extent that the costs and expenses
incurred or allocated to such Portfolio would exceed the amounts listed on
Exhibit A and hereby waives all legal right and title to recoup any such fee
waivers, expense reimbursements or any other payments made hereunder. Nothing
herein shall be deemed to require the Administrator to waive fees, make
reimbursement or pay expenses with respect to a Portfolio's pro rata expenses
allocated against such Portfolio's interest in any master fund.
3. For purposes of clarification, the Administrative Services Agreement is
hereby modified to provide that all of the expenses described in Section 2(c)
(including but not limited to toll charges and special services) shall be paid
fully directly by the Administrator without reference to any amount payable by
any Portfolio. The Administrator waives any right to recoup such expenses. The
Trust shall also bear the expenses and fees of the Trust's trustees who are not
affiliated with E*TRADE Group, Inc. or entities controlled by it, provided that
such expenses shall be subject to the waiver provided in Section 2(d) of the
Administrative Services Agreement and the waiver and reimbursement provided in
Section 2 of this Agreement.
4. Nothing herein contained shall be deemed to require the Trust or the
Portfolios to take any action contrary to the Trust's Trust Instrument or
By-Laws, or any applicable statutory or regulatory requirement to which it
is subject or by which it is bound, or to relieve or deprive the Trust's
Board of Trustees of its responsibility for and control of the conduct of
the affairs of the Trust or the Portfolios.
5. This Agreement shall remain in effect so long as the Administrative
Services Agreement is in effect, provided that the waiver to recoup any
waivers, expense reimbursements or other payments hereunder shall survive
the termination hereof. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality or enforceability of the remaining provisions shall not
be affected thereby. All liabilities of the Trust are limited to the
assets of the Series to which they relate, and no shareholder or trustee
shall have personal liability for the liabilities of the Trust.
If the foregoing correctly sets forth the agreement between the
Trust and the Administrator, please so indicate by signing and returning to the
Trust the enclosed copy hereof.
Very truly yours,
E*TRADE FUNDS
By:
Name:
Title:
ACCEPTED AND AGREED:
E*TRADE ASSET MANAGEMENT, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Portfolio Expense
E*TRADE Global Titans Index Fund...................................0.60%
