E*TRADE E-COMMERCE INDEX FUND
SEMIANNUAL REPORT
Dear E*TRADE Funds Shareholders,
We are writing to report the results of the E*TRADE E-Commerce Index Fund (the
"Fund") for the six-month period ended June 30, 2000. We'd also like to take
this opportunity to thank all of you for your investment in the Fund.
The Fund's investment objective is to provide investment results that match,
before fees and expenses, the total return of the stocks comprising the Goldman
Sachs E-Commerce (GSECTM) Index (the "Index").* The GSEC Index was developed by
Goldman, Sachs & Co. and is an equity benchmark of selected U.S. traded stocks
designed to track the performance of thee-commerce sector (primarily on-line
merchants and the companies that provide the infrastructure needed to do
business on-line).
For the first half of 2000 the Fund lost 4.92%, returning 46.80% since inception
on October 22, 1999. In comparison, the Index returned -5.01% during the first
half of 2000. Since November 1, 1999, the Fund has returned 39.54%, compared to
the Index return of 40.35% over the same period.** The investment return and
principal value of an investment in the Fund will fluctuate, and your shares,
when redeemed, may be worth more or less than their original cost.
Greater risk and increased volatility are associated with investments in a
single sector of the stock market. The value of the Fund's shares may be
especially sensitive to factors and risks that specifically affect the
e-commerce sector, including greater government regulation than other industry
sectors, aggressive product prices, short product cycles, rapid rate of change
and product obsolescence at a more frequent rate than other types of companies
caused by rapid technological advances.
The first half of 2000 saw some extraordinary events paired with extreme
volatility. The major benchmarks set all-time records. The Federal Reserve
raised rates not once but three times. The Nasdaq reached an all-time high on
March 10, then dropped 37.32% by May 23 to reach its year low.
Higher-than-expected fourth quarter GDP figures renewed investor concerns about
the possibility of increased interest rates. In response, markets tumbled in
January, dragged down by the technology sector. However, the Nasdaq roared back
in February, gaining over 15% for the month. The Federal Reserve raised interest
rates in February and again in March, as strong economic numbers continued to
surface.
The government's proposal on April 3 to break up Microsoft, combined with
higher-than-expected economic growth figures released in mid-April, drove the
market down dramatically. The Nasdaq Composite Index declined an astounding
25%in one week. Equally astounding, the Nasdaq rebounded almost 10% to end the
month down 15.57%. In May, the Federal Reserve increased interest rates by .50%
and suggested that further tightening was possible, sending the Nasdaq down an
additional 11.89% and the S&P 500 down 2.05% for the month. However, a pause in
tightening by the Federal Reserve helped the equity markets to rebound in June,
and the Nasdaq rose 16.64% for the month, to end the quarter down 13.23%.
The divergence between growth and value stocks during the last quarter of 1999
continued during the first quarter of 2000. But growth stocks collapsed as the
technology sector was pummeled during the last two weeks of March and most of
April, and value stocks came back into favor. By the end of May, value stocks
were strongly outperforming growth, with old-economy sectors such as financials
and utilities leading the pack. In June, a pause in interest rate increases by
the Federal Reserve led to new interest in new economy stocks, and growth
resumed its lead. You should remember that past performance is no guarantee of
future results and the Fund may not be able to duplicate its performance. The
Fund's unaudited financial statements for the period ended June 30, 2000 are
provided below. We hope you will find them useful for evaluating and monitoring
your investment.
We'd also like to take this opportunity to remind you that investing in the Fund
is a long-term proposition and shareholders should not invest assets that will
be needed in the near future. Thank you again for your participation in the
E*TRADE E-Commerce Index Fund.
Sincerely, E*TRADE Funds
* GSECTM is a trademark of Goldman, Sachs & Co. and has been licensed for use
by E*TRADE Asset Management, Inc. for use in connection with the Fund. The Fund
is not sponsored, endorsed, sold, or promoted by Goldman, Sachs & Co. or any of
its affiliates and neither Goldman, Sachs & Co. nor any of its affiliates
makes any representation regarding the advisability of investing in the Fund.
** The Fund began operations on October 22, 1999. Index Comparisons began on
November 1, 1999.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- -----------
COMMON STOCK (100.4% OF NET ASSETS)
ADVERTISING (0.6%)
Doubleclick, Inc. 8,586 $ 327,341*
Verticalnet, Inc. 5,266 194,513*
-----------
521,854
BUSINESS SERVICES (2.8%)
Calico Commerce, Inc. 2,651 43,078*
Internet Capital Group, Inc. 20,223 748,566*
Kana Communication, Inc. 4,302 266,185*
Purchasepro.Com, Inc. 2,118 86,837*
Redback Networks, Inc. 6,680 1,189,040*
Viant Corporation 3,351 99,272*
-----------
2,432,978
CHEMICALS & ALLIED PRODUCTS (0.1%)
Ventro Corp. 2,531 47,773*
-----------
COMPTUER INTEGRATED SYSTEMS DESIGN (9.9%)
Active Software, Inc. 1,852 143,877*
Bea Systems, Inc. 18,384 908,859*
Broadvision, Inc. 17,792 904,056*
Inktomi Corp. ... 7,784 920,458*
Network Appliance, Inc. 22,764 1,832,502*
Priceline.Com ... 11,006 418,056*
Razorfish, Inc. . 6,801 109,241*
SAP AG ADR ...... 40,463 1,899,232
Tibco Software, Inc. 14,011 1,502,461*
-----------
8,638,742
COMPUTER PERIPHERAL EQUIPMENT (12.3%)
Cisco Systems ... 116,273 7,390,603*
Juniper Networks, Inc. 23,220 3,379,961*
-----------
10,770,564
COMPUTER PROGRAMMING SERVICES (0.3%)
Entrust Technologies, Inc. 3,467 286,894*
-----------
The accompanying notes are an integral part of these financial statments.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- -----------
COMPUTER RELATED SERVICES (0.5%)
Marchfirst, Inc. 9,962 $ 181,807*
Scient Corp. 5,435 239,819*
-----------
421,626
COMPUTER STORAGE DEVICES (6.5%)
EMC Corp. 73,494 5,654,445
-----------
DATA PROCESSING & PREPARATION (4.8%)
First Data Corp. 33,196 1,647,352
Healtheon Corp. 11,733 173,795*
Transactions Systems Architects,
Inc.* 2,515 43,069*
Verisign, Inc. 13,381 2,361,813*
-----------
4,226,029
ELECTRONIC COMPUTERS (22.6%)
Compaq Computer Corp. 131,545 3,362,619
Dell Computer Corp. 92,021 4,537,786*
Gateway 2000, Inc. 24,492 1,389,921*
International Business Machines 48,472 5,310,714
Sun Microsystems, Inc. 57,079 5,190,622*
-----------
19,791,662
ELECTRONIC PARTS & EQUIPMENT (0.2%)
Checkfree Holdings Corp. 4,050 208,828*
-----------
HEALTH SERVICES (0.5%)
Sapient Corp. 4,435 474,268*
-----------
HOBBY, TOY & GAME SHOPS (0.1%)
Etoys, Inc. 9,399 59,625*
-----------
INFORMATION RETRIEVAL SERVICES (11.1%)
Amazon.Com Inc. 26,089 947,357*
America on Line, Inc. 74,619 3,936,152
Chinadotcom Corp. 6,512 133,089*
Commerce One, Inc. 11,150 506,105*
Ebay, Inc. 20,014 1,087,010*
Sabre Group Holdings, Inc. 10,003 285,086*
Yahoo!, Inc. 22,881 2,834,384*
-----------
9,729,183
The accompanying notes are an integral part of these financial statments.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
--------- -----------
PERSONAL CREDIT INSTITUTIONS (0.0%)
Nextcard, Inc. 3,557 $ 30,235*
-----------
PREPACKAGED SOFTWARE (21.8%)
Ariba, Inc. 14,217 1,393,932*
Check Point Software Technologies
Ltd. 5,289 1,119,946*
Intuit Software 14,444 597,621*
ISS Group, Inc. 2,939 290,180*
I2 Technologies, Inc. 11,748 1,224,913*
Microsoft Corp. 61,347 4,907,760*
Network Associates, Inc. 10,804 220,132*
Novell, Inc. 25,798 238,632*
Oracle Systems Corp. 100,724 8,467,111*
Vignette Corp. 12,898 670,898*
-----------
19,131,125
RETAIL SALES (0.2%)
Webvan Group, Inc. 24,657 179,534*
-----------
SECURITY BROKERS & DEALERS (4.5%)
Ameritrade Holding Corp. Class A 12,240 142,290*
E*TRADE Group, Inc. 21,693 357,935*
Knight Trading Group, Inc. 8,203 244,552*
Schwab, Charles Corp. 95,180 3,200,428
-----------
3,945,205
STATE COMMERCIAL BANKS (0.1%)
Security First Technologies 2,932 68,352*
-----------
TELEPHONE COMMUNICATIONS (1.3%)
Exodus Communications, Inc. 25,620 1,180,121*
-----------
TELEPHONE & TELEGRAPH APPARATUS (0.2%)
Covad Communications Group, Inc. 11,239 181,229*
-----------
TOTAL INVESTMENTS (Cost: $90,431,332)(100.4%) 87,980,272
LIABILITITES IN EXCESS OF
OTHER ASSETS (-0.4%) (331,819)
-----------
NET ASSETS (100.0%) $87,648,453
===========
* Non-income producing security.
ADR American Depository Receipt.
The accompanying notes are an integral part of these financial statments.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments at-value (cost: $90,431,332) (Note 1) ............... $87,980,272
Cash ............................................................ (163,199)
Dividends receivable ............................................ 3,957
Interest receivable ............................................. 387
Receivable for fund shares sold ................................. 33,510
-----------
TOTAL ASSETS .................................................. 87,854,927
-----------
LIABILITIES
Accrued administration fee (Note 2) ............................. 49,836
Accrued advisory fee (Note 2) ................................... 17,798
Payable for fund shares redeemed ................................ 138,840
-----------
TOTAL LIABILITIES ............................................. 206,474
-----------
TOTAL NET ASSETS ................................................ $87,648,453
===========
Net assets consist of:
Paid-in capital ................................................. 82,425,674
Net investment loss ............................................. (337,406)
Net realized gain on investments ................................ 8,011,245
Net unrealized depreciation of investments ...................... (2,451,060)
-----------
TOTAL NET ASSETS ................................................ $87,648,453
===========
SHARES OUTSTANDING (UNLIMITED AUTHORIZED, PAR VALUE $.01) ....... 5,970,122
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE .. $ 14.68
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
STATEMENT OF OPERATIONS
Six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ...................................................... $31,717
Interest ....................................................... 26,610
-----------
TOTAL INVESTMENT INCOME ..................................... 58,327
-----------
EXPENSES (NOTE 2):
Advisory fee .................................................... 104,140
Administration fee .............................................. 291,593
Trustee fees .................................................... 2,041
-----------
TOTAL EXPENSES BEFORE WAIVER OF TRUSTEE FEES ................ 397,774
Waived Trustees fees (Note 2) ................................... (2,041)
-----------
NET EXPENSES ................................................ 395,733
-----------
NET INVESTMENT LOSS ............................................. (337,406)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sale of investments ........................ 8,011,245
Change in unrealized appreciation/(depreciation) of investments . (14,938,978)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ............... (6,927,733)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS ..................................................... $(7,265,139)
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
October 22, 1999
Six months (commencement
ended of operations)
June 30, 2000 through
(Unaudited) December 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss .................................................. $ (337,406) $ (30,593)
Net realized gain on sale of investments ............................. 8,011,245 -
Change in unrealized appreciation/(depreciation) of investments ...... (14,938,978) 12,487,918
---------------- ---------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...... (7,265,139) 12,457,325
---------------- ---------------
TRANSACTIONS IN SHARES OF COMMON STOCK:
Net proceeds from sale of shares ..................................... 58,439,157 52,838,630
Cost of shares redeemed (net of redemption fees of $247,868 and $24,244) (26,377,808) (2,443,712)
---------------- ---------------
NET INCREASE IN NET ASSETS FROM TRANSACTIONS IN SHARES OF COMMON STOCK 32,061,349 50,394,918
---------------- ---------------
NET INCREASE IN NET ASSETS ........................................... 24,796,210 62,852,243
NET ASSETS:
Beginning of period .................................................. 62,852,243 -
---------------- ---------------
END OF PERIOD ........................................................ $ 87,648,453 $ 62,852,243
================ ===============
SHARE TRANSACTIONS:
Number of shares sold ................................................ 3,665,048 4,245,512
Number of shares redeemed ............................................ (1,766,076) (174,362)
---------------- ---------------
NET INCREASE IN SHARES OUTSTANDING ................................... 1,898,972 4,071,150
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
October 22, 1999
(commencement
Six months of operations)
ended through
FOR A SHARE OUTSTANDING FOR THE PERIOD June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 15.44 $ 10.00
------------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ................................. (0.06) (0.01)
Net realized and unrealized gain on investments ..... (0.74) 5.44
------------- -----------------
TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ...... (0.80) 5.43
------------- -----------------
Redemption fees added to paid-in capital .............. 0.04 0.01
------------- -----------------
NET ASSET VALUE, END OF PERIOD ........................ $ 14.68 $ 15.44
============= =================
TOTAL RETURN .......................................... (4.92%)(3) 54.40%(1)
RATIOS / SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) .............. $ 87,648 $ 62,852
Ratio of expenses to average net assets ............... 0.95%(2)(4) 0.95%(2)(4)
Ratio of net investment loss to average
net assets ............................................ (0.81%)(2) (0.52%)(2)
Portfolio turnover rate ............................... 29.23% 0.00%(1)
----------
<FN>
(1) For the period October 22, 1999 (commencement of operations) to December 31,
1999 and not indicative of a full year's operating results.
(2) Annualized.
(3) Total returns for periods of less than one year are not annualized.
(4) The Investment Adviser has voluntarily agreed to pay the non-affiliated
Trustee expenses for the Fund for the period January 1, 2000 through May 9,
2000. Even though such action had been taken, total annualized operating
expenses as a percentage of average net assets would have remained unchanged
at 0.95% for the period from October 22, 1999 (commencement of operations)
through December 31, 1999 and for the six months ended June 30, 2000.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30,2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
E*TRADE E-Commerce Index Fund (the "Fund") is a non-diversified series of
E*TRADE Funds (the "Trust"), an open-end series management investment company
registered under the Investment Company Act of 1940, as amended. The Trust is
organized as a Delaware business trust and was formed on November 4, 1998. As of
June 30, 2000 the Trust offered eight series: the S&P 500 Index Fund, the Bond
Index Fund, the Extended Market Index Fund, the International Index Fund, the
E-Commerce Index Fund, the Technology Index Fund, the Global Titans Index Fund
and the Premier Money Market Fund. These financial statements contain the
E*TRADE E-Commerce Index Fund.
The Fund's investment objective is to provide investment results that match,
before fees and expenses, the total return of the stocks comprising the Goldman
Sachs E-Commerce (GSEC(TM)) Index. The Fund seeks to achieve its objective by
investing substantially all of its assets in the same stocks and in
substantially the same percentages as the stocks that comprise the GSEC(TM)
Index*.
* "GSEC(TM)" is a trademark of Goldman, Sachs & Co. and has been licensed for
use by E*TRADE Asset Management, Inc. for use in connection with the Fund. The
Fund is not sponsored, endorsed, sold, or promoted by Goldman, Sachs & Co. or
any of its affiliates and neither Goldman, Sachs & Co. nor any of its affiliates
makes any representation regarding the advisability of investing in the Fund.
The following is a summary of significant accounting policies which are
consistently followed by the Funds in the preparation of their financial
statements, and which are in conformity with generally accepted accounting
principles. The preparation of the financial statements in conformity with
accounting principles accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF ACCOUNTING
The Fund used the accrual method of accounting for financial reporting purposes.
INVESTMENT POLICY AND SECURITY VALUATION
Investments are valued at the last reported sale price on the primary securities
exchange or national securities market on which such securities are traded.
Securities not listed on an exchange or national securities market, or
securities in which there was no last reported sales price, are valued at the
most recent bid prices. Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect fair
value as quoted by dealers who make markets in those securities or by an
independent pricing source. U.S. Government obligations are valued at the last
reported bid price. Short-term debt securities are valued at amortized cost
which approximates market value. Restricted securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith in accordance with procedures established by and under
the supervision and responsibility of the Fund's Board of Trustees.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Revenue is recognized as follows: dividend income is
recognized on the ex-dividend date and interest income is recognized on a daily
accrual basis. Realized gains and losses are reported on the basis of identified
cost of securities delivered.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income are declared and
distributed quarterly. Distributions to shareholders from any net realized
capital gains are declared and distributed annually, generally in December. Such
distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for losses deferred
to wash sales and excise tax regulations. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may impact net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
FEDERAL INCOME TAXES
The Fund is treated as a separate entity from each other series of the Trust for
federal income tax purposes. The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. If so
qualified, each fund must distribute annually all of its investment company
taxable income and any net capital gains (taking into account capital loss
carryforwards) sufficient to relieve it from all, or substantially all, federal
income and excise taxes. Accordingly, no provision for federal taxes was
required at June 30, 2000.
REDEMPTION FEES
Shares redeemed after September 30, 2000 and held in the Fund for less than four
months are subject to a redemption fee of 1.00%, calculated as a percentage of
redemption proceeds. For shares held in the Fund that are redeemed before
October 1, 2000 and within six months from the date of purchase, the redemption
fee is 1.00%. The fee, which is retained by the Fund, is accounted for as an
addition to paid-in capital.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
E*TRADE Asset Management, Inc. (the "Investment Advisor"), a wholly owned
subsidiary of E*TRADE Group, Inc. ("E*TRADE Group"), serves as the investment
advisor for the Fund pursuant to an investment advisory agreement ("Advisory
Agreement"). For its services as investment advisor, the Investment Advisor is
paid by the Fund a fee at an annual rate of 0.25% average daily net assets.
Barclays Global Fund Advisors, Inc. ("BGFA") serves as the Fund's investment
sub-advisor. For its services, BGFA is paid by the Investment Advisor a fee
calculated 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 average daily net assets on
amounts between $200 million and $500 million, and 0.12% of average daily net
assets above $500 million. BGFA, is a direct subsidiary of Barclays Global
Investors, N.A. which, in turn, is an indirect subsidiary of Barclays Bank PLC.
The Investment Advisor also provides administrative services to the Fund,
pursuant to an administrative services agreement ("Administrative Agreement").
Services provided by the Investment Advisor acting as administrator include, but
are not limited to: coordinating the services performed by the transfer and
dividend disbursing agent, custodian, sub-administrator, shareholder servicing
agent, independent auditors and legal counsel; preparing and supervising the
preparation of periodic reports to the Fund's shareholders; generally
supervising regulatory compliance matters; providing, at its own expense, the
services of its personnel to serve as officers of the Trust; monitoring and
reviewing the Fund's contracted services and expenditures; and report to the
Board of Trustees concerning its activities pursuant to the Administration
Agreement. The Fund pays the Investment Advisor a monthly fee calculated at an
annual rate of 0.70% of the average daily net assets for its services as
administrator of the Fund.
PFPC Inc. ("PFPC") serves as the Fund's sub-administrator. PFPC also serves as
the Fund's transfer agent and dividend disbursing agent. PFPC Trust Company
serves as the Fund's custodian.
E*TRADE Securities, Inc., a wholly owned subsidiary of E*TRADE Group, serves as
the shareholder servicing agent (the "Shareholder Servicing Agent") for the
Funds. The Shareholder Servicing Agent provides personal services to the Fund's
shareholders and maintains the Fund's shareholder accounts. E*TRADE Securities,
Inc. also serves as the principal underwriter of the Fund. Such services were
provided at no cost to the Fund.
Subject to a limitation of 0.0049% of the Fund's average daily net assets, the
Fund records Trustee fees and expenses and certain other direct expenses of the
Fund. The Investment Advisor voluntarily agreed to reimburse such expenses for
the period January 1, 2000 through June 30, 2000. Effective May 9, 2000, the
trustee fees and expenses are no longer a direct expense of the Fund, but rather
those expenses are paid by the Investment Advisor pursuant to the Administrative
Agreement.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
3. PORTFOLIO SECURITIES LOANED
The Fund may participate in securities lending, in which securities are lent to
certain securities dealers in exchange for cash collateral equal to 102% of the
initial market value of the domestic securities lent and 105% of the initial
market value of the non-U.S. securities lent. The amount of collateral is
adjusted daily for changes in the market value of securities lent but at no
subsequent period would the cash collateral equal less than 100% of the market
value of securities lent. The Fund retains a beneficial interest in the
collateral held. The Investment Advisor monitors the creditworthiness of all
parties to which securities are lent. The Fund charges the corresponding party
interest on the market value of securities lent. The Fund did not have any
securities lending activity during the period ending June 30, 2000.
4. FUTURES CONTRACTS
The Fund may purchase futures contracts to gain exposure to market changes as
this may be more efficient or cost effective than actually buying the
securities. A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date and is exchange traded. Upon
entering into a futures contract, the Fund is required to pledge to the broker
an amount of cash, U.S. Government securities or other high-quality debt
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as "variation margin" and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the Fund
records a gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Fund is required to segregate cash, U.S. Government obligations
or other liquid securities in connection with futures transactions in an amount
generally equal to the entire futures contract amount. Risks of entering into
futures contracts include the possibility that there may be an illiquid market
and that a change in the value of the contracts may not correlate with changes
in the value of the underlying securities. The Fund did not enter into any
futures contracts during the period ending June 30, 2000.
<PAGE>
E*TRADE E-COMMERCE INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
5. REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
transactions involving purchases of securities under agreements to resell such
securities at a specified price and time are treated as collateralized financing
transactions and are recorded at their contracted resale amounts. These
repurchase agreements, if any, are detailed in the Fund's Schedule of
Investments. The Fund's Statement of Additional Information requires that the
cash investments be fully collateralized based on values that are marked to
market daily. The Fund's Custodian has custody of, and holds in a segregated
account, securities acquired as collateral by the Fund under a repurchase
agreement. The Fund's Investment Advisor monitors, on an ongoing basis, the
value of the collateral to assure that it always equals or exceeds the
repurchase price. There were no repurchase agreements entered into by the Fund
as of June 30, 2000.
6. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities,
aggregated $57,132,717 and $23,842,350 for period ended June 30, 2000.
7. UNREALIZED APPRECIATION/DEPRECIATION - TAX BASIS
At June 30, 2000, net unrealized depreciation on investments for federal income
tax purposes was as follows:
Unrealized Unrealized Net Unrealized
Appreciation Depreciation Appreciation
------------ ------------ --------------
$12,585,070 $(15,036,130) $(2,451,060)
At June 30, 2000, the cost basis of the investments for federal income tax
purposes was $90,431,332.
In accordance with Statement of Position 93-2 "DETERMINATION, DISCLOSURE, AND
FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN AND RETURN OF CAPITAL
DISTRIBUTION BY INVESTMENT COMPANIES", the Fund reclassified $30,593 from
undistributed net investment loss to paid-in-capital. This reclassification has
no effect on net assets or net asset value per share.
