E*TRADE just sent a letter out to all mutual fund holders to the effect that they will be liquidating their entire family of index mutual funds this week. All funds will be cashed out by Friday:
After long and serious consideration, E*TRADE Securities has made the decision to discontinue our family of proprietary index mutual funds.
As a result, the E*TRADE S&P 500 (ETSPX), Russell 2000 (ETRUX), Technology (ETTIX), and International (ETINX) Index Funds will be liquidated on a date no later than March 27, 2009 (the “Liquidation Date”).
Of course, even though we are discontinuing these funds, as an E*TRADE customer, you have access to over 7,000 funds to help you find the right alternative.
Here are a few important points to keep in mind:
Effective as of the close of business on February 23, 2009, no purchases of the funds may be made and any applicable redemption fees or account fees charged by the funds will be waived.
If you do not redeem your shares yourself, your shares will be automatically converted to cash equal to their net asset value on the Liquidation Date. You will receive proceeds equal to the net asset value of the shares you held on the Liquidation Date after provision for all charges, expenses, and liabilities of the fund.
The redemption is treated as a taxable transaction, and you will have to pay taxes on the proceeds of the liquidation, even if your shares are automatically redeemed on the Liquidation Date.
Please be assured that this decision has nothing at all to do with the financial health of E*TRADE FINANCIAL, which has been, and continues to be, very well capitalized by every applicable regulatory standard.
I especially like the last sentence. Only a financial industry CEO could lie so effortlessly. If they are so well capitalized, why are they applying for TARP funds? Why are they liquidating their mutual funds out from under their customers, instead of just selling the business? I suspect they need the cash to cover withdrawals. There may be a run on E*TRADE going on.
Fortunately, E*TRADE’s funds don’t have a lot of money under management. Only about half a billion dollars worth of stocks will be unloaded on the market this week, by my quick estimate. However, this might be a harbinger of ill things to come, if other financial institutions start to see liquidating their proprietary mutual funds as a way to raise capital.
On the bright side, at least nobody will be forced to take a short term capital gain…