eTrade 2000 Annual Report Download - page 60

We may incur significant costs to avoid investment company status and may suffer other adverse consequences if we are deemed to be
an investment company under the Investment Company Act of 1940, which is commonly referred to as the “1940 Act”.
A company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total
assets, subject to certain exclusions. After giving effect to the sale of 6% convertible subordinated notes, we will have substantial
short-term investments until the net proceeds from the sale can be deployed. In addition, we and our subsidiaries have made minority
equity investments in other companies that may constitute investment securities under the 1940 Act. In particular, many of our
publicly-traded equity investments, which are owned directly by us or through related venture funds, are deemed to be investment
securities. Although our investment securities currently comprise less than 40% of our total assets, the value of these minority
investments has fluctuated in the past, and substantial appreciation in some of these investments may, from time to time, cause the
value of our investment securities to exceed 40% of our total assets. These factors may result in us being treated as an “investment
company” under the 1940 Act.
We believe we are primarily engaged in a business other than investing, reinvesting, owning, holding, or trading securities for our
account and, therefore, are not an investment company within the meaning of the 1940 Act. However, in the event that the 40% limit
were to be exceeded (including through fluctuations in the value of our investment securities), we may need to reduce our investment
securities as a percentage of our total assets. This reduction can be attempted in a number of ways, including the sale of investment
securities and the acquisition of non-investment security assets, such as cash, cash equivalents and U.S. government securities. If we
sell investment securities, we may sell them sooner than we intended. These sales may be at depressed prices and we may never realize
anticipated benefits from, or may incur losses on, these investments. Some investments may not be sold due to normal contractual or
legal restrictions or the inability to locate a suitable buyer. Moreover, we may incur tax liabilities if we sell these assets. We may also
be unable to purchase additional investment securities that may be important to our operating strategy. If we decide to acquire
non-investment security assets, we may not be able to identify and acquire suitable assets, and will likely realize a lower return on any
such investments.
If we were deemed to be an investment company, we could become subject to substantial regulation under the 1940 Act with respect to
our capital structure, management, operations, affiliate transactions and other matters. As a consequence, we could be barred from
engaging in business or issuing our securities as we have in the past and might be subject to civil and criminal penalties for
noncompliance. In addition, some of our contracts might be voidable, and a court-appointed receiver could take control of us and
liquidate our business in certain circumstances.
RISKS RELATING TO OWNING OUR STOCK
Our historical quarterly results have fluctuated and do not reliably indicate future operating results
We do not believe that our historical operating results should be relied upon as an indication of our future operating results. We expect
to experience large fluctuations in future quarterly operating results that may be caused by many factors, including the following:
fluctuations in the fair market value of our equity investments in other companies, including through existing or future
private investment funds managed by us;
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fluctuations in interest rates, which will impact our investment and loan portfolios;
changes in trading volume in securities markets;
the success of, or costs associated with, acquisitions, joint ventures or other strategic relationships;
changes in key personnel;
seasonal trends;
customer acquisition costs, which may be affected by competitive conditions in the marketplace;
the timing of introductions or enhancements to online financial services and products by us or our competitors;
market acceptance of online financial services and products;
2002. EDGAR Online, Inc.