EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of ___________, 2001 by and
between E*TRADE Asset Management, Inc., ("ETAM") and E*TRADE Funds ("Trust"), on
behalf of each series of the Trust set forth in Schedule A (each series is
hereinafter referred to as the "Fund").
WHEREAS, the Trust is a Delaware business trust organized under a
Declaration of Trust ("Declaration of Trust"), and is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management company of the series type, and each Fund is a series of the Trust;
WHEREAS, the Trust and ETAM have entered into Investment Advisory
Agreements on behalf of each Fund, pursuant to which ETAM provides advisory
services to each Fund for compensation based on the value of the average daily
net assets of each Fund;
WHEREAS, the Trust and ETAM have entered into a Third Restated Amended and
Administrative Services Agreement dated ________, 2001 ("Administrative
Agreement"), pursuant to which ETAM provides administrative services to each
Fund for compensation based on the value of the average daily net assets of each
Fund;
WHEREAS, the Trust and ETAM entered into an original Expense Limitation
Agreement dated March 1, 2001, on behalf of the E*TRADE Asset Allocation Fund,
and both parties agree to terminate that agreement and incorporate all terms and
provisions of that agreement into this Agreement; and
WHEREAS, the Trust and ETAM have determined that it is appropriate and in
the best interests of each Fund and its shareholders to maintain the expenses of
each Fund at a level below the level to which that Fund would be subject during
the period covering the duration of this agreement (the "Transition Period") and
in order to maintain each Fund's expense ratio at the Maximum Annual Operating
Expense Limit (as hereinafter defined) specified for each Fund in Schedule A
hereto; and
NOW THEREFORE, the parties hereto agree that the Expense Limitation
Agreement is hereby stated in its entirety as of the date hereof as follows:
I. Expense Limitation.
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1.1. Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by each Fund during the Transition Period, including
but not limited to administrative services fees and advisory services fees of
ETAM (but excluding interest, taxes, brokerage commissions, fees and expenses
under any Rule 12b-1 plan, other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of each Fund's
business) ("Fund Operating Expenses"), exceed the Maximum Annual Operating
Expense Limit, as defined in Section 1.2 below, such excess amount ("Excess
Amount") shall be the liability of ETAM.
1.2. Maximum Annual Operating Expense Limit. The Maximum Annual Operating
Expense Limit with respect to each Fund shall be the amount specified in
Schedule A based on a percentage of the average daily net assets of each Fund.
1.3. Method of Computation. To determine ETAM's liability with respect to
the Excess Amount, each month the Fund Operating Expenses for each Fund shall be
annualized as of the last day of the month. If the annualized Fund Operating
Expenses for any month of any Fund exceed the Maximum Annual Operating Expense
Limit of that Fund, ETAM shall first waive or reduce its advisory services fee
for such month by an amount sufficient to reduce the annualized Fund Operating
Expenses to an amount no higher than the Maximum Annual Operating Expense Limit.
If the amount of the waived or reduced advisory services fee for any such month
is insufficient to pay the Excess Amount, ETAM shall waive or reduce its
administrative services fee for such month by an amount sufficient to reduce the
annualized Fund Operating Expenses to an amount no higher than the Maximum
Annual Operating Expense. If the amount of the waived or reduced administrative
services fee is insufficient to pay the Excess Amount, ETAM may also remit to
the appropriate Fund or Funds an amount that, together with the waived or
reduced advisory services and administrative services fees, is sufficient to pay
such Excess Amount.
1.4. Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory services fees or
administrative services fees waived or reduced and other payments remitted by
ETAM to each Fund or Funds with respect to the previous fiscal year shall equal
the Excess Amount.
II. Reimbursement of Fee Waivers and Expense Reimbursements.
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2.1. Reimbursement. If during the Transition Period the Advisory Agreement
and Administrative Agreement are still in effect and the estimated aggregate
Fund Operating Expenses of each Fund for the fiscal year are less than the
Maximum Annual Operating Expense Limit for that year, subject to quarterly
approval by the Trust's Board of Trustees as provided in Section 2.2 below, ETAM
shall be entitled to reimbursement by each Fund, in whole or in part as provided
below, of the advisory services or administrative services fees waived or
reduced and other payments remitted by ETAM to each Fund pursuant to Section 1
hereof. The total amount of reimbursement to which ETAM may be entitled
("Reimbursement Amount") shall equal, at any time, the sum of all advisory
services or administrative services fees previously waived or reduced by ETAM
and all other payments remitted by ETAM to each Fund, pursuant to Section 1
hereof, during any of the previous three (3) fiscal years, less any
reimbursement previously paid by each Fund to ETAM, pursuant to Sections 2.2 or
2.3 hereof, with respect to such waivers, reductions, and payments. The
Reimbursement Amount shall not include any additional charges or fees
whatsoever, including, e.g., interest accruable on the Reimbursement Amount.
2.2. Board Approval. No reimbursement shall be paid to ETAM with respect to
any Fund pursuant to this provision in any fiscal quarter, unless the Trust's
Board of Trustees has determined that the payment of such reimbursement is in
the best interests of that Fund and its shareholders. The Trust's Board of
Trustees shall determine quarterly in advance whether any reimbursement may be
paid to ETAM with respect to each Fund in such quarter.
2.3. Method of Computation. To determine each Fund's payments, if any, to
reimburse ETAM for the Reimbursement Amount, each month the Fund Operating
Expenses of each Fund shall be annualized as of the last day of the month. If
the annualized Fund Operating Expenses of a Fund for any month are less than the
Maximum Annual Operating Expense Limit of that Fund, the Fund, only with the
prior approval of the Trust's Board of Trustees, shall pay to ETAM an amount
sufficient to increase the annualized Fund Operating Expenses of that Fund to an
amount no greater than the Maximum Annual Operating Expense Limit of that Fund,
provided that such amount paid to ETAM will in no event exceed the total
Reimbursement Amount.
2.4. Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year of the Transition Period, an adjustment payment
shall be made by the appropriate party in order that the actual Fund Operating
Expenses of each Fund for the prior fiscal year (including any reimbursement
payments hereunder with respect to such fiscal year) do not exceed the Maximum
Annual Operating Expense Limit.
III. Term and Termination of Agreement.
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This Agreement with respect to each Fund shall continue in effect until
August 31, 2002 and shall thereafter continue in effect with respect to each
Fund from year to year provided such continuance is specifically approved by a
majority of the Trustees of the Trust who (i) are not "interested persons" of
the Trust or any other party to this Agreement, as defined in the 1940 Act, and
(ii) have no direct or indirect financial interest in the operation of this
Agreement ("Non-Interested Trustees"). Nevertheless, after August 31, 2002, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon ninety (90) days' prior written notice to the other party at its
principal place of business; provided that, in the case of termination by the
Trust, such action shall be authorized by resolution of a majority of the
Non-Interested Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Trust.
IV. Miscellaneous.
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4.1. Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2. Interpretation. Nothing herein contained shall be deemed to require
the Trust or any Fund(s) to take any action contrary to the Trust's Declaration
of Trust 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 any Fund(s).
4.3. Definitions. Any question of interpretation of any term or provision
of this Agreement, including but not limited to the advisory services fee or
administrative services fee, the computations of net asset values, and the
allocation of expenses, having a counterpart in or otherwise derived from the
terms and provisions of the Advisory Agreement, Administrative Agreement or the
1940 Act, shall have the same meaning as and be resolved by reference to such
Advisory Agreement, Administration Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
E*TRADE FUNDS, on behalf of its series listed on
Schedule A
By:
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Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:
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Name:
Title:
SCHEDULE A
MAXIMUM ANNUAL OPERATING EXPENSE LIMITS
This Agreement relates to the following Fund(s) of the Trust:
Maximum Annual
Name of Fund Operating Expense Limit
------------ (as a percentage of average
daily net assets)
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E*TRADE Asset Allocation Fund 0.50%
E*TRADE Bond Fund 0.65%*
E*TRADE Financial Sector Index Fund 0.95%
E*TRADE International Index Fund 0.65%
E*TRADE Premier Money Market Fund 0.45%
E*TRADE Xxxxxxx 2000 Index Fund 0.65%
E*TRADE S&P 500 Index Fund 0.40%
E*TRADE Technology Index Fund 0.85%
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* This agreement will become effective with respect to the E*TRADE Bond Fund
upon that Fund's conversion to being an actively managed fund, if such
conversion is approved by shareholders of the Fund.
