FORM OF
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT ("Agreement"),
effective commencing as of ________________, 1999 between E*TRADE Asset
Management, Inc. (the "Adviser") and E*TRADE Funds (the "Trust") with respect to
each series of the Trust as listed on Exhibit A attached hereto (each a "Fund"
and collectively, the "Funds"), as Exhibit A may be amended from time to time.
WHEREAS, the Trust is a Delaware business trust organized pursuant to a
Declaration of Trust dated November 4, 1998 (the "Declaration of Trust"), and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified management investment company, and the
E*TRADE S&P 500 Index Fund is the original series of the Trust; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement with respect to the E*TRADE S&P 500 Index Fund, dated
February 3, 1999 (the "Original Advisory Agreement"); and
WHEREAS, the Trust also wishes to retain the Adviser to render investment
advisory services with respect to the Extended Market Index Fund, the E*TRADE
Bond Index Fund, and the International Index Fund, each a new series of the
Trust (the "New Series"), and the Adviser is willing to furnish such services to
the New Series; and
WHEREAS, the Trust and the Adviser wish to include the New Series under
substantially the same terms of the Original Advisory Agreement and wish to
amend and restate the Original Advisory Agreement to include the New Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as investment
adviser to each Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties.
(a) Subject to the supervision of the Trustees of the Trust, the Adviser
will: (i) provide a program of continuous investment management for each Fund in
accordance with each Fund's investment objective, policies and limitations as
stated in each Fund's Prospectus and Statement of Additional Information
included as part of the Trust's Registration Statement filed with the Securities
and Exchange Commission ("SEC") and as the Prospectus and Statement of
Additional Information may be amended from time to time, copies of which shall
be provided to the Adviser by the Trust; and (ii) select and manage, subject to
approval by the Trustees, investment subadvisers, who may be granted
discretionary investment authority, and/or master funds for each Fund.
(b) In performing its investment management services to each Fund
hereunder, the Adviser will provide each Fund with ongoing investment guidance,
policy direction, including oral and written research, monitoring of any master
funds, analysis, advice, statistical and economic data and judgments regarding
individual investments, general economic conditions and trends and long-range
investment policy.
(c) To the extent permitted by the Adviser's Form ADV as filed with the
SEC and subject to the approval of the Trustees of the Trust, the Adviser shall
have the authority to manage cash and money market instruments for cash flow
purposes.
(d) To the extent permitted by the Adviser's current Form ADV as filed
with the SEC, the Adviser will advise as to the securities, instruments,
repurchase agreements, options and other investments and techniques that each
Fund will purchase, sell, enter into or use, and will provide an ongoing
evaluation of each Fund's portfolio. The Adviser will advise as to what portion
of each Fund's portfolio shall be invested in securities and other assets, and
what portion if any, should be held uninvested.
(e) The Adviser may engage and remove one or more subadvisers, subject to
the legally required approvals of the Trust and its shareholders, and the
Adviser shall monitor the performance of any subadviser and report to the Trust
thereon.
(f) The Adviser further agrees that, in performing its duties hereunder,
it will:
(i) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(ii) use reasonable efforts to manage each Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to each Fund's investment determinations
as approved by the Trustees for each Fund directly with the issuer, or with any
broker or dealer, in accordance with applicable policies expressed in each
Fund's Prospectus and/or Statement of Additional Information and in accordance
with applicable legal requirements;
(iv) furnish to the Trust whatever statistical information the Trust
may reasonably request with respect to each Fund's assets or contemplated
investments. In addition, the Adviser will keep the Trust and the Trustees
informed of developments materially affecting each Fund's portfolio and shall,
on the Adviser's own initiative, furnish to the Trust from time to time whatever
information the Adviser believes appropriate for this purpose;
(v) make available to the Trust's administrator (the "Administrator")
and the Trust, promptly upon their request, such copies of its investment
records and ledgers with respect to each Fund as may be required to assist the
Administrator and the Trust in their compliance with applicable laws and
regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding each Fund and any subadviser as they may reasonably
request;
(vi) immediately notify the Trust in the event that the Adviser or any
of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the SEC or other regulatory
authority. The Adviser further agrees to notify the Trust immediately of any
material fact known to the Adviser respecting or relating to the Adviser that is
not contained in the Trust's Registration Statement regarding each Fund, or any
amendment or supplement thereto, but that is required to be disclosed thereon,
and of any statement contained therein that becomes untrue in any material
respect; and
(vii) in providing investment advice to each Fund, use no inside
information that may be in its possession or in the possession of any of its
affiliates, nor will the Adviser seek to obtain any such information.
3. Futures and Options. The Adviser's investment authority shall include
advice with regard to purchasing, selling, covering open positions, and
generally dealing in financial futures contracts and options thereon, or master
funds which do so in accordance with Rule 4.5 of the Commodity Futures Trading
Commission.
The Adviser's authority shall include authority to: (i) open and
maintain brokerage accounts for financial futures and options (such accounts
hereinafter referred to as "Brokerage Accounts") on behalf of and in the name of
each Fund; and (ii) execute for and on behalf of the Brokerage Accounts,
standard customer agreements with a broker or brokers. The Adviser may, using
such of the securities and other property in the Brokerage Accounts as the
Adviser deems necessary or desirable, direct the custodian to deposit on behalf
of each Fund, original and maintenance brokerage deposits and otherwise direct
payments of cash, cash equivalents and securities and other property into such
brokerage accounts and to such brokers as the Adviser deems desirable or
appropriate.
4. Use of Securities Brokers and Dealers. The Adviser will monitor the use
by master funds of broker-dealers. To the extent permitted by the Adviser's Form
ADV as filed with the SEC, purchase and sale orders will usually be placed with
brokers who are selected by the Adviser as able to achieve "best execution" of
such orders. "Best execution" shall mean prompt and reliable execution at the
most favorable securities price, taking into account the other provisions
hereinafter set forth. Whenever the Adviser places orders, or directs the
placement of orders, for the purchase or sale of portfolio securities on behalf
of each Fund, in selecting brokers or dealers to execute such orders, the
Adviser is expressly authorized to consider the fact that a broker or dealer has
furnished statistical, research or other information or services which enhance
the Adviser's research and portfolio management capability generally. It is
further understood in accordance with Section 28(e) of the Securities Exchange
Act of 1934, as amended, that the Adviser may negotiate with and assign to a
broker a commission which may exceed the commission which another broker would
have charged for effecting the transaction if the Adviser determines in good
faith that the amount of commission charged was reasonable in relation to the
value of brokerage and/or research services (as defined in Section 28(e))
provided by such broker, viewed in terms either of each Fund or the Adviser's
overall responsibilities to the Adviser's discretionary accounts.
Neither the Adviser nor any parent, subsidiary or related firm shall act
as a securities broker with respect to any purchases or sales of securities
which may be made on behalf of each Fund, provided that this limitation shall
not prevent the Adviser from utilizing the services of a securities broker which
is a parent, subsidiary or related firm, provided such broker effects
transactions on a "cost only" or "nonprofit" basis to itself and provides
competitive execution. Unless otherwise directed by the Trust in writing, the
Adviser may utilize the service of whatever independent securities brokerage
firm or firms it deems appropriate to the extent that such firms are competitive
with respect to price of services and execution.
5. Allocation of Charges and Expenses.
(a) Except as otherwise specifically provided in this section 5, the
Adviser shall pay the compensation and expenses of all of its directors,
officers and employees who serve as trustees, officers and executive employees
of the Trust (including the Trust's share of payroll taxes), and the Adviser
shall make available, without expense to each Fund, the service of its
directors, officers and employees who may be duly elected officers of the Trust,
subject to their individual consent to serve and to any limitations imposed by
law.
(b) The Adviser shall not be required to pay pursuant to this Agreement
any expenses of each Fund other than those specifically allocated to the Adviser
in this section 5. In particular, but without limiting the generality of the
foregoing, the Adviser shall not be responsible, except to the extent of the
reasonable compensation of such of the Trust's employees as are officers or
employees of the Adviser whose services may be involved, for the following
expenses of each Fund: organization and certain offering expenses of each Fund
(including out-of-pocket expenses, but not including the Adviser's overhead and
employee costs); fees payable to the Adviser and to any other Fund advisers or
consultants; legal expenses; auditing and accounting expenses; interest
expenses; telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; fees, dues and expenses incurred by or
with respect to each Fund in connection with membership in investment company
trade organizations; cost of insurance relating to fidelity coverage for the
Trust's officers and employees; fees and expenses of each Fund's Administrator
or of any custodian, subcustodian, transfer agent, registrar, or dividend
disbursing agent of each Fund; expenses of any master fund in which each Fund
invests; payments to the Administrator for maintaining each Fund's financial
books and records and calculating its daily net asset value; other payments for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates; other
expenses in connection with the issuance, offering, distribution or sale of
securities issued by each Fund; expenses relating to investor and public
relations; expenses of registering and qualifying shares of each Fund for sale;
freight, insurance and other charges in connection with the shipment of each
Fund's portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities or other assets of each Fund, or of
entering into other transactions or engaging in any investment practices with
respect to each Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
stockholders; costs of stationery or other office supplies; any litigation
expenses; costs of stockholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to each Fund's
business) of officers, Trustees and employees of the Trust who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Trust who are officers,
directors or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees of the Trust with respect to
matters concerning each Fund, or any committees thereof or advisers thereto.
6. Compensation.
As compensation for the services provided and expenses assumed by
the Adviser under this Agreement, the Trust will arrange for each Fund to pay
the Adviser at the end of each calendar month an advisory fee computed daily at
an annual rate equal to the amount of average daily net assets listed opposite
each Fund's name in Exhibit A, attached hereto. The "average daily net assets"
of each Fund shall mean the average of the values placed on each Fund's net
assets as of 4:00 p.m. (New York time) on each day on which the net asset value
of each Fund is determined consistent with the provisions of Rule 22c-1 under
the 1940 Act or, if each Fund lawfully determines the value of its net assets as
of some other time on each business day, as of such other time. The value of net
assets of each Fund shall always be determined pursuant to the applicable
provisions of the Declaration of Trust and the Registration Statement. If,
pursuant to such provisions, the determination of net asset value is suspended
for any particular business day, then for the purposes of this section 6, the
value of the net assets of each Fund as last determined shall be deemed to be
the value of its net assets as of the close of the New York Stock Exchange, or
as of such other time as the value of the net assets of each Fund's portfolio
may lawfully be determined, on that day. If the determination of the net asset
value of the shares of each Fund has been so suspended for a period including
any month end when the Adviser's compensation is payable pursuant to this
section, then the Adviser's compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of each Fund as last
determined (whether during or prior to such month). If each Fund determines the
value of the net assets of its portfolio more than once on any day, then the
last such determination thereof on that day shall be deemed to be the sole
determination thereof on that day for the purposes of this section 6.
7. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to each Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Trust and will be surrendered promptly to the Trust upon
its request. The Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of each Fund are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders. Provided that the investment objective, policies
and restrictions of each Fund are adhered to, the Trust agrees that the Adviser
may aggregate sales and purchase orders of securities held in each Fund with
similar orders being made simultaneously for other accounts managed by the
Adviser or with accounts of the affiliates of the Adviser, if in the Adviser's
reasonable judgment such aggregation shall result in an overall economic benefit
to the respective Fund taking into consideration the advantageous selling or
purchase price, brokerage commission and other expenses. The Trust acknowledges
that the determination of such economic benefit to each Fund by the Adviser
represents the Adviser's evaluation that each Fund is benefited by relatively
better purchase or sales prices, lower commission expenses and beneficial timing
of transactions or a combination of these and other factors.
9. Standard of Care and Limitation of Liability. The Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by each Fund or the holders of each Fund's
shares in connection with the matters to which this Agreement relates, provided
that nothing in this Agreement shall be deemed to protect or purport to protect
the Adviser against any liability to the Trust, each Fund or to holders of each
Fund's shares to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Adviser's reckless disregard of
its obligations and duties under this Agreement. As used in this Section 9, the
term "Adviser" shall include any officers, directors, employees or other
affiliates of the Adviser performing services with respect to each Fund.
10. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, including the Trust (whether or not their
investment objectives and policies are similar to those of each Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its obligations to each Fund hereunder. When the
Adviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Adviser recommends the
purchase or sale of the same security for each Fund, it is understood that in
light of its fiduciary duty to each Fund, such transactions will be executed on
a basis that is fair and equitable to each Fund. In connection with purchases or
sales of portfolio securities for the account of each Fund, neither the Adviser
nor any of its directors, officers or employees shall act as a principal or
agent or receive any commission. If the Adviser provides any advice to its
clients concerning the shares of each Fund, the Adviser shall act solely as
investment counsel for such clients and not in any way on behalf of the Trust or
each Fund.
11. Duration and Termination.
(a) This Agreement shall continue with respect to the E*TRADE S&P 500
Index Fund until February 3, 2001 and shall continue with respect to the New
Series until ___________, 2001. This Agreement shall continue automatically for
successive annual periods thereafter, provided such continuance is specifically
approved at least annually by (i) the Trustees or (ii) a vote of a "majority"
(as defined in the 0000 Xxx) of each Fund's outstanding voting securities (as
defined in the 1940 Act), provided that in either event the continuance is also
approved by a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the 0000 Xxx) of any party to this
Agreement, by vote cast in person (to the extent required by the 0000 Xxx) at a
meeting called for the purpose of voting on such approval.
(c) Notwithstanding the foregoing, this Agreement may be terminated: (a)
at any time without penalty by each Fund upon the vote of a majority of the
Trustees or by vote of the majority of each Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Adviser or (b) by the
Adviser at any time without penalty, upon sixty (60) days' written notice to the
Trust. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
12. Amendments. This Agreement may be amended at any time but only by the
mutual agreement of the parties to this Agreement and in accordance with any
applicable legal or regulatory requirements.
13. Proxies. Unless the Trust gives written instructions to the contrary,
the Adviser shall vote all proxies solicited by or with respect to the issuers
of securities in which assets of each Fund may be invested in a manner which
best serves the interests of each Fund's shareholders. The Adviser shall use its
best good faith judgment to vote such proxies in a manner which best serves the
interests of each Fund's shareholders.
14. Use of "E*TRADE" Name.
(a) It is understood that the name "E*TRADE" and any logo associated with
that name, is the valuable property of E*TRADE Group, Inc., and that the Trust
and Adviser have the right to include "E*TRADE" as a part of their name only so
long as this Agreement shall continue in effect and the Adviser is a wholly
owned subsidiary of the E*TRADE Group, Inc. Further, the Trust and the Adviser
agree that: (i) they will use the name "E*TRADE" only as a component of the
names of the Trust, each Fund and the Adviser, and for no other purposes; (ii)
neither will purport to grant to any third party any rights in the name
"E*TRADE"; (iii) at the request of E*TRADE Group, Inc., the Trust or the Adviser
take such action as may be required to provide their consent to use of the name
"E*TRADE" by E*TRADE Group, Inc. or any affiliate of E*TRADE Group, Inc., to
whom E*TRADE Group, Inc. shall have granted the right to such use; and (iv)
E*TRADE Group, Inc. may use or grant to others the right to use the name
"E*TRADE", or any abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company.
(b) Upon termination of this Agreement as to the Trust or its Fund, the
Trust and the Adviser shall, upon request of E*TRADE Group, Inc. , cease to use
the name "E*TRADE" as part of the name of the Trust, each Fund or the Adviser,
as applicable. In the event of any such request by E*TRADE Group, Inc. that use
of the name "E*TRADE" shall cease, the Trust and the Adviser shall cause their
officers, trustees, directors and stockholders to take any and all such actions
which E*TRADE Group, Inc. may request to effect such request and to reconvey to
E*TRADE Group, Inc. any and all rights to the name "E*TRADE."
15. Use of "S&P 500" & Wilshire 4500 Names.
(a) It is understood that the Adviser has entered into a licensing
agreement with The XxXxxx-Xxxx Companies, Inc., for use of the terms "S&P 500",
"S&P", "Standard & Poor's", and "Standard & Poor's 500" (the "license"). In
accordance with such license, the Adviser shall permit the Trust, on behalf of
the S&P 500 Index Fund, to use the terms "S&P 500", "S&P", "Standard & Poor's",
and "Standard & Poor's 500", so long as the license and this Agreement shall
continue in effect.
(b) It is understood that the Adviser has entered into a licensing
agreement with The XxXxxx-Xxxx Companies, Inc., for use of the terms "Wilshire
4500", "Wilshire 4500 Index" and "Wilshire 4500 Equity Index". In accordance
with such license, the Adviser shall permit the Trust, on behalf of the Wilshire
4500 Index Fund, to use the terms "Wilshire 4500", "Wilshire 4500 Index" and
"Wilshire 4500 Equity Index" so long as the license and this Agreement shall
continue in effect.
16. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or each Fund.
(e) All liabilities of the Trust hereunder are limited to the assets of
each Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Investment Advisory Agreement to be executed by their officers
designated below as of ____________, 1999.
E*TRADE FUNDS, on behalf of each of
the Funds listed on Exhibit A
By:
Name:
Title:
E*TRADE ASSET MANAGEMENT, INC.
By:
Name:
Title:
EXHIBIT A
TO THE
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
Name of Fund Advisory Fee
E*TRADE S&P 500 Index Fund 0.02%, if the Fund invests
all of its assets in a master
fund and 0.07% on that
portion of the Fund's assets
not invested in a master fund.
E*TRADE Extended Market Index Fund
0.02%, if the Fund invests all
of its assets in a master fund
and 0.08% on that portion of the
Fund's assets not invested in a
master fund.
E*TRADE Bond Index Fund 0.02%, if the
Fund invests all of its assets
in a master fund and 0.08% on
that portion of the Fund's
assets not invested in a master
fund.
E*TRADE International Index Fund 0.02%,
if the Fund invests all of its
assets in a master fund and
0.08% on that portion of the
Fund's assets not invested in a
master fund.