Form of agreement subject to completion
SEVENTH AMENDED AND RESTATED
EXPENSE LIMITATION AGREEMENT
for
E*TRADE FUNDS
SEVENTH AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT, effective as of
September [ ], 2006 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 as such Schedule may be amended from time to time (each series is
hereinafter referred to as the "Fund").
WHEREAS, the Trust is a Delaware statutory 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, on behalf of each Fund, have entered into the
service agreements set forth on Exhibit A as such Exhibit may be amended from
time to time (each, a "Service Agreement"), pursuant to which ETAM provides
certain services to each Fund for compensation;
WHEREAS, the Trust and ETAM have entered into a Sixth Amended and Restated
Expense Limitation Agreement effective March 31, 2005 on behalf of each Fund
listed on Schedule A thereto (referred herein as "Expense Limitation
Agreement"); and
WHEREAS, each party has determined that it is appropriate and in the best
interests of each Fund and its shareholders to amend and restate the current
Expense Limitation Agreement in its entirety in order to add two new series and
update information provided in the Expense Limitation Agreement;
NOW, THEREFORE, BE IT RESOLVED, that the parties hereto agree that the
Expense Limitation Agreement is hereby amended and restated in its entirety as
of the date listed above as follows:
I. Expense Limitation.
1.1. Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by each Fund, including but not limited to
administrative services fees and advisory services fees of ETAM and fees and
expenses of E*TRADE Securities, LLC under any Distribution Plan (but
specifically excluding all interest, taxes, brokerage commissions, other
expenditures that are capitalized in accordance with generally accepted
accounting principles, annual account maintenance fees that may be collected by
the Trust or any Fund and payable to
ETAM for any shareholder account that fails to maintain the required account
minimum amount (as specified in the prospectus for each Fund), and
extraordinary fees and 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 fees,
administrative services fees and shareholder services fees (except for the
amount of any annual account maintenance fee that may be due and payable to
ETAM) 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 fees,
administrative services fees and shareholder services fees (other than any
account maintenance fees that may be collected by the Trust or any Fund and
payable to ETAM) for any such month is insufficient to pay the Excess Amount,
ETAM shall promptly remit to the appropriate Fund or Funds each month an amount
that, together with the waived or reduced advisory fees, administrative
services fees and shareholder services fees, is sufficient to pay such Excess
Amount on a monthly basis.
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 fees, administrative
services fees and shareholder 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.
2.1. Reimbursement. If the estimated aggregate Fund Operating Expenses of
any Fund for a 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 that Fund, in whole or in part as provided below, of any and
all advisory fees, administrative services fees and shareholder services fees
waived or reduced and other payments remitted by ETAM to the 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 fees, administrative services fees and shareholder services fees
previously waived or reduced by ETAM and all other payments remitted by ETAM to
the Fund, pursuant to Section 1 hereof, during any of the previous three
(3) fiscal years, less any reimbursement previously paid by the Fund to ETAM,
pursuant to Sections 2.2 or 2.3
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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 any Fund in such quarter.
2.3. Method of Computation. To determine the amount of any payment by a
Fund, if any, to reimburse ETAM for the Reimbursement Amount, each month the
Fund Operating Expenses of that Fund shall be annualized as of the last day of
the month. If the annualized Fund Operating Expenses of the 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 the 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 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.
3.1. Term. This Agreement with respect to each Fund listed in Schedule A
shall continue in effect through April 30, 2008. Thereafter, the Agreement
shall 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 (1) are not "interested persons" of the Trust or any other party to
this Agreement, as defined in the 1940 Act, and (2) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interested
Trustees").
3.2. Termination. Nevertheless, 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 Fund.
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IV. Expense Limitation Breakpoints.
ETAM shall have the right, in its discretion, to reduce the Maximum Annual
Operating Expense Limit set forth in Schedule A for each Fund provided ETAM
provides written notice to the Board of Trustees within three (3) business days
after reducing the Maximum Annual Operating Expense Limit of the new reduced
Maximum Annual Operating Expense Limit applicable to any Fund and the effective
date of such new reduced Maximum Annual Operating Expense Limit. ETAM hereby
acknowledges and agrees that any such reduced Maximum Annual Operating Expense
Limit shall remain in effect for the remaining term of the Agreement.
V. Miscellaneous.
5.1. 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.
5.2. Interpretation. Nothing herein contained shall be deemed to require the
Trust or any Fund to take any action contrary to the Trust's Trust Instrument
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.
5.3. Definitions. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from the terms and
provisions of any Service Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Service Agreement or the 1940
Act.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized, as of the day and year
first above written.
E*TRADE FUNDS, on behalf of each Fund
listed on Schedule A
By:
-----------------------------
Name: Xxxxxxxxx Xxxxxxxxx
Title: President
E*TRADE ASSET MANAGEMENT, INC.
By:
-----------------------------
Name: Xxxxxx Xxxx
Title: President
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Form of agreement subject to completion
EXHIBIT A
TO THE
EXPENSE LIMITATION AGREEMENT
SERVICE AGREEMENTS BETWEEN THE TRUST AND ETAM
1) Third Amended and Restated Investment Advisory Agreement 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.
2) Fifth Amended and Restated Administrative Services Agreement on behalf of
each Fund, 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 as set forth in the agreement.
3) Shareholder Services Agreement on behalf of each Fund, pursuant to which
ETAM provides shareholder services to each Fund for compensation based on the
value of the average daily net assets of each Fund as set forth in the
agreement.
A-1
Form of agreement subject to completion
SCHEDULE A
TO THE
EXPENSE LIMITATION AGREEMENT
MAXIMUM ANNUAL OPERATING EXPENSE LIMITS
This Agreement relates to the following Fund(s) of the Trust:
Maximum Annual Operating Expense
Limit (as a percentage of average
Name of Fund daily net assets)
------------ ---------------------------------
E*TRADE Delphi Value Fund
Retail Class 1.75%
Institutional Class 1.50%
E*TRADE International Index Fund 0.09%
E*TRADE Kobren Growth Fund 1.00%
E*TRADE Xxxxxxx 2000 Index Fund 0.22%
E*TRADE S&P 500 Index Fund 0.09%
E*TRADE Technology Index Fund 0.60%
S-1
