FORM OF
INVESTMENT SUBADVISORY AGREEMENT
E*TRADE FUNDS
with respect to
E*TRADE ASSET ALLOCATION FUND
AGREEMENT, effective commencing as of ____________, 2001 among Barclays
Global Fund Advisors (the "Subadviser"), E*TRADE Asset Management, Inc. (the
"Adviser") and E*TRADE Funds (the "Trust") with respect to E*TRADE Asset
Allocation Fund (the "Fund").
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 Fund
is a portfolio of the Trust; and
WHEREAS, the Trust has retained the Adviser to render investment advisory
services to the Trust on behalf of the Fund, pursuant to an Investment Advisory
Agreement dated as of ____, 2001, among the Adviser and the Trust ("Investment
Advisory Agreement");
WHEREAS, the Trust's Board of Trustees, including a majority of the
Trustees who are not "interested persons," as defined in the 1940 Act, and the
Fund shareholders have approved the appointment of the Subadviser to perform
certain investment advisory services for the Trust on behalf of the Fund
pursuant to this Subadvisory Agreement ("the "Subadvisory Agreement") and the
Subadviser is willing to perform such services for the Trust on behalf of the
Fund; and
WHEREAS, the Subadviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Subadviser, the Adviser and the Trust
as follows:
1. Appointment. The Trust and Adviser hereby appoint the Subadviser to act
as investment adviser to the Fund for the periods and on the terms set forth in
this Subadvisory Agreement. The Subadviser 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 and the
Adviser, the Subadviser will, in coordination with the Adviser: (i) provide a
program of continuous investment management for the Fund in accordance with the
Fund's investment objective, policies and limitations as stated in the 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 Subadviser
by the Adviser; (ii) make investment decisions for the Fund; and (iii) place
orders to purchase and sell securities and other assets for the Fund.
(b) In performing its investment management services to the Fund
hereunder and upon request by the Adviser, the Subadviser will provide the Fund,
among other things, as received by the index compilation provider, analysis of
statistical and economic data and information concerning index compilation,
including portfolio composition. The Subadviser will determine the securities,
instruments, repurchase agreements, futures, options and other investments and
techniques that the Fund will purchase, sell, enter into or use, and will
provide an ongoing evaluation of the Fund's portfolio. The Subadviser will
advise as to what portion of the Fund's portfolio shall be invested in
securities and other assets, and what portion if any, should be held uninvested.
(c) The Subadviser's duties shall not include and the Subadviser shall
have no responsibility for tax reporting or securities lending.
(d) The Subadviser 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) manage the 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 for the Fund directly with the issuer, or with
any broker or dealer, in accordance with applicable policies expressed in the
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 the Fund's assets or contemplated
investments. In addition, the Subadviser will keep the Trust, the Trustees and
the Adviser informed of developments materially affecting the Fund's portfolio
and shall, when requested meet quarterly with the Trustees to explain its
activities. Further, on the Subadviser's own initiative, furnish to the Trust
from time to time whatever information the Subadviser believes appropriate for
this purpose;
(v) make available to the Trust's administrator (the
"Administrator"), the Adviser and the Trust, promptly upon their request, such
copies of its investment records and ledgers with respect to the Fund as may be
required to assist the Administrator, the Adviser and the Trust in their
compliance with applicable laws and regulations. The Subadviser will furnish the
Trustees with such periodic and special reports regarding the Fund and any
subadviser as they may reasonably request;
(vi) immediately notify the Trust in the event that the Subadviser
or any of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Subadviser from serving as investment adviser
pursuant to this Subadvisory 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 Subadviser further agrees to notify the Trust
immediately of any material fact known to the Subadviser respecting or relating
to the Subadviser that is not contained in the Trust's Registration Statement
regarding the 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 the Fund, use no inside
information that may be in its possession or in the possession of any of its
affiliates, nor will the Subadviser seek to obtain any such information.
3. Futures and Options. The Subadviser's investment authority shall
include advice with regard to purchasing, selling, covering open positions, and
generally dealing in financial futures contracts and options thereon, in
accordance with Rule 4.5 of the Commodity Futures Trading Commission.
The Subadviser'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
the Fund; and (ii) execute for and on behalf of the Brokerage Accounts, standard
customer agreements with a broker or brokers. The Subadviser may, using such of
the securities and other property in the Brokerage Accounts as the Subadviser
deems necessary or desirable, direct the custodian to deposit on behalf of the
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 Subadviser deems desirable or appropriate.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION
(THE "COMMISSION") IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS,
THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED
WITH THE COMMISSION. THE COMMISSION DOES NOT PASS UPON THE MERITS OF
PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY
TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMISSION HAS NOT REVIEWED OR
APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT.
The Trust represents and warrants that it is a "qualified eligible client"
within the meaning of CFTC Regulations Section 4.7 and, as such, consents to
treat the Fund in accordance with the exemption contained in CFTC Regulations
Section 4.7(b).
4. Use of Securities Brokers and Dealers. The Subadviser will monitor the
use of broker-dealers. To the extent permitted by the Subadviser's Form ADV as
filed with the SEC, purchase and sale orders will usually be placed with brokers
who are selected by the Subadviser 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 Subadviser places orders, or directs the placement of
orders, for the purchase or sale of portfolio securities on behalf of the Fund,
in selecting brokers or dealers to execute such orders, the Subadviser is
expressly authorized to consider the fact that a broker or dealer has furnished
statistical, research or other information or services which enhance the
Subadviser'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 Subadviser 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 Subadviser 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 the Fund or the Subadviser's
overall responsibilities to the Subadviser's discretionary accounts.
Neither the Subadviser 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 the Fund, provided that this limitation shall not
prevent the Subadviser 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
Subadviser 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
Subadviser 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 Subadviser
shall make available, without expense to the 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 Subadviser shall not be required to pay pursuant to this
Subadvisory Agreement any expenses of the Fund other than those specifically
allocated to the Subadviser in this section 5. In particular, but without
limiting the generality of the foregoing, the Subadviser 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 Subadviser whose services
may be involved, for the following expenses of the Fund: organization and
certain offering expenses of the Fund (including out-of-pocket expenses, but not
including the Subadviser's overhead and employee costs); fees payable to the
Subadviser 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 the 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 the Fund's Administrator or of any custodian, subcustodian,
transfer agent, registrar, or dividend disbursing agent of the Fund; payments to
the Administrator for maintaining the 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 the Fund; expenses relating to investor and public relations; expenses
of registering and qualifying shares of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities or other assets of the Fund, or of entering into other
transactions or engaging in any investment practices with respect to the 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 the Fund's business) of officers, Trustees and employees of
the Trust who are not interested persons of the Subadviser; and travel expenses
(or an appropriate portion thereof) of officers or Trustees of the Trust who are
officers, directors or employees of the Subadviser to the extent that such
expenses relate to attendance at meetings of the Board of Trustees of the Trust
with respect to matters concerning the Fund, or any committees thereof or
advisers thereto.
6. Compensation.
As compensation for the services provided and expenses assumed by the
Subadviser under this Subadvisory Agreement, the Adviser will pay the Subadviser
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 the Fund's
name in Exhibit A, and subject to any minimum fees stated therein. The "average
daily net assets" of the Fund shall mean the average of the values placed on the
Fund's net assets as of 4:00 p.m. (New York time) on each day on which the net
asset value of the Fund is determined consistent with the provisions of Rule
22c-1 under the 1940 Act or, if the 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 the 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 the 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 the Fund's
portfolio may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund has been so suspended for a period
including any month end when the Subadviser's compensation is payable pursuant
to this section, then the Subadviser's compensation payable at the end of such
month shall be computed on the basis of the value of the net assets of the Fund
as last determined (whether during or prior to such month). If the 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 Subadviser agrees to maintain such books and
records with respect to its services to the 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 Subadviser
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 Subadviser 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 the Fund are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders. Provided that the investment objective, policies
and restrictions of the Fund are adhered to, the Trust agrees that the
subadviser may aggregate sales and purchase orders of securities held in the
Fund with similar orders being made simultaneously for other accounts managed by
the subadviser or with accounts of the affiliates of the Subadviser, if in the
Subadviser'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 the
Fund by the subadviser represents the Subadviser's evaluation that the 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. The Subadviser shall exercise its best judgment in
rendering the services provided by it under this Subadvisory Agreement.
10. Liability.
(a) Neither the Subadviser nor its officers, directors, employees,
affiliates, agents or controlling persons shall be liable to the Trust, the
Fund, its shareholders and/or any other person for the acts, omissions, errors
of judgment and/or mistakes of law of any other fiduciary and/or person with
respect to the Fund.
(b) Neither the Subadviser nor its officers, directors, employees,
affiliates, agents or controlling persons or assigns shall be liable for any
act, omission, error of judgment or mistake of law and/or for any loss suffered
by the Trust, the Fund, its shareholders and/or any other person in connection
with the matters to which this Subadvisory Agreement relates; provided that no
provision of this Subadvisory Agreement shall be deemed to protect the
Subadviser against any liability to the Trust, the Fund and/or its shareholders
which it might otherwise be subject by reason of any willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its obligations and duties under this Subadvisory Agreement or
otherwise for breach of this Subadvisory Agreement.
(c) The Trust on behalf of the Fund, hereby agrees to indemnify and
hold harmless the Subadviser, its directors, officers and employees and agents
and each person, if any, who controls the Subadviser (collectively, the
"Indemnified Parties") against any and all losses, claims damages or liabilities
(including reasonable attorneys fees and expenses), joint or several, relating
to the Trust or Fund, to which any such Indemnified Party may become subject
under the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, the Investment Advisers Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(1) any act, omission, error and/or mistake of any other fiduciary and/or any
other person; or (2) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a material fact
required to be stated or necessary to make the statements made not misleading in
(a) the Registration Statement, the prospectus or any other filing, (b) any
advertisement or sales literature authorized by the Trust for use in the offer
and sale of shares of the Fund, or (c) any application or other document filed
in connection with the qualification of the Trust or shares of the Fund under
the Blue Sky or securities laws of any jurisdiction, except insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission (i) in a document prepared by the Subadviser, or (ii) made
in reliance upon and in conformity with information furnished to the Trust by or
on behalf of the Subadviser pertaining to or originating with the Subadviser for
use in connection with any document referred to in clauses (a), (b) or (c).
(d) It is understood, however, that nothing in this paragraph 10 shall
protect any Indemnified Party against, or entitle any Indemnified Party to,
indemnification against any liability to the Trust, Fund and/or its shareholders
to which such Indemnified Party is subject, by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of any reckless disregard of its obligations and duties under this
Subadvisory Agreement or any breach of this Subadvisory Agreement.
(e) Notwithstanding any other provision of this Subadvisory Agreement,
the Subadviser shall not be liable for any loss to the Fund or the Adviser
caused directly or indirectly by circumstances beyond the Subadviser's
reasonable control including, but not limited to, government restrictions,
exchange or market rulings, suspensions of trading, acts of civil or military
authority, national emergencies, earthquakes, floods or other catastrophes, acts
of God, wars or failures of communication or power supply.
11. Services Not Exclusive. It is understood that the services of the
Subadviser are not exclusive, and that nothing in this Subadvisory Agreement
shall prevent the Subadviser 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
the Fund) or from engaging in other activities, provided such other services and
activities do not, during the term of this Subadvisory Agreement, interfere in a
material manner with the Subadviser's ability to meet its obligations to the
Fund hereunder. When the Subadviser recommends the purchase or sale of a
security for other investment companies and other clients, and at the same time
the Subadviser recommends the purchase or sale of the same security for the
Fund, it is understood that in light of its fiduciary duty to the Fund, such
transactions will be executed on a basis that is fair and equitable to the Fund.
In connection with purchases or sales of portfolio securities for the account of
the Fund, neither the Subadviser nor any of its directors, officers or employees
shall act as a principal or agent or receive any commission. If the Subadviser
provides any advice to its clients concerning the shares of the Fund, the
Subadviser shall act solely as investment counsel for such clients and not in
any way on behalf of the Trust or the Fund.
12. Duration and Termination.
(a) This Subadvisory Agreement shall continue for a period of two
years from the date of commencement, and thereafter shall continue automatically
for successive annual periods, provided such continuance is specifically
approved at least annually by (i) the Trustees or (ii) a vote of a "majority"
(as defined in the ▇▇▇▇ ▇▇▇) of the 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 Subadvisory
Agreement or "interested persons" (as defined in the ▇▇▇▇ ▇▇▇) of any party to
this Subadvisory Agreement, by vote cast in person (to the extent required by
the ▇▇▇▇ ▇▇▇) at a meeting called for the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Subadvisory Agreement may be
terminated: (a) at any time without penalty by the Fund upon the vote of a
majority of the Trustees or by vote of the majority of the Fund's outstanding
voting securities, upon sixty (60) days' written notice to the Subadviser or (b)
by the Subadviser at any time without penalty, upon sixty (60) days' written
notice to the Trust. This Subadvisory Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
13. Amendments. This Subadvisory Agreement may be amended at any time but
only by the mutual written agreement of the parties to this Subadvisory
Agreement and in accordance with any applicable legal or regulatory
requirements.
14. Proxies. Unless the Trust gives written instructions to the contrary,
the Subadviser shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Fund may be invested in a manner
which best serves the interests of the Fund's shareholders. The Subadviser shall
use its best good faith judgment to vote such proxies in a manner which best
serves the interests of the Fund's shareholders. The Subadviser shall maintain a
record of how the Subadviser voted and such record shall be available to the
Trust or Adviser upon request.
15. Use of Name. The Subadviser hereby consents to the use of its name and
the names of its affiliates in the Fund's disclosure documents, shareholder
communications, advertising, sales literature and similar communications.
16. Confidential Information. The Subadviser shall maintain the strictest
confidence regarding the business affairs of the Fund. Written reports furnished
by the Subadviser to the Trust or the Adviser shall be treated by such entities
as confidential and for the exclusive use and benefit of the Trust except as
disclosure may be required by applicable law.
17. Notices. All notices hereunder shall be provided in writing and
delivered by first class postage pre-paid U.S. mail or by fax. Notices delivered
by mail shall be deemed given three days after mailing and upon receipt if sent
by fax.
If to Trust: E*Trade funds
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▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Adviser: E*Trade asset management, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Subadviser: barclays global fund advisors
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Legal Department
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
18. Miscellaneous.
(a) This Subadvisory Agreement shall be governed by the laws of the
State of California without regard to the conflicts of law provisions thereof,
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 Subadvisory 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 Subadvisory Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Subadvisory Agreement shall not be affected hereby and, to this extent, the
provisions of this Subadvisory Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Subadviser
as an agent of the Adviser, the Trust or the Fund.
(e) All liabilities of the Trust hereunder are limited to the assets
of the Fund.
(f) Concurrently with the execution of this Subadvisory Agreement, the
Subadviser is delivering to the Adviser and the Trust a copy of part II of its
Form ADV, as revised, on file with the SEC. The Adviser and the Trust hereby
acknowledge receipt of such copy.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date first stated above.
E*TRADE FUNDS
By: __________________________
Name: __________________________
Title:__________________________
E*TRADE ASSET MANAGEMENT, INC.
By: __________________________
Name: __________________________
Title:__________________________
BARCLAYS GLOBAL FUND ADVISORS
By: __________________________
Name: __________________________
Title:__________________________
EXHIBIT A
Name of Fund Subadvisory Fee
E*TRADE Asset Allocation Fund 0.05%