INVESTMENT SUB-ADVISORY AGREEMENT
E*TRADE FUNDS
Investment Sub-Advisory Agreement ("Agreement"), effective as of November
20, 2006 with respect to the E*TRADE Delphi Value Fund ("Value Fund"), among
Delphi Management, Inc. ("Delphi" or "Sub-Adviser"), E*TRADE Asset Management,
Inc. ("Adviser") and E*TRADE Funds ("Trust").
WHEREAS, the Trust is a Delaware statutory trust organized pursuant to a
Declaration of Trust dated November 4, 1998, as amended from time to time
("Trust Instrument"), and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
the Value Fund is a series of the Trust;
WHEREAS, the Adviser and the Sub-Adviser are each registered as an
investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act");
WHEREAS, the Trust has retained the Adviser to render investment advisory
services to the Trust, on behalf of each of its series, pursuant to an Amended
and Restated Investment Advisory Agreement dated as of September 15, 2003, as
amended from time to time ("Advisory Agreement");
WHEREAS, the Advisory Agreement authorizes the Adviser to delegate to one
or more other investment advisers any or all of the Adviser's duties and
obligations under the Advisory Agreement;
WHEREAS, the Board of Trustees of the Trust ("Board"), including a
majority of the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) ("Independent Trustees") of any party to
this Agreement, voted at the September 7, 2006 Board meeting to approve this
Agreement on behalf of the Value Fund, effective as of commencement of
operations of the Value Fund; and
WHEREAS, the Trust and the Adviser wish to retain the Sub-Adviser to
perform certain investment advisory services for the Trust on behalf of the
Value Fund and the Sub-Adviser is willing to perform such services for the Trust
on behalf of the Value Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed among the Sub-Adviser, the Adviser and the Trust
as follows:
1. APPOINTMENT. The Trust and Adviser hereby appoint the Sub-Adviser to act as
investment sub-adviser to the Value Fund for the periods and in the manner and
on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment for the compensation specified herein and agrees to furnish the
services and to assume the obligations set forth in this Agreement.
2. INVESTMENT ADVISORY DUTIES.
(a) Subject to the general supervision and oversight of the Board and the
Adviser, the Sub-Adviser, in coordination with the Adviser:
(i) will provide a program of continuous investment management for
the Value Fund in accordance with the Value Fund's investment objective,
policies and limitations as stated in the Value 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"), as the Prospectus and
Statement of Additional Information may be amended or otherwise supplemented
from time to time, copies of which shall be provided to the Sub-Adviser by the
Adviser;
(ii) will make investment decisions for the Value Fund;
(iii) will place orders to purchase and sell securities and other
assets for the Value Fund;
(iv) will provide assistance in determining the fair value of
certain portfolio securities when market quotations are not readily available
for the purpose of calculating the Value Fund's net asset value in accordance
with the procedures and methods established by the Board;
(v) will vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Value Fund may be invested in a
manner that complies with the Trust's proxy voting policies and procedures and,
in the good faith judgment of the Sub-Adviser, best serves the interests of the
Value Fund's shareholders; maintain records of all proxies voted on behalf of
the Value Fund; and provide information to the Trust, the Adviser or their
designated agent in a manner that is sufficiently complete and timely to ensure
the Trust's compliance with its filing obligations under Rule 30b1-4 of the 1940
Act;
(vi) will maintain books and records with respect to the Value
Fund's securities transactions;
(vii) will provide periodic and special reports to the Board, as
requested; and
(viii) will cooperate with and provide reasonable assistance to the
Adviser, the Administrator, Sub-Administrator, Value Fund Accounting Agent,
Custodian, Foreign Custodians, Transfer Agent, Pricing Agents, and all other
agents and representatives of the Value Fund and the Adviser, including in
particular the Chief Compliance Officer of the Trust ("Trust's CCO"), will keep
all such persons fully informed as to such matters as they may reasonably deem
necessary to the performance of their obligations to the Value Fund and the
Adviser, will provide prompt responses to reasonable requests made by such
persons, and will establish appropriate interfaces with each such entity so as
to promote the efficient exchange of information.
(b) In performing its investment sub-advisory services to the Value Fund
under this Agreement, the Sub-Adviser will provide the Value Fund, among other
things, analysis of
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statistical and economic data and information concerning the Value Fund,
including portfolio composition. The Sub-Adviser will determine the securities,
instruments, repurchase agreements, futures, options and other investments and
techniques that the Value Fund will purchase, sell, enter into or use, and will
provide an ongoing evaluation of the Value Fund's portfolio. The Sub-Adviser
will recommend to the Trust and the Adviser what portion of the Value Fund's
portfolio shall be invested in securities and other assets, and what portion if
any, should be held in cash or other liquid assets.
(c) The Sub-Adviser's duties shall not include and the Sub-Adviser shall
have no responsibility for tax reporting or securities lending.
(d) The Sub-Adviser further agrees that, in performing its duties
hereunder, it will:
(i) comply with the 1940 Act and the Advisers Act and all rules and
regulations thereunder, the Internal Revenue Code of 1986, as amended ("Code"),
the Commodities Futures Trading Commission and all other applicable federal and
state laws and regulations, and with any applicable procedures adopted by the
Board. The Sub-Adviser also will provide to the Trust such information and
assurances (including sub-certifications) as the Adviser may reasonably request
from time to time in order for the Trust to comply with its disclosure and
reporting obligations imposed under applicable federal laws and regulations;
(ii) manage the Value 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 purchase and sale of investments for the
Value Fund directly with the issuer or with any broker or dealer in accordance
with (1) the Value Fund's investment objectives and investment program and all
applicable policies and procedures described in the Value Fund's Prospectus
and/or Statement of Additional Information, (2) any written policies and
procedures adopted by the Trust regarding such matters, and (3) with all
applicable legal requirements;
(iv) furnish to the Trust or the Adviser, or cause to be furnished,
whatever statistical information the Trust or the Adviser may reasonably request
with respect to the Value Fund's assets or contemplated investments.
(v) maintain books and records with respect to the Value Fund's
securities transactions, render to the Adviser and/or the Board such periodic
and special reports as the Adviser and/or the Board may reasonably request, and
keep the Adviser and/or the Board informed of developments materially affecting
the Value Fund's portfolio and keep the Trust, the Board and the Adviser
informed of developments materially affecting the Value Fund's portfolio and
shall, when requested meet quarterly with the Board to explain its activities.
Further, on the Sub-Adviser's own initiative, furnish to the Trust and the
Adviser from time to time whatever information the Sub-Adviser believes
appropriate for this purpose;
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(vi) make available to the Board, the Trust's Administrator,
Sub-Administrator, the Value Fund Accounting Agent, the Adviser, the Trust's
Chief Compliance Officer ("CCO"), and the Trust, promptly upon their request,
such copies of its investment records and ledgers with respect to the Value Fund
as may be required to assist the Board, Trust's Administrator,
Sub-Administrator, the Value Fund Accounting Agent, the Adviser, the Trust's
CCO, and the Trust in their compliance with applicable laws and regulations. The
Sub-Adviser will furnish the Board with such periodic and special reports
regarding the Value Fund and the Sub-Adviser as they may reasonably request. In
addition, the Sub-Adviser will furnish to the Board, the Adviser and third-party
data reporting services all currently available standardized performance
information and other customary data;
(vii) make available to the Board and the Adviser at reasonable
times its portfolio managers and other appropriate personnel, either in person
or, at the mutual convenience of the Board, the Adviser and the Sub-Adviser, by
telephone, in order to review the investment policies, performance and other
matters relating to the management of the Value Fund;
(viii) review draft reports to shareholders and other documents
provided to Sub-Adviser, provide comments on such drafts on a timely basis, and
provide certifications or sub-certifications on a timely basis as to the
accuracy of the information contained in such reports or other documents;
(ix) make available to the Trust's Administrator, the Adviser and,
as appropriate, the Trust, promptly upon its request, such copies of its
investment records and ledgers with respect to the Value Fund as may be required
to assist the Trust's Administrator, the Adviser and the Trust in their
compliance with applicable laws and regulations. The Sub-Adviser will furnish
the Adviser and/or the Board with such periodic and special reports regarding
the Value Fund as they may reasonably request;
(x) immediately notify the Trust, the Adviser and the Board in the
event that the Sub-Adviser or any of its affiliates: (1) becomes aware that it
is subject to a statutory disqualification that prevents the Sub-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 Sub-Adviser further agrees to notify
the Trust immediately of any material fact known to the Sub-Adviser respecting
or relating to the Sub-Adviser that is not contained in the Trust's Registration
Statement regarding the Value 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;
(xi) in providing investment advice to the Value Fund, use no inside
information that may be in its possession or in the possession of any of its
affiliates, nor will the Sub-Adviser seek to obtain any such information;
(xii) not disclose information regarding Value Fund characteristics,
trading history, portfolio holdings or any other related information to any
third party, except in compliance with the Trust's policies on disclosure of
portfolio holdings;
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(xiii) provide the Adviser, the Trust or the Board with such
information and assurances (including certifications and sub-certifications) as
the Adviser, the Trust or the Board may reasonably request from time to time in
order to assist the Adviser, the Trust or the Board in complying with applicable
laws, rules and regulations, including requirements in connection with the
preparation and/or filing of the Value Fund's Form N-CSRs and Form N-Qs;
(xiv) will promptly assist the Trust and the Adviser in determining
the fair value of portfolio securities when market quotations are not readily
available (including promptly making knowledgeable personnel of the Sub-Adviser
available for discussions with the Adviser, the Board and/or any fair valuation
committee appointed by the Board upon reasonable request, obtaining bids and
offers or quotes from broker-dealers or market-makers with respect to securities
held by the Value Fund and providing information upon request on valuations the
Sub-Adviser has determined of securities also held by other clients of the
Sub-Adviser), for the purpose of calculating the Value Fund's net asset value in
accordance with the procedures and methods established by the Board;
(xv) meet with the Board to explain its activities at such times and
places as the Adviser or the Board may reasonably request;
(xvi) not consult with any other sub-adviser of the Trust (if any),
or with the sub-adviser to any other investment company (or separate series
thereof) managed by the Adviser concerning the Value Fund's transactions in
securities or other assets, except for purposes of complying with the conditions
of Rule 12d3-1(a) and (b) under the 1940 Act; and
(xvii) vote proxies related to securities held by the Value Fund in
the best interest of the Value Fund and in accordance with the Trust's Proxy
Voting Policies and Procedures and the Sub-Adviser's Proxy Voting Policies and
Procedures as they may exist from time to time.
(e) will promptly notify the Trust in writing of the occurrence of any of
the following events:
(i) the Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which such
Sub-Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
(ii) the Sub-Adviser is served or otherwise receives notice of any
action, suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the Trust;
and/or
(iii) the chief executive officer or controlling partner of the
Sub-Adviser or the portfolio manager of the Value Fund changes or there is
otherwise an actual change in control or management of Adviser.
3. FUTURES AND OPTIONS. The Sub-Adviser's investment authority shall include
advice with regard to purchasing, selling, or covering open positions, and
generally dealing in financial futures contracts and options thereon, in
accordance with the rules and regulations of the
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Commodity Futures Trading Commission ("CFTC") applicable to registered
investment companies and their investment advisers.
The Sub-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 the Value Fund; and
(ii) execute for and on behalf of the Brokerage Accounts, standard
customer agreements with any broker or dealer.
The Sub-Adviser may, using such of the securities and other property in
the Brokerage Accounts as the Sub-Adviser deems necessary or desirable, direct
the custodian to deposit on behalf of the Value 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 Sub-Adviser deems desirable or appropriate.
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 Value Fund in accordance with the exemption contained in CFTC
Regulations Section 4.7(b).
4. BROKERAGE TRANSACTIONS. The Sub-Adviser may place orders for the purchase of
sale of portfolio securities for the Value Fund directly with the issuers of the
securities or with any broker or dealer. The Sub-Adviser may open and maintain
brokerage accounts of all types on behalf of and in the name of the Value Fund.
The Sub-Adviser will select broker-dealers to execute transactions for the Value
Fund and will monitor the execution capabilities of such broker-dealers. The
Sub-Adviser will seek to achieve best execution of orders for the Value Fund by
selecting brokers that are able to provide "best execution" of orders for the
Value Fund. "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 Sub-Adviser places orders, or directs the
placement of orders, for the purchase or sale of portfolio securities on behalf
of the Value Fund, in selecting brokers or dealers to execute such orders, the
Sub-Adviser is expressly authorized to consider the fact that a broker or dealer
has furnished statistical, research or other information or services that may
enhance the Sub-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 ("1934 Act"), that the Sub-Adviser
may use a broker whose commissions on transactions may exceed the commissions
that another broker would have charged for effecting the transaction, provided
that the Sub-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
the Sub-Adviser's responsibilities to the Value Fund or the Sub-Advisers overall
responsibilities to the its discretionary accounts. In accordance with Section
11(a) of the 1934 Act and Rule 11a2-2(T) thereunder and subject to any other
applicable laws and regulations, the Sub-Adviser and its affiliates are
authorized to effect portfolio transactions for the Value Fund and to retain
brokerage commissions on such transactions.
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Neither the Sub-Adviser nor any parent, subsidiary or related firm shall
act as a securities broker with respect to any purchases or sales of securities
that may be made on behalf of the Value Fund, unless such transactions are in
compliance with the 1940 Act and any other applicable rules and regulations.
Unless otherwise directed by the Trust in writing, the Sub-Adviser may utilize
the service of whatever 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
Sub-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, and the Sub-Adviser shall make available, without expense to the
Value 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. The Sub-Adviser shall not be responsible
for any compensation or expenses to be paid to any trustees, officers and
executive employees of the Trust that are not affiliated with the Sub-Adviser.
(b) The Sub-Adviser shall not be required to pay pursuant to this
Agreement any expenses of the Value Fund other than those specifically allocated
to the Sub-Adviser in this section 5. In particular, but without limiting the
generality of the foregoing, the Sub-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 Sub-Adviser whose services may be involved, for
the following expenses of the Value Fund: organization and certain offering
expenses of the Value Fund (including out-of-pocket expenses, but not including
the Sub-Adviser's overhead and employee costs); fees payable to the Sub-Adviser
and to any other Value 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 Value 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 Value Fund's Administrator, Sub-Administrator, or Value Fund Accounting
Agent or of any Custodian, Sub-custodian, Transfer Agent, Registrar, or Dividend
Disbursing Agent of the Value Fund; payments to the Administrator,
Sub-Administrator or Value Fund Accounting Agent for maintaining the Value
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 Value Fund; expenses relating
to investor and public relations; expenses of registering and qualifying shares
of the Value Fund for sale; freight, insurance and other charges in connection
with the shipment of the Value Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Value Fund, or of entering into other transactions or
engaging in any investment practices with respect to the Value 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 Value Fund's business) of officers, Trustees and
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employees of the Trust who are not interested persons of the Sub-Adviser; and
travel expenses (or an appropriate portion thereof) of officers or Trustees of
the Trust who are officers, directors or employees of the Sub-Adviser to the
extent that such expenses relate to attendance at meetings of the Board with
respect to matters concerning the Value Fund, or any committees thereof or
advisers thereto.
6. COMPENSATION.
As compensation for the services provided and expenses assumed by the
Sub-Adviser under this Agreement, the Adviser will pay the Sub-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, as listed opposite the Value
Fund's name on Exhibit A, attached hereto. The "average daily net assets" of the
Value Fund shall mean the average of the values placed on the Value Fund's net
assets as of 4:00 p.m. (New York time) on each day on which the net asset value
of the Value Fund is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Value 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 Value Fund shall always be determined pursuant to
the applicable provisions of the Trust Instrument 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 Value 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 Value Fund's portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the shares of the Value Fund has been so
suspended for a period including any month end when the Sub-Adviser's
compensation is payable pursuant to this section, then the Sub-Adviser's
compensation payable at the end of such month shall be computed on the basis of
the value of the net assets of the Value Fund as last determined (whether during
or prior to such month). If the Value 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.
(a) The Sub-Adviser will maintain all accounts, books and records with
respect to the Value Fund as are required of a sub-investment adviser of a
registered investment company pursuant to the 1940 Act and the Advisers Act and
the rules thereunder and shall file with the SEC all forms pursuant to Section
13 of the 1934 Act, with respect to its duties as are set forth herein. The
Sub-Adviser agrees to maintain such books and records with respect to its
services to the Value Fund as are required by Section 31 under the 1940 Act, and
rules adopted thereunder, and by other applicable legal provisions under the
1940 Act or the Advisers Act, and to preserve such records for the periods and
in the manner required by that Section, and those rules and legal provisions.
The Sub-Adviser also agrees that records it maintains and preserves pursuant to
Rules 31a-1 and 31a-2 under the 1940 Act and Rule 204-2(c)(2) under the Advisers
Act and otherwise in connection with its services under this Agreement are the
property of the Trust and will be surrendered promptly to the Trust upon its
request. The Sub-Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information
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or reports in connection with its services hereunder which may be requested in
order to determine whether the operations of the Value Fund are being conducted
in accordance with applicable laws and regulations.
(b) The Sub-Adviser shall make all filings with the SEC required of it
pursuant to Section 13 of the 1934 Act with respect to its duties under this
Agreement. The Sub-Adviser also shall make all required filings on Forms 13D and
13G (as well as other filings triggered by ownership in securities under other
applicable laws, rules and regulations) as may be required of the Value Fund due
to the activities of the Sub-Adviser. The Sub-Adviser shall coordinate with the
Adviser and the Trust as appropriate with respect to the making of such filings.
8. AGGREGATION OF ORDERS. Provided that the investment objective, policies and
restrictions of the Value Fund are adhered to, the Trust agrees that the
Sub-Adviser may aggregate sales and purchase orders of securities held in the
Value Fund with similar orders being made simultaneously for other accounts
managed by the Sub-Adviser or with accounts of the affiliates of the
Sub-Adviser, if in the Sub-Adviser's reasonable judgment such aggregation shall
result in an overall economic benefit to the Value 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 Value Fund by the Sub-Adviser represents the
Sub-Adviser's evaluation that the Value 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 Sub-Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Sub-Adviser shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Value Fund or the holders of the Value 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 Sub-Adviser against any liability to the Trust, the Value Fund or to holders
of the Value Fund's shares to which the Sub-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 Sub-Adviser's reckless
disregard of its obligations and duties under this Agreement or otherwise for
breach of this Agreement. As used in this section 9, the term "Sub-Adviser"
shall include any officers, directors, employees or other affiliates of the
Sub-Adviser performing services with respect to the Value Fund.
10. LIABILITY AND INDEMNIFICATION .
(a) Neither Sub-Adviser nor its officers, partners, employees, affiliates,
agents or controlling persons shall be liable to the Trust, the Value 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
Value Fund.
(b) Neither the Sub-Adviser nor its officers, partners, 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 Value Fund, its shareholders and/or any other
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person in connection with the matters to which this Agreement relates; provided
that no provision of this Agreement shall be deemed to protect the Sub-Adviser
against any liability to the Trust, the Value 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 Agreement.
(c) The Trust on behalf of the Value Fund, hereby agrees to indemnify and
hold harmless the Sub-Adviser, its partner, officers and employees and agents
and each person, if any, who controls the Sub-Adviser (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 Value Fund, to which any such Indemnified Party may become
subject under the Securities Act of 1933, as amended ("1933 Act"), the 1934 Act,
the 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 Value Fund, or (c) any application or other document filed in connection
with the qualification of the Trust or shares of the Value 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 Sub-Adviser, or (ii) made in
reliance upon and in conformity with information furnished to the Trust by or on
behalf of the Sub-Adviser pertaining to or originating with the Sub-Adviser 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, Value 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 Agreement or any breach of this Agreement.
(e) Notwithstanding any other provision of this Agreement, the Sub-Adviser
shall not be liable for any loss to the Value Fund or the Adviser caused
directly or indirectly by circumstances beyond the Sub-Adviser'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
Sub-Adviser are not exclusive, and that nothing in this Agreement shall prevent
the Sub-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
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of the Value 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 Sub-Adviser's ability to meet its obligations to the
Value Fund hereunder. When the Sub-Adviser recommends the purchase or sale of a
security for other investment companies and other clients, and at the same time
the Sub-Adviser recommends the purchase or sale of the same security for the
Value Fund, it is understood that in light of its fiduciary duty to the Value
Fund, such transactions will be executed on a basis that is fair and equitable
to the Value Fund. In connection with purchases or sales of portfolio securities
for the account of the Value Fund, neither the Sub-Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission. If the Sub-Adviser provides any advice to its clients concerning
the shares of the Value Fund, the Sub-Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Trust or the Value
Fund.
12. COMPLIANCE MATTERS
The Sub-Adviser understands and agrees that it is a "service provider" to
the Trust as contemplated by Rule 38a-1 under the 1940 Act. As such, the
Sub-Adviser agrees to cooperate fully with the Adviser and the Trust and its
Trustees and officers, including the Trust's CCO, with respect to (1) any and
all compliance-related matters, and (2) the Trust's efforts to assure that each
of its service providers adopts and maintains policies and procedures that are
reasonably designed to prevent violation of the "federal securities laws", as
that term is defined by Rule 38a-1 under the 1940 Act, by the Trust, the Adviser
and the Sub-Adviser. In this regard, the Sub-Adviser shall:
(i) submit to the Board for its consideration and approval, prior to
the effective date of this Agreement, the Sub-Adviser's applicable compliance
policies and procedures;
(ii) submit to the Board for its consideration and approval,
annually (and at such other times as the Trust may reasonably request), a report
("Report") fully describing any material amendments to the Sub-Adviser's
applicable compliance policies and procedures since most recent Report;
(iii) provide periodic reports discussing the Sub-Adviser's
compliance program and special reports in the event of material compliance
matters;
(iv) permit the Adviser and the Trust and its Trustees and officers
to become familiar with the Sub-Adviser's operations and understand those
aspects of the Sub-Adviser's operations that may expose the Adviser and the
Trust to compliance risks or lead to a violation by the Trust, the Adviser or
the Sub-Adviser of the federal securities laws;
(v) permit the Adviser and the Trust and its Trustees and officers
to maintain an active working relationship with the Sub-Adviser's compliance
personnel by, among other things, providing the Adviser and the Trust's CCO and
other officers with a specified individual within the Sub-Adviser's organization
to discuss and address compliance-related matters;
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(vi) provide the Adviser and its chief compliance officer and the
Trust and its Trustees and officers, including the Trust's CCO, with such
certifications as may be reasonably requested; and
(vii) reasonably cooperate with any independent registered public
accounting firm engaged by the Trust and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that access to all
reasonably necessary information and the appropriate personnel are made
available to such independent registered public accounting firm, to support the
expression of the independent registered public accounting firm's opinion and
their review of the appropriate internal controls and operations, as such may be
required from time to time.
The Sub-Adviser represents, warrants and covenants that it has implemented and
shall maintain a compliance program that complies with the requirements of Rule
206(4)-7 under the Advisers Act.
13. DURATION AND TERMINATION.
(a) This Agreement shall continue for a period of two years from its
effective date, and thereafter shall continue automatically for successive
annual periods, provided each such continuance is specifically approved at least
annually by (i) the Board or (ii) a vote of a "majority" (as defined in the 0000
Xxx) of the Value 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 Independent Trustees 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.
(b) Notwithstanding the foregoing, except as set forth below, this
Agreement may be terminated: (a) at any time without penalty by the Value Fund
upon the vote of a majority of the Board or by vote of the majority of the Value
Fund's outstanding voting securities, upon sixty (60) days' written notice to
the Sub-Adviser or (b) by the Sub-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).
14. AMENDMENTS. This Agreement may be amended at any time but only by the mutual
written agreement of the parties to this Agreement and in accordance with any
applicable legal or regulatory requirements.
15. USE OF NAME. The Sub-Adviser hereby consents to the use of its name and the
names of its affiliates in the Value Fund's disclosure documents, shareholder
communications, advertising, sales literature and similar communications.
16. CONFIDENTIAL INFORMATION. The Sub-Adviser shall maintain the strictest
confidence regarding the business affairs of the Value Fund. Written reports
furnished by the Sub-Adviser 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. It is understood that
the name Delphi Management, Inc. and any derivatives thereof or logos
- 12 -
associated with that name are the valuable property of Delphi and its
affiliates, and that the Trust and the Value Fund have the right to use such
name only so long as this Agreement shall continue. Upon termination of this
Agreement, the Trust, as appropriate, and the Value Fund shall forthwith cease
to use such name (or any derivative or logo).
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
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: President Fax No.: (000) 000-0000
If to Adviser: E*TRADE ASSET MANAGEMENT, INC.
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: President Fax No.: (000) 000-0000
If to Sub-Adviser: DELPHI MANAGEMENT, INC.
00 Xxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxx Xxxxx Fax No.: 000-000-0000
18. MISCELLANEOUS.
(a) This Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
(b) This Agreement may be executed in several counterparts, all of which
together shall for all purposes constitute one Agreement, binding on all the
parties.
(c) This 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.
(d) 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.
(e) 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.
(f) Nothing herein shall be construed as constituting the Sub-Adviser as
an agent of the Adviser, the Trust or the Value Fund.
- 13 -
(g) All liabilities of the Trust hereunder are limited to the assets of
the Value Fund and shall not be binding upon any Trustee, officer or shareholder
of the Trust individually or upon any other series of the Trust.
(h) Concurrently with the execution of this Agreement, the Sub-Adviser 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 Agreement to be
executed by their duly authorized officers designated below effective as of
November 20, 2006.
E*TRADE FUNDS
By: /s/ Xxxxxxxxx Xxxxxxxxx
----------------------------------------
Name: Xxxxxxxxx Xxxxxxxxx
------------------------------
Title: President
-----------------------------
E*TRADE ASSET MANAGEMENT, INC.
By: /s/ Xxxxxxxxx Xxxxxxxxx
----------------------------------------
Name: Xxxxxxxxx Xxxxxxxxx
------------------------------
Title: Vice President
------------------------------
DELPHI MANAGEMENT, INC.
By: /s/ Xxxxx Xxxxx
----------------------------------------
Name: Xxxxx Xxxxx
------------------------------
Title: President
------------------------------
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EXHIBIT A
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NAME OF FUND SUB-ADVISORY FEE
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E*TRADE DELPHI VALUE FUND 0.50% of average daily net assets
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