INVESTMENT ADVISORY AGREEMENT



         Agreement made as of ____________, 2003, between POWERSHARES

EXCHANGE-TRADED FUND TRUST, a Massachusetts business trust ("Trust"), and

POWERSHARES CAPITAL MANAGEMENT LLC. ("PowerShares Capital Management LLC"), a

Delaware corporation registered as an investment adviser under the Investment

Advisers Act of 1940, as amended ("Advisers Act).



         WHEREAS, the Trust is registered under the Investment Company Act of

1940, as amended ("1940 Act"), as an open-end management investment company; and



         WHEREAS, the Trust is authorized to issue shares in separate series,

with each such series representing interests in a separate portfolio of

securities and other assets; and



         WHEREAS, the Trust intends to initially offer shares in two series, the

PowerShares Dynamic Market Portfolio and the PowerShares Dynamic OTC Portfolio,

and any other series as to which this Agreement may hereafter be made applicable

and set forth on Schedule A hereto (each such series being herein referred to as

a "Fund", and collectively as the "Funds"); and



         WHEREAS, the Trust desires to retain PowerShares Capital Management as

investment adviser, to furnish certain investment advisory and portfolio

management services to the Trust with respect to the Funds, and PowerShares

Capital Management is willing to furnish such services;



         NOW, THEREFORE, in consideration of the premises and mutual covenants

herein contained, it is agreed between the parties hereto as follows:



     1. Appointment. The Trust hereby appoints PowerShares Capital Management as

investment adviser of the Trust and each Fund for the period and on the terms

set forth in this Agreement. PowerShares Capital Management accepts such

appointment and agrees to render the services herein set forth, for the

compensation herein provided.



     2  Duties as Investment Adviser.

       ----------------------------



     (a) Subject to the supervision and direction of the Trust's Board of

Trustees ("Board"), PowerShares Capital Management will provide a continuous

investment program for a Fund, including investment research and management with

respect to all securities and investments and cash equivalents in the Fund.

PowerShares Capital Management will determine, from time to time, what

securities and other investments will be purchased, retained or sold by the

Fund. PowerShares Capital Management shall initially determine and make such

modifications to the identity and number of shares of the securities to be

accepted pursuant to such Fund's benchmark index in exchange for creation units

for each Fund and the securities that will be applicable that day to redemption

requests received for such Fund as may be necessary as a result of rebalancing

adjustments and corporate action events (and may give directions to the Trust's

custodian with respect to such designations).



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     (b) PowerShares Capital Management agrees that, in placing orders with

brokers, it will attempt to obtain the best net result in terms of price and

execution; provided that, on behalf of any Fund, PowerShares Capital Management

may, in its discretion, use brokers who provide PowerShares Capital Management

with research, analysis, advice and similar services, and PowerShares Capital

Management may cause a Fund to pay to those brokers in return for brokerage and

research services a higher commission than may be charged by other brokers,

subject to PowerShares Capital Management's determining in good faith that such

commission is reasonable in relation to the research and execution services

received. In no instance will portfolio securities be purchased from or sold to

PowerShares Capital Management, or any affiliated person thereof, except in

accordance with the federal securities laws and the rules and regulations

thereunder, or any applicable exemptive orders. PowerShares Capital Management

may aggregate sales and purchase orders with respect to the assets of the Funds

with similar orders being made simultaneously for other accounts advised by

PowerShares Capital Management or its affiliates. Whenever PowerShares Capital

Management simultaneously places orders to purchase or sell the same security on

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