FUND ACCOUNTING SERVICING AGREEMENT
This Agreement between the Potomac Funds, a Massachusetts business trust
(hereinafter referred to as the "Fund"), and Firstar Trust Company, a Wisconsin
corporation (hereinafter referred to as "FTC"), is entered into on this ________
day of September 1997.
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, FTC is in the business of providing, among other things, mutual
fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. APPOINTMENT. The Fund hereby appoints FTC to provide certain accounting
services for the Fund on the terms set forth in this Agreement. FTC accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in paragraph 6 in this Agreement.
2. SERVICES. FTC agrees to provide the following mutual fund
accounting services to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +l basis using
security trade information communicated from the investment adviser
on a timely basis.
(2) For each valuation date, obtain prices from a pricing
source approved by the Fund's Board of Trustees ("Board") and apply
those prices to the portfolio positions. For those securities where
market quotations are not readily available, the Board shall
approve, in good faith, the method for determining the fair value
for such securities in the manner specified in the Fund's current
registration statement.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as
to short- or long-term status; account for periodic distributions of
gains or losses to shareholders and maintain undistributed gain or
loss balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Fund as to methodology, rate or dollar
amount.
(2) Record payments for the Fund expenses upon receipt of
written authorization from the Fund.
(3) Account for Fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC
and the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other Fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions of
earnings to shareholders and maintain undistributed net investment
income balances as of each valuation date.
(4) Maintain a general ledger for the Fund investment
securities in the form as agreed upon by FTC and the Fund.
(5) For each day the Fund is open as defined in the Fund's
current registration statement, determine the net asset value for
each portfolio of the Fund ("Portfolio") according to the accounting
policies and procedures set forth in the Fund's current registration
statement.
(6) Calculate per share net asset value, per share net
earnings, and other per share amounts reflective of each Portfolio's
operation at such time as required by the nature and characteristics
of the Fund.
(7) Communicate, at an agreed upon time, the per share price
for each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
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D. Tax Accounting Services:
(1) Maintain accounting records for each Portfolio to support
the tax reporting required by Subchapter M of the Internal Revenue
Code.
(2) Maintain tax lot detail for a Portfolio.
(3) Calculate taxable gain/loss on security sales using the
tax lot relief method designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support
financial statement preparation by making the Fund accounting
records available to the Fund, the Securities and Exchange
Commission, and the outside auditors retained by the Fund.
(2) Maintain accounting records according to the 1940 Act
and regulations thereunder.
3. PRICING OF SECURITIES. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Board and apply those prices
to the portfolio positions and to value collateral held with respect to
repurchase agreements and securities loans. For those securities where market
quotations are not readily available, the Fund's Board shall approve, in good
faith, the method for determining the fair value for such securities in
accordance with the method determined by the Board.
If the Fund desires to provide a price which varies from the pricing
source, the Fund shall promptly notify and supply FTC with the valuation of any
such security on each valuation date. All pricing changes made by the Fund will
be in writing and must specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be applied, and, if applicable,
the time period for which the new prices are effective.
4. CHANGES IN ACCOUNTING PROCEDURES. Any resolution passed by the Board
that affects accounting practices and procedures under this Agreement shall be
effective upon receipt and written acceptance by FTC.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC. FTC reserves the right to
make changes from time to time, as it deems advisable, relating to its services,
systems, programs, rules, operating schedules and equipment, so long as such
changes do not adversely affect the services provided to the Fund under this
Agreement.
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6. COMPENSATION. FTC shall be compensated for providing the services
set forth in this Agreement in accordance with the Fee Schedule attached
hereto as Exhibit A and as mutually agreed upon and amended from time to time.
7. PERFORMANCE OF SERVICE.
A. FTC shall exercise reasonable care and act in good faith in
the performance of its duties under this Agreement. FTC shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with matters to which this
Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond
FTC's control, except a loss resulting from FTC's refusal or failure
to comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance of
its duties under this Agreement. Notwithstanding any other provision
of this Agreement, the Fund shall indemnify and hold harmless FTC
from and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any
and every nature (including reasonable attorneys' fees) which FTC
may sustain or incur or which may be asserted against FTC by any
person arising out of or attributed to any action taken or omitted
to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon
any written or oral instruction for a proper corporate purpose
provided to FTC by any duly authorized officer of the Fund, such
duly authorized officer to be included in a list of authorized
officers furnished to FTC and as amended from time to time in
writing by resolution of the Board.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FTC shall take
all reasonable steps to minimize service interruptions for any
period that such interruption continues beyond FTC's control. FTC
will make every reasonable effort to restore any lost or damaged
data and correct any errors resulting from such a breakdown at the
expense of FTC. FTC agrees that it shall, at all times, have
reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Fund shall be entitled to inspect FTC's
premises and operating capabilities at any time during regular
business hours of FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess
and correct administrative errors at its own expense.
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B. In order that the indemnification provisions contained in
this section shall apply, it is understood that in any case in which
the Fund may be asked to indemnify or hold FTC harmless, the Fund
shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood
that FTC will use all reasonable care to notify the Fund promptly
concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the
Fund. The Fund shall have the option to defend FTC against any claim
which may be the subject of this indemnification. In the event that
the Fund so elects, it will so notify FTC and thereupon the Fund
shall take over complete defense of the claim, and FTC shall in such
situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. FTC shall in no case
confess any claim or make any compromise in any case in which the
Fund will be asked to indemnify FTC except with the Fund's prior
written consent.
C. FTC shall indemnify and hold the Fund harmless from and
against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any
and every nature (including reasonable attorneys' fees) which the
Fund may sustain or incur or which may be asserted against the Fund
by any person arising out of or attributed to any action taken or
omitted to be taken by FTC as a result of FTC's refusal or failure
to comply with the terms of this Agreement, or from its bad faith,
negligence, or willful misconduct of FTC or any of its employees or
agents.
8. RECORDS. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is acceptable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
the 1940 Act and the rules thereunder. FTC agrees that all such records prepared
or maintained by FTC relating to the services to be performed by FTC hereunder
are the property of the Fund and will be preserved, maintained, and made
available with such section and rules of the 1940 Act and will be promptly
surrendered to the Fund on and in accordance with its request.
9. CONFIDENTIALITY. FTC agrees on behalf of itself and its employees and
agents to treat confidentially all records and other information relative to the
Fund and its shareholders and shall not disclose to any other party, except
after prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where FTC may be
exposed to civil or criminal contempt proceedings for failure to comply after
being requested to divulge such information by duly constituted authorities.
10. DATA NECESSARY TO PERFORM SERVICES. The Fund or its agent, which may
be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon by the Fund
and FTC.
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11. NOTIFICATION OF ERROR. The Fund will notify FTC of any balancing or
control error caused by FTC within three (3) business days after receipt of any
reports rendered by FTC to the Fund, or within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
12. ADDITIONAL SERIES. In the event that the Fund establishes one or more
additional Portfolios with respect to which it desires to have FTC render
accounting services, under the terms hereof, it shall so notify FTC in writing,
and if FTC agrees in writing to provide such services, such Portfolio will be
subject to the terms and conditions of this Agreement, and shall be maintained
and accounted for by FTC on a discrete basis. The Portfolios currently covered
by this Agreement are: the Potomac Japan/Long Fund, Potomac Japan/Short Fund,
Potomac U.S. Plus Fund, Potomac U.S./Short Fund, Potomac OTC Plus Fund, Potomac
OTC/Short Fund and the Potomac U.S. Government Money Market Fund.
13. TERMS OF AGREEMENT. This Agreement shall become effective upon its
execution and shall continue until terminated by either party upon giving ninety
(90) days' prior written notice to the other party or such shorter period as is
mutually agreed upon in writing by the parties. However, this Agreement may be
replaced or modified by a subsequent written instrument between the parties.
This Agreement or any rights or obligations hereunder may not be assigned by
either party without the written consent of the other party.
14. DUTIES IN THE EVENT OF TERMINATION. In the event that in connection
with termination a successor to any of FTC's duties or responsibilities
hereunder is designated by the Fund by written notice to FTC, FTC will promptly,
upon such termination and at the expense of the Fund, transfer to such successor
all relevant books, records, correspondence and other data established or
maintained by FTC under this Agreement in a form reasonably acceptable to the
Fund (if such form differs from the form in which FTC has maintained the same,
the Fund shall pay any expenses associated with transferring the same to such
form), and will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the establishment of
books, records and other data by such successor.
15. NOTICES. Notices of any kind to be given by either party to the other
party shall be in writing and shall be duly given if mailed or delivered as
follows: notice to FTC shall be sent to Mutual Fund Services located at 000 Xxxx
Xxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxx 00000 and notice to the Fund shall be sent
to the Potomac Funds located at 000 Xxxxxxxxxx Xxxxxx, Xxxxxxxx, XX 00000.
16. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin. Trustees and shareholders of the Fund shall
not be personally liable for obligations of the Fund in connection with any
matter arising from or in connection with this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
POTOMAC FUNDS FIRSTAR TRUST COMPANY
By:____________________________ By:_____________________________
Print:_________________________ Print:___________________________
Title:_________________________ Title: First Vice President
Date:__________________________ Date:____________________________
Attest:________________________ Attest:__________________________
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