POTOMAC FUNDS
FORM OF
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of _________ __, 2004 (the "Effective
Date"), between Xxxxxxxx Asset Management, LLC, a New York limited liability
corporation (the "Adviser"), and Hundredfold Advisors, LLC, a [ ] limited
liability company (the "Subadviser").
WHEREAS, the Adviser serves as the investment adviser to each fund listed
on Schedule A (each a "Fund" and collectively the "Funds"), which is a series of
the Potomac Funds (the "Trust"), a Massachusetts business trust registered as an
open-end management investment company under the Investment Company Act of 1940,
as amended ("1940 Act");
WHEREAS, the Adviser's contract with each Fund allows it to delegate
certain investment advisory services to other parties; and
WHEREAS, the Adviser desires to retain the Subadviser to perform certain
investment subadvisory services for each Fund, and the Subadviser is willing to
perform such services;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE FUNDS.
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(a) INVESTMENT PROGRAM. Subject to the control and supervision of the
Board of Trustees of the Trust and the Adviser, the Subadviser shall, at
its expense and on a regular basis, provide a continuous investment program
for such portion of each Fund's assets that is allocated to it by the
Adviser from time to time, including investment research and management of
all such securities, investments and cash equivalents. The Adviser shall
implement the Subadviser's investment decisions for each Fund by selecting
the particular securities in which each Fund will invest and place all
brokerage orders for the purchase and sale of those securities. The Adviser
and Subadviser shall consult regularly regarding this investment process.
In the performance of its duties, the Subadviser will act in the best
interests of each Fund and will comply with (i) applicable laws and
regulations, including, but not limited to, the 1940 Act and the Investment
Advisers Act of 1940, as amended ("Advisers Act"), and the rules under
each, (ii) the terms of this Agreement, (iii) the stated investment
objective, policies and restrictions of each Fund, as stated in the
then-current Form N-1A Registration Statement of each the Fund
("Registration Statement"), (iv) the Trust's compliance procedures and
other policies, procedures or guidelines as the Board or the Adviser
reasonably may establish from time to time, (v) the provisions of the
Internal Revenue Code of 1986, as amended ("Code"), applicable to
"regulated investment companies" (as defined in Section 851 of the Code),
as from time to time in effect, and (vi) the reasonable written
instructions of the Adviser. The Adviser shall be responsible for providing
the Subadviser with current copies of the materials specified in
Subsections (a)(iii) and (iv) of this Section 1(a). The Adviser shall
provide the Subadviser with prior written notice of any material change to
the Registration Statement that would affect the Subadviser's management of
a Fund.
(b) EXPENSES. The Subadviser, at its expense, will furnish all necessary
facilities and personnel, including salaries, expenses and fees of any
personnel required for them to faithfully perform their duties under this
Agreement and administrative facilities, including bookkeeping, and all
equipment necessary for the efficient conduct of the Subadviser's duties
under this Agreement. However, the Subadviser shall not be obligated to pay
any expenses of the Adviser, a Fund, or the Trust, including without
limitation, interest and taxes, brokerage commissions and other costs in
connection with the purchase or sale of securities or other investment
instruments for a Fund and custodian fees and expenses.
(c) VALUATION. Securities traded on a national securities exchange or The
Nasdaq Stock Market for which market quotes are readily available are
valued on each day the New York Stock Exchange is open for business. For
those securities for which market quotes are not readily available, the
Subadviser, at its expense and in accordance with procedures and methods
established by the Board, which may be amended from time to time, will
provide assistance to the Adviser, or other applicable service providers
for the Trust and a Fund, in determining the fair value of such securities,
including providing market price information relating to these assets of
such Fund. The Subadviser also shall monitor for "significant events" that
occur after the closing of a market but before the time as of which a Fund
calculates its net asset value and that may affect the valuation of such
Fund's Fund securities and shall notify the Adviser promptly of the
occurrence of any such events.
(d) REPORTS AND AVAILABILITY OF PERSONNEL. The Subadviser, at its expense,
shall render to the Board and the Adviser such periodic and special reports
as the Board and the Adviser reasonably may request with respect to matters
relating to the duties of the Subadviser set forth herein. The Subadviser,
at its expense, will make available to the Board and the Adviser at
reasonable times its Fund managers and other appropriate personnel in order
to review investment policies of each Fund and to consult with the Board
and the Adviser regarding the investment affairs of each Fund, including
economic, statistical and investment matters relevant to the Subadviser's
duties hereunder.
(e) COMPLIANCE MATTERS. The Subadviser, at its expense, will provide the
Adviser with such compliance reports relating to its duties under this
Agreement as may be agreed upon by such parties from time to time. The
Subadviser also shall cooperate with and provide reasonable assistance to
the Adviser, each Fund's administrator, each Fund's custodian, each Fund's
transfer agent and pricing agents and all other agents and representatives
of the Funds, the Trust and the Adviser, keep all such persons fully
informed as to such matters as they may reasonably deem necessary to the
performance of their obligations to the Funds, the Trust and the Adviser,
provide prompt responses to reasonable requests made by such persons and
maintain any appropriate interfaces with each so as to promote the
efficient exchange of information.
(f) BOOKS AND RECORDS. The Subadviser will maintain for each Fund all
books and records required to be maintained by the Funds pursuant to the
1940 Act and the rules and regulations promulgated thereunder insofar as
such records relate to the investment affairs of the Funds. Pursuant to
Rule 31a-3 under the 1940 Act, the Subadviser agrees that: (i) all records
it maintains for a Fund are the property of such Fund; (ii) it will
surrender promptly to a Fund or the Adviser any such records upon such
Fund's or the Adviser's request; and (iii) it will preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records it maintains for
each Fund. Notwithstanding subsection (ii) above, the Subadviser may
maintain copies of such records, without limitation, to comply with its
record keeping obligations.
2. COMPENSATION. The Adviser shall pay to the Subadviser as
compensation for the Subadviser's services rendered pursuant to this Agreement a
subadvisory fee as set forth in Schedule A, which schedule can be modified from
time to time, subject to the appropriate approvals required by the 1940 Act.
Such fees shall be paid by the Adviser (and not by the Funds). Such fees shall
be payable for each month within 15 business days after the end of such month.
If the Subadviser shall serve for less than the whole of a month, the
compensation as specified shall be prorated based on the number of calendar days
during which this Agreement is in effect during such month, and the fee shall be
computed based upon the average daily net assets of each Fund for such days.
3. REPRESENTATIONS AND WARRANTIES.
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(a) SUBADVISER. The Subadviser represents and warrants to the Adviser
that: (i) the retention of the Subadviser by the Adviser as contemplated by
this Agreement is authorized by the Subadviser's governing documents; (ii)
the execution, delivery and performance of this Agreement does not violate
any obligation by which the Subadviser or its property is bound, whether
arising by contract, operation of law or otherwise; (iii) this Agreement
has been duly authorized by appropriate action of the Subadviser and when
executed and delivered by the Subadviser will be a legal, valid and binding
obligation of the Subadviser, enforceable against the Subadviser in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or law); (iv) the
Subadviser is registered as an investment adviser under the Advisers Act;
(v) the Subadviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and that the Subadviser and
certain of its employees, officers and directors are subject to reporting
requirements thereunder and, accordingly, agrees that it shall, on a timely
basis, furnish a copy of such code of ethics to the Adviser, and shall
cause its employees, officers and directors to furnish to the Adviser all
reports and information required to be provided under such code of ethics
with respect to such persons; (vi) the Subadviser is not prohibited by the
1940 Act, the Advisers Act or other law, regulation or order from
performing the services contemplated by this Agreement; (vii) the
Subadviser will promptly notify the Adviser of the occurrence of any event
that would disqualify the Subadviser from serving as investment subadviser
of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise; (viii) the Subadviser has provided the Adviser with a copy of
its Form ADV as most recently filed with the SEC and will furnish a copy of
all amendments to the Adviser at least annually; and (ix) the Subadviser
will notify the Adviser of any "assignment" (as defined in the 0000 Xxx) of
this Agreement or change of control of the Subadviser, as applicable, and
any changes in the key personnel who are the Fund managers of each Fund, in
each case prior to or promptly after, such change.
(b) ADVISER. The Adviser represents and warrants to the Subadviser that:
(i) the retention of the Subadviser by the Adviser as contemplated by this
Agreement is authorized by the respective governing documents of the Trust
and the Adviser; (ii) the execution, delivery and performance of each of
this Agreement and the Advisory Agreement does not violate any obligation
by which the Trust or the Adviser or their respective property is bound,
whether arising by contract, operation of law or otherwise; (iii) each of
this Agreement and the Advisory Agreement has been duly authorized by
appropriate action of the Trust and the Adviser and when executed and
delivered by the Adviser will be a legal, valid and binding obligation of a
Fund, the Trust and the Adviser, enforceable against the Trust and the
Adviser in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or law); (iv) the Adviser
is registered as an investment adviser under the Advisers Act; (v) the
Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and that the Adviser and
certain of its employees, officers and directors are subject to reporting
requirements thereunder; (vi) the Adviser is not prohibited by the 1940
Act, the Advisers Act or other law, regulation or order from performing the
services contemplated by this Agreement; and (vii) the Adviser will
promptly notify the Subadviser of the occurrence of any event that would
disqualify the Adviser from serving as investment manager of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
4. LIABILITY OF THE SUBADVISER. In the absence of (a) bad faith,
negligence or willful misfeasance on the part of the Subadviser in performance
of its obligations and duties hereunder, (b) reckless disregard by the
Subadviser of its obligations and duties hereunder, or (c) a loss resulting from
a breach of the Subadviser's fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act), the
Subadviser shall not be subject to any liability whatsoever to the Adviser, a
Fund, the Trust, or to any shareholder of a Fund, for any error or judgment,
mistake of law or any other act or omission in the course of, or connected with,
rendering services hereunder including, without limitation, for any losses that
may be sustained in connection with the Subadviser's investment decisions on
behalf of each Fund. No provision of this Section 4 is intended to create any
rights whatsoever to any third parties, including without limitation the
shareholders of each Fund. However, the Subadviser shall indemnify and hold
harmless such parties from any and all claims, losses, expenses, obligations and
liabilities (including reasonable attorneys fees) that arise or result from that
specified in Subsections (a) through (c) above.
5. LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligations of each Fund
under this Agreement are not binding upon the Trustees or the shareholders
individually but are binding only upon the assets and property of each Fund.
6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement shall become
effective upon its execution; provided, however, that this Agreement shall not
become effective unless it has first been approved (a) by a vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by an affirmative vote of a majority of the
outstanding voting shares of each Fund. This Agreement shall remain in full
force and effect continuously thereafter, except as follows:
(a) By vote of a majority of the (i) Independent Trustees, or (ii)
outstanding voting shares of each Fund, each Fund may at any time terminate
this Agreement, without the payment of any penalty, by providing not more
than 60 days' written notice delivered or mailed by registered mail,
postage prepaid, to the Adviser and the Subadviser.
(b) This Agreement will terminate automatically, without the payment of
any penalty, unless within two years after its initial effectiveness and at
least annually thereafter, the continuance of the Agreement is specifically
approved by (i) the Board of Trustees or the shareholders of the Funds by
the affirmative vote of a majority of the outstanding shares of each Fund,
and (ii) a majority of the Independent Trustees, by vote cast in person at
a meeting called for the purpose of voting on such approval. If the
continuance of this Agreement is submitted to the shareholders of the Funds
for their approval and such shareholders fail to approve such continuance
as provided herein, the Subadviser may continue to serve hereunder in a
manner consistent with the 1940 Act and the rules thereunder.
(c) The Adviser may at any time terminate this Agreement, without the
payment of any penalty, by not less than 60 days' written notice delivered
or mailed by registered mail, postage prepaid, to the Subadviser, and the
Subadviser may at any time, without the payment of any penalty, terminate
this Agreement by not less than 90 days' written notice delivered or mailed
by registered mail, postage prepaid, to the Adviser.
(d) This Agreement automatically and immediately shall terminate, without
the payment of any penalty, in the event of its assignment or if the
Investment Advisory Agreement between the Adviser and the Funds shall
terminate for any reason.
(e) Any notice of termination served on the Subadviser by the Adviser
shall be without prejudice to the obligation of the Subadviser to complete
transactions already initiated or acted upon with respect to each Fund.
Upon termination without reasonable notice by the Adviser, the Subadviser
will be paid certain previously agreed upon expenses the Subadviser
necessarily incurs in terminating the Agreement.
Upon termination of this Agreement, the duties of the Adviser delegated to
the Subadviser under this Agreement automatically shall revert to the Adviser.
7. AMENDMENT OF AGREEMENT. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought. No material amendment of this Agreement shall be
effective until approved in the manner required by the 1940 Act, any rules
thereunder or any exemptive or other relief granted by the SEC or its staff.
8. ADDITIONAL AGREEMENTS.
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(a) OTHER ADVISORY AGREEMENTS. The Subadviser and persons controlled by or
under common control with the Subadviser have and may have advisory,
management service or other agreements with other organizations and
persons, and may have other interests and businesses. Nothing in this
Agreement is intended to preclude such other business relationships.
However, the Subadviser agrees that through the third anniversary of the
Effective Date of this Agreement, the Subadviser will not act as a
subadviser, whereby it provides a continuous investment program, to funds
similar to those for which the Subadviser will perform certain investment
subadvisory services under this Agreement (whether a mutual fund or a Fund
offered as part of an insurance product).
(b) ACCESS TO INFORMATION. The Subadviser shall, upon reasonable notice,
afford the Adviser at all reasonable times access to Subadviser's officers,
employees, agents and offices and to all its relevant books and records and
shall furnish the Adviser with all relevant financial and other data and
information as requested; provided, however, that nothing contained herein
shall obligate the Subadviser to provide the Adviser with access to the
books and records of the Subadviser relating to any other accounts other
than the Funds.
(c) CONFIDENTIALITY. The Subadviser shall treat confidentially and as
proprietary information of the Trust and the Funds all records and
information (including investment holdings and activities of each Fund)
relative to the Trust and the Funds and prior, present or potential
shareholders, and will not use such records and information for any purpose
other than performance of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
the Subadviser may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust. Notwithstanding
the above, the Subadviser may disclose: (i) the identity of the Trust and
the Funds as part of any representative list of clients of the Subadviser;
(ii) the investment results and other data of the Funds (without
identifying a Fund or the Trust) in connection with providing composite
investment results of clients of the Subadviser; and (iii) investments and
transactions with respect to the Funds (without identifying the Trust or a
Fund) in connection with providing composite information of clients of the
Subadviser, provided that such disclosure will not be made in such a manner
that may reasonably have an adverse effect on the trading activities of the
Funds.
(d) PUBLIC ANNOUNCEMENTS. No party shall issue any press release or
otherwise make any public statements with respect to the matters covered by
this Agreement without the prior written consent of the other parties
hereto, which consent shall not be unreasonably withheld; provided,
however, that consent shall not be required if, in the opinion of counsel,
such disclosure is required by law; provided further, however, that the
party making such disclosure shall provide the other parties hereto with as
much prior written notice of such disclosure as is practical under the
circumstances.
(e) NOTIFICATIONS. The Subadviser agrees that it will promptly notify the
Adviser in the event that the Subadviser or any of its affiliates is or
expects to become the subject of an administrative proceeding or
enforcement action by the Commission or other regulatory body with
applicable jurisdiction.
(f) INSURANCE. The Subadviser agrees to maintain errors and omissions or
professional liability insurance coverage in an amount that is reasonable
in light of the nature and scope of the Subadviser's business activities.
(g) SHAREHOLDER MEETING EXPENSES. In the event that the Trust shall be
required to call a meeting of shareholders solely due to actions involving
the Subadviser, including, without limitation, a change of control of the
Subadviser, the Subadviser shall bear all reasonable expenses associated
with such shareholder meeting.
9. NOTICES. All notices or other communications given under this
Agreement shall be made by guaranteed overnight delivery, telecopy or
certified mail; notice is effective when received. Notice shall be given to
the parties at the following addresses:
Adviser: Xxxxxxxx Asset Management LLC
000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. X'Xxxxx
Subadviser: Hundredfold Advisors, LLC
0000 X. Xxxxxxxxx Xxxx
Xxxxx 000X
Xxxxxxxx Xxxxx, XX 00000
Facsimile No.: ___________________
Attention: Xxxx Xxxxxxx
10. DEFINITIONS. For the purposes of this Agreement, the terms "vote of a
majority of the outstanding shares," "affiliated person," "control,"
"interested person" and "assignment" shall have their respective meanings
as defined in the 1940 Act and the rules thereunder subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
("SEC") under said Act; and references to annual approvals by the Board of
Trustees shall be construed in a manner consistent with the 1940 Act and
the rules thereunder.
11. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
conflicts of laws principles thereof, and in accordance with the 1940 Act.
To the extent that the applicable laws of the Commonwealth of Massachusetts
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
12. SEVERABILITY. 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 thereby. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors.
13. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14. ENTIRE AGREEMENT. This Agreement states the entire agreement of the
parties hereto, and is intended to be the complete and exclusive statement
of the terms hereof.
16. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Where
the effect of a requirement of the 1940 Act reflected in any provision of
this Agreement is made less restrictive by a rule, or order of the SEC,
whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, or order.
IN WITNESS WHEREOF, Xxxxxxxx Asset Management, LLC and Hundredfold
Advisors, LLC have each caused this instrument to be signed in duplicate on its
behalf by its duly authorized representative, all as of the day and year first
above written.
Attest: XXXXXXXX ASSET MANAGEMENT, LLC
By:_______________________ By:______________________________________
Name: Xxxxxx X. X'Xxxxx
Title: Managing Director
Attest: HUNDREDFOLD ADVISORS, LLC
By:________________________ By:_______________________________________
Name:
Title:
SCHEDULE A
TO THE
POTOMAC FUNDS
SUBADVISORY AGREEMENT
BETWEEN
XXXXXXXX ASSET MANAGEMENT, LLC
AND
HUNDREDFOLD ADVISORS, LLC
As compensation pursuant to section 2 of the Subadvisory Agreement between
Xxxxxxxx Asset Management, LLC (the "Adviser") and Hundredfold Advisors, LLC
(the "Subadviser"), the Adviser shall pay the Subadviser a subadvisory fee,
computed and paid monthly, at the following percentage rates of the average
daily net assets under management in the Spectrum High Yield Plus Fund, Spectrum
Global Perspective Fund, and Spectrum Equity Opportunity Fund.
Assets under management:
Less than $40 million: 0.40%
Between $40 million and $100 million: 0.60%
Between $100 and $150 million: 0.70%
Between $150 million and $200 million: 0.75%
Greater than $200 million 0.80%
Dated: [ ], 2004
