FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into on this _____ day of September 1997, by
and between the Potomac Funds, a Massachusetts business trust (hereinafter
referred to as the "Fund"), and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Fund is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended ("1940 Act");
and
WHEREAS, FTC is a trust company and, among other things, is in the business of
providing fund administration services for the benefit of its customers;
NOW, THEREFORE, the Fund and FTC do mutually promise and agree as follows:
I. Appointment of Administrator
The Fund hereby appoints FTC as Administrator of the Fund on the terms and
conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in
this Agreement in consideration of the compensation provided for herein.
II. Duties and Responsibilities of FTC
A. General Fund Management
1. Act as liaison among all Fund's service providers
2. Coordinate Board communication by:
a. Assisting Fund's counsel in establishing meeting
agendas
b. Preparing reports based on financial and administrative
data to the Fund's Board of Trustees ("Board")
c. Evaluating independent auditors
d. Securing and monitoring fidelity bond and director and
officers liability coverage, and making the necessary
Securities and Exchange Commission ("SEC") filings
relating thereto
3. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
B. Compliance
1. Regulatory Compliance
a. Monthly, quarterly and intra-month spot checks as
needed to monitor compliance with the following 1940
Act requirements:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics
b. Periodically monitor Fund's compliance with the
policies and investment limitations of the Fund as set
forth in its most current prospectus and statement of
additional information
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities
authorities any and all required compliance filings
(including initial filings) relating to the
registration of the securities of the Fund so as to
enable the Fund to make a continuous offering of its
shares
b. Monitor status and maintain registrations in each state
3. SEC Registration and Reporting
a. Assist in updating the Fund's registration statement;
assist in the preparation of proxy statements and Rule
24f-2 notices, as instructed by the Fund
b. Prepare annual and semiannual reports
4. IRS Compliance
a. Monthly, quarterly and intra-month spot checks as
needed to monitor the Fund's status as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986 through review of the following:
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1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data to be included in the Fund's
registration statement
2. Prepare financial reports for shareholders, the Board, the
SEC, and independent auditors
3. Supervise the Fund's custodian and Fund accountants in the
maintenance of the Fund's general ledger and in the
preparation of the Fund's financial statements including
oversight of expense accruals and payments, of the
determination of net asset value of the Fund's net assets
and of the Fund's shares, and of the declaration and
payment of dividends and other distributions to
shareholders, as declared by the Board
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and
state tax returns including Forms 1120/8610 with any
necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to trustees and
other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
III. Compensation
The Fund agrees to pay FTC for performance of the duties listed in this
Agreement and the fees and out-of-pocket expenses as set forth in the
attached Schedule A.
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These fees may be changed from time to time, subject to mutual written
Agreement between the Fund and FTC.
The Fund agrees to pay all fees and out-of-pocket expenses within ten (10)
business days following the mailing of the billing notice.
IV. Additional Series
In the event that the Fund establishes one or more additional series of
shares other than those listed in this Section IV with respect to which it
desires to have FTC perform services under the terms hereof for such
services, it shall so notify FTC in writing, and if FTC agrees in writing
to provide such services, such series 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 Funds 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.
V. Performance of Service; Limitation of Liability
A. FTC shall exercise reasonable care and to 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
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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.
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 and agents.
VI. Confidentiality
FTC agrees on behalf of itself and its employees and agents to treat
confidentially all information relating to the Fund's business which is
received by FTC during the course of rendering any service hereunder. 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.
VII. Data Necessary to Perform Service
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.
VIII. Terms of Agreement
This Agreement shall become effective upon its execution and, unless
sooner terminated as provided herein, shall remain in effect for
successive annual periods. The Agreement may be 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.
This Agreement will automatically and immediately terminate in the event
of its assignment. Termination of this Agreement pursuant to this Section
VIII shall be without the payment of any penalty.
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IX. 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 such records, the
Fund shall pay any expenses associated with transferring the data 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.
X. 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 the obligations of the Fund in connection with any
matter arising from or in connection with this Agreement.
XI. 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.
XII. 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.
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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:______________________________
Title: ___________________________ Title: First Vice President
Date: ___________________________ Date: ____________________________
Attest: __________________________ Attest: ___________________________
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