POTOMAC FUNDS
POTOMAC INSURANCE TRUST
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of November 1, 2002, between Xxxxxxxx
Asset Management, LLC, a New York limited liability corporation (the "Adviser"),
and Xxxxxxxxx Xxxxxx Financial Services, Inc., an Ohio corporation (the
"Subadviser").
WHEREAS, the Adviser has by separate contract agreed to serve as the
investment adviser to each fund listed in Schedule A hereto (each a "Fund" and
collectively, the "Funds"), which are series of the Potomac Funds and series of
the Potomac Insurance Trust (each, a "Trust"), both Massachusetts business
trusts registered under the Investment Company Act of 1940, as amended ("1940
Act"), as open-end diversified management investment companies consisting of one
or more investment series of shares, each having its own assets and investment
policies;
WHEREAS, the Adviser's contract with the Funds 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 the Funds, and the Subadviser is willing to
perform such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE FUNDS.
(a) INVESTMENT PROGRAM. Subject to the control and supervision of the
Board of Trustees of each Trust and the Adviser, the Subadviser shall, at
its expense and on a regular basis, direct, through the Adviser, the
allocation of each Fund's assets among specific asset categories. The
Adviser shall implement the Subadviser's allocation decisions for each Fund
by selecting the particular securities that will comprise the asset
categories in which such 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, (ii) the terms of this
Agreement, (iii) the stated investment objective, policies and restrictions
of each Fund, as stated in the then-current Registration Statement of such
Fund, and (iv) such other guidelines as the Trustees or Adviser may
establish. The Adviser shall be responsible for providing the Subadviser
with each Trust's Declaration of Trust and all amendments thereto or
restatements thereof, each Trust's By-Laws and amendments thereto,
resolutions of each Trust's Board of Trustees authorizing the appointment
of Subadviser and approving this Agreement and current copies of the
materials specified in Subsections (a)(iii) and (iv) of this Section 1.
(b) AVAILABILITY OF PERSONNEL. The Subadviser will make available to
the Trustees and the Adviser at reasonable times its appropriate personnel
in order to review investment policies of each Fund and to consult with the
Trustees and the Adviser regarding the investment affairs of the Funds,
including economic, statistical and investment matters relevant to the
Subadviser's duties hereunder, and will provide periodic reports to the
Adviser relating to the portfolio strategies it employs.
(c) SALARIES AND FACILITIES. The Subadviser, at its expense, will pay
for all salaries of its personnel and facilities required for it to execute
its duties under this Agreement.
(d) COMPLIANCE REPORTS. The Subadviser 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.
(e) EXPENSES. The Subadviser shall not be obligated to pay any
expenses of or for the Funds not expressly assumed by the Subadviser
pursuant to this Agreement.
2. BOOKS AND RECORDS. Pursuant to Rule 31a-3 under the 1940 Act, the
Subadviser agrees that: (a) all records it maintains for each Fund are the
property of such Fund; (b) it will surrender promptly to each Fund or the
Adviser any such records upon such Fund's or Adviser's request; (c) it will
maintain for each Fund the records that such Fund is required to maintain
pursuant to Rule 31a-1 insofar as such records relate to the investment affairs
of that Fund; and (d) it will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records it maintains for each Fund. Notwithstanding
subsection (b) above, the Subadviser may maintain copies of such records to
comply with its recordkeeping obligations.
3. OTHER 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.
4. COMPENSATION. The Adviser will 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.
5. AMENDMENT OF AGREEMENT. This Agreement shall not be materially amended
unless such amendment is approved by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the members
of the Board of Trustees who are not interested persons of the Funds, the
Adviser or the Subadviser (the "Independent Trustees") and, to the extent
required by the 1940 Act, by the affirmative vote of a majority of the
outstanding shares of the Funds. The Subadviser agrees to notify the Adviser of
any anticipated change in control of the Subadviser as soon as such change is
reasonably anticipated and, in any event, prior to such change.
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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 a 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 a Fund, such 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 a
Fund by the affirmative vote of a majority of the outstanding shares of
such 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 a
Fund 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 a Fund 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 a 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. NOTIFICATION OF THE ADVISER. The Subadviser promptly shall notify the
Adviser in writing of the occurrence of any of the following events:
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(a) the Subadviser shall fail to be registered as an investment
adviser under the Investment Advisers Act of 1940, as amended;
(b) the Subadviser shall have been served or otherwise have 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 Fund; or
(c) any other occurrence that reasonably could have a material
adverse impact on the ability of the Subadviser to provide the services
provided for under this Agreement.
8. 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.
9. LIABILITY OF THE SUBADVISER. In the absence of its bad faith,
negligence or reckless disregard of its obligations and duties hereunder, the
Subadviser shall not be subject to any liability to the Adviser, a Fund, each
Trust or their directors, Trustees, officers or shareholders, for any act or
omission in the course of, or connected with, rendering services hereunder.
However, the Subadviser shall indemnify and hold harmless such parties from any
and all claims, losses, expenses, obligations and liabilities (including
reasonable attorneys fees) which arise or result from the Subadviser's bad
faith, negligence or reckless disregard of its duties hereunder.
10. LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligations of a Fund
under this Agreement are not binding upon the Trustees or the Shareholders
individually but are binding only upon the assets and property of such Fund.
11. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State 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 State 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. 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.
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IN WITNESS WHEREOF, Xxxxxxxx Asset Management, LLC and Xxxxxxxxx Xxxxxx
Financial Services, Inc. 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:
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Name: Xxxxxx X. X'Xxxxx
Title: Managing Director
Attest: XXXXXXXXX XXXXXX FINANCIAL SERVICES, INC.
By: By:
--------------------------- ---------------------------
Name:
Title:
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SCHEDULE A
TO THE
POTOMAC FUNDS
AND
POTOMAC INSURANCE TRUST
SUBADVISORY AGREEMENT
BETWEEN
XXXXXXXX ASSET MANAGEMENT, LLC
AND
XXXXXXXXX XXXXXX FINANCIAL SERVICES, INC.
As compensation pursuant to section 4 of the Subadvisory Agreement between
Xxxxxxxx Asset Management, LLC (the "Adviser") and Xxxxxxxxx Xxxxxx Financial
Services, Inc. (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 by the Subadviser:
Potomac Warwick Fund
Assets under management of up to $40 million 0.40%
Assets under management between $40 million and $100 million 0.60%
Assets under management in excess of $100 million 0.70%
Dated: November 1, 2002
