CUSTODY AGREEMENT
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This AGREEMENT, dated as of February 24, 2000, by and between Potomac
Insurance Trust (the "Trust"), a business trust organized under the laws of the
State of Massachusetts, acting with respect to each series of the Trust listed
on Exhibit C attached hereto ( individually, a "Fund" and, collectively, the
"Funds"), each of them a series of the Trust and each of them operated and
administered by the Trust, and FIRSTAR BANK, N.A., a national banking
association (the "Custodian").
W I T N E S S E T H:
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WHEREAS, the Trust desires that the Fund's Securities and cash be held and
administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and the Custodian hereby agree as follows:
ARTICLE I
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DEFINITIONS
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Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "AUTHORIZED PERSON" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and
named in Exhibit A hereto or in such resolutions of the Board Of
Trustees, certified by an Officer, as may be received by the
Custodian from time to time.
1.2 "BOARD OF TRUSTEES" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as
from time to time amended.
1.3 "BOOK-ENTRY SYSTEM" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular Xx. 000, 00 XXX 306, in
Subpart B of 31 CFR Part 350, or in such book-entry regulations of
federal agencies as are substantially in the form of such Subpart
O.
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1.4 "BUSINESS DAY" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the
Trust computes the net asset value of Shares of the Fund.
1.5 "FUND CUSTODY ACCOUNT" shall mean any of the accounts in the name
of the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.7 "OFFICER" shall mean the Chairman, President, any Vice President,
any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, or any Assistant Treasurer of the Trust.
1.8 "ORAL INSTRUCTIONS" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i)
reasonably believed by the Custodian to have been given by an
Authorized Person, (ii) recorded and kept among the records of the
Custodian made in the ordinary course of business and (iii) orally
confirmed by the Custodian. The Trust shall cause all Oral
Instructions to be confirmed by Written Instructions prior to the
end of the next Business Day. If such Written Instructions
confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of
the transaction or the authorization thereof by the trust. If Oral
Instructions vary from the Written Instructions which purport to
confirm them, the Custodian shall notify the trust of such variance
but such Oral Instructions will govern unless the Custodian has not
yet acted.
1.9 "PROPER INSTRUCTIONS" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written
Instructions when deemed appropriate by both parties.
1.10 "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and
(provided that Custodian shall have received a copy of a resolution
of the Board Of Trustees, certified by an Officer, specifically
approving the use of such clearing agency as a depository for the
Fund) any other clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities and
Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities
of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of the Securities.
1.11 "SECURITIES" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures,
notes, bank certificates of deposit, bankers' acceptances,
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mortgage-backed securities or other obligations, and any
certificates, receipts, warrants or other instruments or documents
representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests
therein, or any similar property or assets that the Custodian has
the facilities to clear and to service.
1.12 "SHARES" shall mean, with respect to a Fund, the units of
beneficial interest issued by the trust on account of the Fund.
1.13 "SUB-CUSTODIAN" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act,
(ii) any "Eligible Foreign Custodian," as that term is defined in
Rule 17f-5 under the 1940 Act, having a contract with the Custodian
which the Custodian has determined will provide reasonable care of
assets of the Funds based on the standards specified in Section 3.3
below. Such contract shall include provisions that provide: (i) for
indemnification or insurance arrangements (or any combination of
the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such
contract; (ii) that the Funds' assets will not be subject to any
right, charge, security interest, lien or claim of any kind in
favor of the Sub-Custodian or its creditors except a claim of
payment for their safe custody or administration, in the case of
cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar
laws; (iii) that beneficial ownership for the Funds' assets will be
freely transferable without the payment of money or value other
than for safe custody or administration; (iv) that adequate records
will be maintained identifying the assets as belonging to the funds
or as being held by a third party for the benefit of the Funds; (v)
that the Funds' independent public accountants will be given access
to those records or confirmation of the contents of those records;
and (vi) that the Funds will receive periodic reports with respect
to the safekeeping of the Funds' assets, including, but not limited
to, notification of any transfer to or from a Fund's account or a
third party account containing assets held for the benefit of the
Fund. Such contract may contain, in lieu of any or all of the
provisions specified above, such other provisions that the
Custodian determines will provide, in their entirety, the same or a
greater level of care and protection for Fund assets as the
specified provisions, in their entirety.
1.14 "WRITTEN INSTRUCTIONS" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized
Person, or (ii) communications by telex or any other such system
from one or more persons reasonably believed by the Custodian to be
Authorized Persons, or (iii) communications between
electro-mechanical or electronic devices provided that the use of
such devices and the procedures for the use thereof shall have been
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approved by resolutions of the Board Of Trustees, a copy of which,
certified by an Officer, shall have been delivered to the
Custodian.
ARTICLE II
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APPOINTMENT OF CUSTODIAN
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2.1 APPOINTMENT. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in
the possession of the Fund at any time during the period of this
Agreement.
2.2 ACCEPTANCE. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter
set forth.
2.3 DOCUMENTS TO BE FURNISHED. The following documents, including any
amendments thereto, will be provided contemporaneously with the
execution of the Agreement to the Custodian by the trust:
(a) A copy of the Declaration of Trust certified by the
Secretary;
(b) A copy of the Bylaws of the Trust certified by the
Secretary;
(c) A copy of the resolution of the Board Of Trustees of the
Trust appointing the Custodian, certified by the Secretary;
(d) A copy of the then current Prospectus of the Fund; and
(e) A certification of the Chairman and Secretary of the Trust
setting forth the names and signatures of the current Officers of
the Trust and other Authorized Persons.
2.4 NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The Trust
agrees to notify the Custodian in writing of the appointment,
termination or change in appointment of any Dividend and Transfer
Agent of the Fund.
ARTICLE III
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CUSTODY OF CASH AND SECURITIES
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3.1 SEGREGATION. All Securities and non-cash property held by the
Custodian for the account of the Fund (other than Securities
maintained in a Securities Depository or Book-Entry System) shall
be physically segregated from other Securities and non-cash
property in the possession of the Custodian (including the
Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
3.2 FUND CUSTODY ACCOUNTS. As to each Fund, the Custodian shall open
and maintain in its trust department a custody account in the name
of the Trust coupled with the name of the Fund, subject only to
draft or order of the Custodian, in which the Custodian shall enter
and carry all Securities, cash and other assets of such Fund which
are delivered to it.
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3.3 APPOINTMENT OF AGENTS. (a) In its discretion, the Custodian may
appoint one or more Sub-Custodians to act as Securities
Depositories or as sub-custodians to hold Securities and cash of
the Funds and to carry out such other provisions of this Agreement
as it may determine, provided, however, that the appointment of any
such agents and maintenance of any Securities and cash of the Fund
shall be at the Custodian's expense and shall not relieve the
Custodian of any of its obligations or liabilities under this
Agreement.
(b) If, after the initial approval of Sub-Custodians by the
Board Of Trustees in connection with this Agreement, the Custodian
wishes to appoint other Sub-Custodians to hold property of the
Fund, it will so notify the Trust and provide it with information
reasonably necessary to determine any such new Sub-Custodian's
eligibility under Rule 17f-5 under the 1940 Act, including a copy
of the proposed agreement with such Sub-Custodian. The Trust shall
at the meeting of the Board Of Trustees next following receipt of
such notice and information give a written approval or disapproval
of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian
acting hereunder shall contain the required provisions set forth in
Rule 17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall
provide written reports notifying the Board of Trustees of the
placement of the Securities and cash of the Funds with a particular
Sub-Custodian and of any material changes in the Funds'
arrangements. The Custodian shall promptly take such steps as may
be required to withdraw assets of the Funds from any Sub-Custodian
that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3,
the Custodian hereby warrants to the Trust that it agrees to
exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of property of the Funds.
The Custodian further warrants that a Fund's assets will be subject
to reasonable care, based on the standards applicable to custodians
in the relevant market, if maintained with each Sub-Custodian,
after considering all factors relevant to the safekeeping of such
assets, including, without limitation: (i) the Sub-Custodian's
practices, procedures, and internal controls, for certificated
securities (if applicable), the method of keeping custodial
records, and the security and data protection practices; (ii)
whether the Sub-Custodian has the requisite financial strength to
provide reasonable care for Fund assets; (iii) the Sub-Custodian's
general reputation and standing and, in the case of a Securities
Depository, the Securities Depository's operating history and
number of participants; and (iv) whether the Fund will have
jurisdiction over and be able to enforce judgments against the
Sub-Custodian, such as by virtue of the existence of any offices of
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the Sub-Custodian in the United States or the Sub-Custodian's
consent to service of process in the United States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Fund's assets with a particular
Sub-Custodian and the contract governing the Funds' arrangements
with such Sub-Custodian.
3.3 DELIVERY OF ASSETS TO CUSTODIAN. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities,
cash and other assets, including (a) all payments of income,
payments of principal and capital distributions received by the
Fund with respect to such Securities, cash or other assets owned by
the Fund at any time during the period of this Agreement, and (b)
all cash received by the Fund for the issuance, at any time during
such period, of Shares. The Custodian shall not be responsible for
such Securities, cash or other assets until actually received by
it.
3.4 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. The Custodian may
deposit and/or maintain Securities of the Fund in a Securities
Depository or in a Book-Entry System, subject to the following
provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust shall deliver
to the Custodian a resolution of the Board Of Trustees, certified
by an Officer, authorizing and instructing the Custodian on an
on-going basis to deposit in such Securities Depository or
Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to
the extent possible and practical in connection with its
performance hereunder, including, without limitation, in connection
with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of collateral consisting of
Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book-Entry System or Securities
Depository which includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of
the Fund maintained in a Book-Entry System or Securities Depository
shall, by book-entry, identify such Securities as belonging to such
Fund.
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian shall pay
for such Securities upon (i) receipt of advice from the Book-Entry
System or Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the making of an
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entry on the records of the Custodian to reflect such payment and
transfer for the account of such Fund. If Securities sold by a Fund
are held in a Book-Entry System or Securities Depository, the
Custodian shall transfer such Securities upon (i) receipt of advice
from the Book-Entry System or Securities Depository that payment
for such Securities has been transferred to the Depository Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of the Fund are kept) on
the internal accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or Securities
Depository.
(f) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Trust for any loss or damage
to the Fund resulting (i) from the use of a Book-Entry System or
Securities Depository by reason of any negligence or willful
misconduct on the part of Custodian or any Sub-Custodian appointed
pursuant to Section 3.3 above or any of its or their employees, or
(ii) from failure of Custodian or any such Sub-Custodian to enforce
effectively such rights as it may have against a Book-Entry System
or Securities Depository. At its election, the Trust shall be
subrogated to the rights of the Custodian with respect to any claim
against a Book-Entry System or Securities Depository or any other
person from any loss or damage to the Fund arising from the use of
such Book-Entry System or Securities Depository, if and to the
extent that the Funds has not been made whole for any such loss or
damage.
3.5 DISBURSEMENT OF MONEYS FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from the
Fund Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only (i) in the
case of Securities (other than options on Securities, futures
contracts and options on futures contracts), against the delivery
to the Custodian (or any Sub-Custodian appointed pursuant to
Section 3.3 above) of such Securities registered as provided in
Section 3.9 below or in proper form for transfer, or if the
purchase of such Securities is effected through a Book-Entry System
or Securities Depository, in accordance with the conditions set
forth in Section 3.5 above; (ii) in the case of options on
Securities, against delivery to the Custodian (or such
Sub-Custodian) of such receipts as are required by the customs
prevailing among dealers in such options; (iii) in the case of
futures contracts and options on futures contracts, against
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delivery to the Custodian (or such Sub-Custodian) of evidence of
title thereto in favor of the Fund or any nominee referred to in
Section 3.9 below; and (iv) in the case of repurchase or reverse
repurchase agreements entered into between the Trust and a bank
which is a member of the Federal Reserve System or between the
Trust and a primary dealer in U.S. Government securities, against
delivery of the purchased Securities either in certificate form or
through an entry crediting the Custodian's account at a Book-Entry
System or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as
set forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the
account of the Fund: interest; taxes; administration, investment
advisory, accounting, auditing, transfer agent, custodian, trustee
and legal fees; and other operating expenses of the Fund; in all
cases, whether or not such expenses are to be in whole or in part
capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD, relating to
compliance with rules of The Options Clearing Corporation and of
any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar organization
or organizations) regarding account deposits in connection with
transactions by the Fund;
(h) For the funding of any uncertificated time deposit or
other interest-bearing account with any banking institution
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(including the Custodian), which deposit or account has a term of
one year or less; and
(i) For any other proper purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of the
Board Of Trustees, certified by an Officer, specifying the amount
and purpose of such payment, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such
payment is to be made.
3.6 DELIVERY OF SECURITIES FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall release and deliver
Securities from the Fund Custody Account but only in the
following cases:
(a) Upon the sale of Securities for the account of the Fund
but only against receipt of payment therefor in cash, by certified
or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System
or Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an offeror's depository agent in connection with tender
or other similar offers for Securities of the Fund; provided that,
in any such case, the cash or other consideration is to be
delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into
the name of the Fund, the Custodian or any Sub-Custodian appointed
pursuant to Section 3.3 above, or of any nominee or nominees of any
of the foregoing, or (ii) for exchange for a different number of
certificates or other evidence representing the same aggregate face
amount or number of units; provided that, in any such case, the new
Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or readjustment of
the issuer of such Securities, or pursuant to provisions for
conversion contained in such Securities, or pursuant to any deposit
agreement, including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of depository
receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian;
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(g) Upon receipt of payment therefor pursuant to any repurchase
or reverse repurchase agreement entered into by the Fund;
(h) In the case of warrants, rights or similar Securities,
upon the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of Securities of
the Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Trust, but only
against receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Trust;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD, relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar organization
or organizations) regarding account deposits in connection with
transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a copy of a
resolution of the Board Of Trustees, certified by an Officer,
specifying the Securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such Securities shall be made.
3.7 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
instructed by the Trust, the Custodian shall with respect to all
Securities held for the Fund:
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(a) Subject to Section 7.4 below, collect on a timely basis
all income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below,
collect on a timely basis the amount payable upon all Securities
which may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form
for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or the
laws or regulations of any other taxing authority now or hereafter
in effect, and prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Trust at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or Securities
Depository, all rights and similar securities issued with respect
to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with Securities and assets of the Fund.
3.8 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for
a Fund that are issued or issuable only in bearer form shall be
held by the Custodian in that form, provided that any such
Securities shall be held in a Book-Entry System if eligible
therefor. All other Securities held for the Fund may be registered
in the name of such Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any
nominee of any of them, or in the name of a Book-Entry System,
Securities Depository or any nominee of either thereof. The Trust
shall furnish to the Custodian appropriate instruments to enable
the Custodian to hold or deliver in proper form for transfer, or to
register in the name of any of the nominees hereinabove referred to
or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
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3.9 RECORDS.
(a) The Custodian shall maintain, by Fund, complete and accurate
records with respect to Securities, cash or other property held for
the Fund, including (i) journals or other records of original entry
containing an itemized daily record in detail of all receipts and
deliveries of Securities and all receipts and disbursements of
cash; (ii) ledgers (or other records) reflecting (A) Securities in
transfer, (B) Securities in physical possession, (C) monies and
Securities borrowed and monies and Securities loaned (together with
a record of the collateral therefor and substitutions of such
collateral), (D) dividends and interest received, and (E) dividends
receivable and interest receivable; and (iii) canceled checks and
bank records related thereto. The Custodian shall keep such other
books and records of the Funds as the Trust shall reasonably
request, or as may be required by the 1940 Act, including, but not
limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall
(i) be maintained in a form acceptable to the Trust and in
compliance with rules and regulations of the Securities and
Exchange Commission, (ii) be the property of the Trust and at all
times during the regular business hours of the Custodian be made
available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be
maintained by Rule 31a-1 under the 1940 Act, be preserved for the
periods prescribed in Rule 31a-2 under the 1940 Act.
3.10 FUND REPORTS BY CUSTODIAN. The Custodian shall furnish the Trust
with a daily activity statement and a summary of all transfers to
or from each Fund Custody Account on the day following such
transfers. At least monthly and from time to time, the Custodian
shall furnish the Trust with a detailed statement of the Securities
and moneys held by the Custodian and the Sub-Custodians for the
Fund under this Agreement.
3.11 OTHER REPORTS BY CUSTODIAN. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to
time, on the internal accounting controls and procedures for
safeguarding Securities, which are employed by the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above.
3.12 PROXIES AND OTHER MATERIALS. The Custodian shall cause all
proxies relating to Securities which are not registered in the name
of the Fund, to be promptly executed by the registered holder of
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such Securities, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Trust
such proxies, all proxy soliciting materials and all notices
relating to such Securities.
3.13 INFORMATION ON CORPORATE ACTIONS. The Custodian shall promptly
deliver to the Trust all information received by the Custodian and
pertaining to Securities being held by the Fund with respect to
optional tender or exchange offers, calls for redemption or
purchase, or expiration of rights as described in the Standards of
Service Guide attached as Exhibit B. If the Trust desires to take
action with respect to any tender offer, exchange offer or other
similar transaction, the Trust shall notify the Custodian at least
five Business Days prior to the date on which the Custodian is to
take such action. The Trust will provide or cause to be provided to
the Custodian all relevant information for any Security which has
unique put/option provisions at least five Business Days prior to
the beginning date of the tender period.
ARTICLE IV
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PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
4.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
for the Fund, Written Instructions shall be delivered to the
Custodian, specifying (a) the name of the issuer or writer of such
Securities, and the title or other description thereof, (b) the
number of shares, principal amount (and accrued interest, if any)
or other units purchased, (c) the date of purchase and settlement,
(d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount
is payable. The Custodian shall upon receipt of such Securities
purchased by such Fund pay out of the moneys held for the account
of a Fund the total amount specified in such Written Instructions
to the person named therein. The Custodian shall not be under any
obligation to pay out moneys to cover the cost of a purchase of
Securities for the Fund, if in the Fund Custody Account there is
insufficient cash available to the Fund for which such purchase was
made.
4.2 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. In any and every case where payment for the purchase of
Securities for a Fund is made by the Custodian in advance of
receipt of the Securities purchased but in the absence of specified
Written Instructions to so pay in advance, the Custodian shall be
liable to the Fund for such Securities to the same extent as if the
Securities had been received by the Custodian.
4.3 SALE OF SECURITIES. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian,
specifying (a) the name of the issuer or writer of such Securities,
- 13 -
and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other
units sold, (c) the date of sale and settlement, (d) the sale price
per unit, (e) the total amount payable upon such sale, and (f) the
person to whom such Securities are to be delivered. Upon receipt of
the total amount payable to the Fund as specified in such Written
Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in
Securities.
4.4 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be
entitled, if in accordance with generally accepted market practice,
to deliver such Securities prior to actual receipt of final payment
therefor. In any such case, the Fund shall bear the risk that final
payment for such Securities may not be made or that such Securities
may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and the Custodian shall have no
liability for any for the foregoing.
4.5 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
time to time, the Custodian may credit the Fund Custody Account,
prior to actual receipt of final payment thereof, with (i) proceeds
from the sale of Securities which it has been instructed to deliver
against payment, (ii) proceeds from the redemption of Securities or
other assets of the Fund, and (iii) income from cash, Securities or
other assets of the Fund. Any such credit shall be conditional upon
actual receipt by Custodian of final payment and may be reversed if
final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund to
use funds so credited to the Fund Custody Account in anticipation
of actual receipt of final payment. Any such funds shall be
repayable immediately upon demand made by the Custodian at any time
prior to the actual receipt of all final payments in anticipation
of which funds were credited to the Fund Custody Account.
4.6 ADVANCES BY CUSTODIAN FOR SETTLEMENT. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust
to facilitate the settlement of a Fund's transactions in the Fund
Custody Account. Any such advance shall be repayable immediately
upon demand made by Custodian.
ARTICLE V
---------
REDEMPTION OF FUND SHARES
-------------------------
5.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of
- 14 -
Proper Instructions specifying that the funds are required to
redeem Shares of the Fund, the Custodian shall wire each amount
specified in such Proper Instructions to or through such bank as
the Trust may designate with respect to such amount in such Proper
Instructions.
5.2 NO DUTY REGARDING PAYING BANKS. The Custodian shall not be under
any obligation to effect payment or distribution by any bank
designated in Proper Instructions given pursuant to Section 5.1
above of any amount paid by the Custodian to such bank in
accordance with such Proper Instructions.
ARTICLE VI
----------
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD (or
any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Trust and of any registered
national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of
any similar organization or organizations, regarding escrow
or other arrangements in connection with transactions by the
Fund,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written by
the Fund or in connection with financial futures contracts
(or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with
requirements under the 1940 Act for the maintenance of
segregated accounts by registered investment companies in
connection with reverse repurchase agreements and
when-issued, delayed delivery and firm commitment
transactions, and
(e) for other proper corporate purposes, but only upon
receipt of, in addition to Proper Instructions, a certified
- 15 -
copy of a resolution of the Board Of Trustees, certified by
an Officer, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper
corporate purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
-----------
CONCERNING THE CUSTODIAN
------------------------
7.1 STANDARD OF CARE. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this
Agreement, and shall be without liability to the Trust or any Fund
for any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim unless such loss, damage, cost,
expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any Sub-Custodian
appointed pursuant to Section 3.3 above. The Custodian shall be
entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not be
under any obligation at any time to ascertain whether the Trust or
the Fund is in compliance with the 1940 Act, the regulations
thereunder, the provisions of the Trust's charter documents or
by-laws, or its investment objectives and policies as then in
effect.
7.2 ACTUAL COLLECTION REQUIRED. The Custodian shall not be liable
for, or considered to be the custodian of, any cash belonging to a
Fund or any money represented by a check, draft or other instrument
for the payment of money, until the Custodian or its agents
actually receive such cash or collect on such instrument.
7.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent
that it is in the exercise of reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received or delivered by it
pursuant to this Agreement.
7.4 LIMITATION ON DUTY TO COLLECT. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or
property due and payable with respect to Securities held for the
Fund if such Securities are in default or payment is not made after
due demand or presentation.
7.5 RELIANCE UPON DOCUMENTS AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument
- 16 -
in writing received by it and reasonably believed by it to be
genuine. The Custodian shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by it
pursuant to this Agreement.
7.6 EXPRESS DUTIES ONLY. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the
Custodian.
7.7 CO-OPERATION. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the
Trust to keep the books of account of the Funds and/or compute the
value of the assets of the Funds. The Custodian shall take all such
reasonable actions as the Trust may from time to time request to
enable the Trust to obtain, from year to year, favorable opinions
from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the
preparation of the Trust's reports on Form N-1A and Form N-SAR and
any other reports required by the Securities and Exchange
Commission, and (b) the fulfillment by the Trust of any other
requirements of the Securities and Exchange Commission.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.1 INDEMNIFICATION BY TRUST. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed pursuant to
Section 3.3 above, and any nominee of the Custodian or of such
Sub-Custodian, from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are
registered in the name of any such nominee, or (b) from any action
or inaction by the Custodian or such Sub-Custodian (i) at the
request or direction of or in reliance on the advice of the Trust,
or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any
sub-custody agreement with a Sub-Custodian appointed pursuant to
Section 3.3 above, provided that neither the Custodian nor any such
Sub-Custodian shall be indemnified and held harmless from and
against any such loss, damage, cost, expense, liability or claim
arising from the Custodian's or such Sub-Custodian's negligence,
bad faith or willful misconduct.
8.2 INDEMNIFICATION BY CUSTODIAN. The Custodian shall indemnify and
hold harmless the Trust from and against any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability
- 17 -
(including without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
or foreign securities and/or banking laws) or claim arising from
the negligence, bad faith or willful misconduct of the Custodian or
any Sub-Custodian appointed pursuant to Section 3.3 above, or any
nominee of the Custodian or of such Sub-Custodian.
8.3 INDEMNITY TO BE PROVIDED. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the
opinion of the Custodian, result in the Custodian or its nominee
becoming liable for the payment of money or incurring liability of
some other form, the Custodian shall not be required to take such
action until the Trust shall have provided indemnity therefor to
the Custodian in an amount and form satisfactory to the Custodian.
8.4 SECURITY. If the Custodian advances cash or Securities to the
Fund for any purpose, either at the Trust's request or as otherwise
contemplated in this Agreement, or in the event that the Custodian
or its nominee incurs, in connection with its performance under
this Agreement, any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim (except such
as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any
time held for the account of such Fund shall be security therefor,
and should the Fund fail promptly to repay or indemnify the
Custodian, the Custodian shall be entitled to utilize available
cash of such Fund and to dispose of other assets of such Fund to
the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
----------
FORCE MAJEURE
-------------
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Funds in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process the transactions contemplated by this Agreement and (ii) shall
use its best efforts to ameliorate the effects of any such failure or delay.
- 18 -
ARTICLE X
---------
EFFECTIVE PERIOD; TERMINATION
-----------------------------
10.1 EFFECTIVE PERIOD. This Agreement shall become effective as of its
execution and shall continue in full force and effect until
terminated as hereinafter provided.
10.2 TERMINATION. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than sixty (60) days
after the date of the giving of such notice. If a successor
custodian shall have been appointed by the Board Of Trustees, the
Custodian shall, upon receipt of a notice of acceptance by the
successor custodian, on such specified date of termination (a)
deliver directly to the successor custodian all Securities (other
than Securities held in a Book-Entry System or Securities
Depository) and cash then owned by the Fund and held by the
Custodian as custodian, and (b) transfer any Securities held in a
Book-Entry System or Securities Depository to an account of or for
the benefit of the Funds at the successor custodian, provided that
the Trust shall have paid to the Custodian all fees, expenses and
other amounts to the payment or reimbursement of which it shall
then be entitled. Upon such delivery and transfer, the Custodian
shall be relieved of all obligations under this Agreement. The
Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
Custodian by regulatory authorities or upon the happening of a like
event at the direction of an appropriate regulatory agency or court
of competent jurisdiction.
10.3 FAILURE TO APPOINT SUCCESSOR CUSTODIAN. If a successor custodian
is not designated by the Trust on or before the date of termination
specified pursuant to Section 10.1 above, then the Custodian shall
have the right to deliver to a bank or corporation company of its
own selection, which (a) is a "bank" as defined in the 1940 Act and
(b) has aggregate capital, surplus and undivided profits as shown
on its then most recent published report of not less than $25
million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for the
Funds at such bank or trust company all Securities of the Funds
held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the
successor custodian under this Agreement and the Custodian shall be
relieved of all obligations under this Agreement.
ARTICLE XI
----------
COMPENSATION OF CUSTODIAN
-------------------------
The Custodian shall be entitled to compensation as agreed upon from time
to time by the Trust and the Custodian. The fees and other charges in effect on
the date hereof and applicable to the Fund are set forth in Exhibit C attached
hereto.
- 19 -
ARTICLE XII
-----------
LIMITATION OF LIABILITY
-----------------------
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the property of
the Trust as provided in the Trust's Agreement and Articles of Incorporation, as
from time to time amended. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
corporation property of the Trust as provided in the above-mentioned Agreement
and Articles of Incorporation.
ARTICLE XIII
------------
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be sent
or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust:
------------
Potomac Insurance Trust
0000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
To Custodian:
------------
Firstar Bank, N.A.
000 Xxxxxx Xxxxxx, X.X. XX-XX-00XX
Xxxxxxxxxx, Xxxx 00000
Attention: Mutual Fund Custody Services
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
- 20 -
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
14.2 REFERENCES TO CUSTODIAN. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior
written approval of Custodian, excepting printed matter contained
in the prospectus or statement of additional information for the
Fund and such other printed matter as merely identifies Custodian
as custodian for the Fund. The Trust shall submit printed matter
requiring approval to Custodian in draft form, allowing sufficient
time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 NO WAIVER. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall
operate as a waiver thereof. The exercise by either party hereto of
any right hereunder shall not preclude the exercise of any other
right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
14.4 AMENDMENTS. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by
an instrument in writing executed by the parties hereto.
14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts,
each of which shall be deemed an original but all of which together
shall constitute but one and the same instrument.
14.6 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining
provisions shall not be affected or impaired thereby.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this
Agreement shall not be assignable by either party hereto without
the written consent of the other party hereto.
14.8 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or
construction of any provision of this Agreement.
- 21 -
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: POTOMAC INSURANCE TRUST
______________________________ By:_____________________________
ATTEST: FIRSTAR BANK, N.A.
______________________________ By:____________________________
- 22 -
EXHIBIT A
---------
AUTHORIZED PERSONS
------------------
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
Authorized Persons Specimen Signatures
------------------ -------------------
Adviser Employees:
Xxxxxxx X. Xxxxx _____________________
Xxxx X. Xxxxxxx _____________________
Xxxxx Xxxx _____________________
- 23 -
EXHIBIT B
---------
FIRSTAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
EXHIBIT C
---------
FIRSTAR BANK, N.A.
DOMESTIC CUSTODY FEE SCHEDULE
Firstar Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
Annual fee based upon average assets per fund:
3.5 basis points on average net assets per fund
No transactions costs will be charged to the funds.
The fees noted above are for one class of shares. There will be an additional
25% increase in fees for each class of shares.
- 24 -
