FUND ACCOUNTING SERVICING AGREEMENT
THIS
AGREEMENT is made and entered into as of this 16 day of February, 2004, by and
between Potomac
Funds,
a Massachusetts
business trust (the “Trust”) and U.S.
Bancorp Fund Services, LLC,
a Wisconsin limited liability company (“USBFS”).
WHEREAS,
the Trust is registered under the Investment Company Act of 1940, as amended
(the “1940 Act”), as an open-end management investment company, and is
authorized to issue shares of beneficial interest in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS,
USBFS is, among other things, in the business of providing mutual fund
accounting services to investment companies; and
WHEREAS,
the Trust desires to retain USBFS to provide accounting services to each series
of the Trust listed on Exhibit A hereto (as amended from time to time) (each a
“Fund”, collectively the “Funds”).
NOW,
THEREFORE, in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to be legally bound, do
hereby agree as follows:
| 1. |
Appointment
of USBFS as Fund Accountant |
The
Trust hereby appoints USBFS as fund accountant of the Trust on the terms and
conditions set forth in this Agreement, and USBFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement.
| 2. |
Services
and Duties of USBFS |
USBFS
shall provide the following fund accounting services for the Funds, including
but not limited to:
A. Portfolio
Accounting Services:
| (1) |
Maintain
portfolio records on a trade date+1 basis using security trade information
communicated from the investment adviser. |
| (2) |
For
each valuation date, obtain prices from a pricing source approved by the
Board of Trustees of the Trust (the “Board of Trustees” or the “Trustees”)
and apply those prices to the portfolio positions. For those securities
where market quotations are not readily available, the Board of Trustees
shall approve, in good faith, procedures for determining the fair value
for such securities. |
1
| (3) |
Identify
interest and dividend accrual balances as of each valuation date and
calculate gross earnings on investments for the accounting period.
|
| (4) |
Determine
gain/loss on security sales and identify them as short-term or long-term;
account for periodic distributions of gains or losses to shareholders and
maintain undistributed gain or loss balances as of each valuation date.
|
B. Expense
Accrual and Payment Services:
| (1) |
For
each valuation date, calculate the expense accrual amounts as directed by
the Trust as to methodology, rate or dollar amount.
|
| (2) |
Record
payments for Fund expenses upon receipt of written authorization from the
Trust. |
| (3) |
Account
for Fund expenditures and maintain expense accrual balances at the level
of accounting detail, as agreed upon by USBFS and the
Trust. |
| (4) |
Provide
expense accrual and payment reporting. |
C. Fund
Valuation and Financial Reporting Services:
| (1) |
Account
for Fund share purchases, sales, exchanges, transfers, dividend
reinvestments, and other Fund share activity as reported by the Fund’s
transfer agent on a timely basis. |
| (2) |
Apply
equalization accounting as directed by the
Trust. |
| (3) |
Determine
net investment income (earnings) for the Fund as of each valuation date.
Account for periodic distributions of earnings to shareholders and
maintain undistributed net investment income balances as of each valuation
date. |
| (4) |
Maintain
a general ledger and other accounts, books, and financial records for the
Fund in the form as agreed upon. |
| (5) |
Determine
the net asset value of the Fund according to the accounting policies and
procedures set forth in the Fund's Prospectus.
|
| (6) |
Calculate
per share net asset value, per share net earnings, and other per share
amounts reflective of Fund operations at such time as required by the
nature and characteristics of the Fund. |
2
| (7) |
Communicate,
at an agreed upon time, the per share price for each valuation date to
parties as agreed upon from time to time. |
| (8) |
Prepare
monthly reports that document the adequacy of accounting detail to support
month-end ledger balances. |
D. Tax
Accounting Services:
| (1) |
Maintain
accounting records for the investment portfolio of the Fund to support the
tax reporting required for IRS-defined regulated investment
companies. |
| (2) |
Maintain
tax lot detail for the Fund’s investment portfolio.
|
| (3) |
Calculate
taxable gain/loss on security sales using the tax lot relief method
designated by the Trust. |
| (4) |
Provide
the necessary financial information to support the taxable components of
income and capital gains distributions to the Fund’s transfer agent to
support tax reporting to the shareholders. |
E. Compliance
Control Services:
| (1) |
Support
reporting to regulatory bodies and support financial statement preparation
by making the Fund's accounting records available to the Trust, the
Securities and Exchange Commission (the “SEC”), and the outside auditors.
|
| (2) |
Maintain
accounting records according to the 1940 Act and regulations provided
thereunder. |
F. USBFS
will perform the following accounting functions on a daily basis:
| (1) |
Reconcile
cash and investment balances of each Fund with the Fund’s custodian, and
provide the Fund’s investment adviser with the beginning cash balance
available for investment purposes. |
| (2) |
Transmit
or mail a copy of the portfolio valuation to the Fund’s investment
adviser. |
| (3) |
Review
the impact of current day’s activity on a per share basis, and review
changes in market value. |
3
G. In
addition, USBFS will:
| (1) |
Prepare
monthly security transactions listings. |
| (2) |
Supply
various Trust, Fund and class statistical data as requested by the Trust
on an ongoing basis. |
| 3. |
Pricing
of Securities |
For
each valuation date, USBFS shall obtain prices from a pricing source recommended
by USBFS and approved by the Board of Trustees and apply those prices to the
portfolio positions of the Fund. For those securities where market quotations
are not readily available, the USBFS
will follow the pricing procedures approved by the Board of Trustees to
determine the fair value for such securities.
If
the Trust desires to provide a price that varies from the pricing source, the
Trust shall promptly notify and supply USBFS with the valuation of any such
security on each valuation date. All pricing changes made by the Trust will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
| 4. |
Changes
in Accounting Procedures |
Any
resolution passed by the Board of Trustees that affects accounting practices and
procedures under this Agreement shall be effective upon written receipt and
acceptance by USBFS.
| 5. |
Changes
in Equipment, Systems, Service,
Etc. |
USBFS
reserves the right to make changes from time to time, as it deems advisable,
relating to its services, systems, programs, rules, operating schedules and
equipment, so long as such changes do not adversely affect the service provided
to the Trust under this Agreement.
| 6. |
Compensation |
USBFS
shall be compensated for providing the services set forth in this Agreement in
accordance with the fee schedule set forth on Exhibit B hereto (as amended from
time to time). The Trust shall pay all fees and reimbursable expenses within
thirty (30) calendar days following receipt of the billing notice, except for
any fee or expense subject to a good faith dispute. The Trust shall notify USBFS
in writing within thirty (30) calendar days following receipt of each invoice if
the Trust is disputing any amounts in good faith. The Trust shall settle such
disputed amounts within ten (10) calendar days of the day on which the parties
agree to the amount to be paid. With the exception of any fee or expense the
Trust is disputing in good faith as set forth above, unpaid invoices shall
accrue a finance charge of one and one-half percent (1½%) per month, after the
due date. Notwithstanding anything to the contrary, amounts owed by the Trust to
USBFS shall only be paid out of the assets and property of the particular Fund
involved.
4
| 7. |
Indemnification;
Limitation of Liability |
| A. |
USBFS
shall exercise reasonable care in the performance of its duties under this
Agreement. USBFS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with matters to
which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond
USBFS’s control, except a loss arising out of or relating to USBFS’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, if USBFS has exercised reasonable care in the performance
of its duties under this Agreement, the Trust shall indemnify and hold
harmless USBFS from and against any and all claims, demands, losses,
expenses, and liabilities of any and every nature (including reasonable
attorneys’ fees) that USBFS may sustain or incur or that may be asserted
against USBFS by any person arising out of any action taken or omitted to
be taken by it in performing the services hereunder, except for any and
all claims, demands, losses, expenses, and liabilities arising out of or
relating to USBFS’s refusal or failure to comply with the terms of this
Agreement or from bad faith, negligence or from willful misconduct on its
part in performance of its duties under this Agreement, (i) in accordance
with the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to USBFS by any duly authorized officer of the Trust,
such duly authorized officer to be included in a list of authorized
officers furnished to USBFS and as amended from time to time in writing by
resolution of the Board of Trustees. |
USBFS
shall indemnify and hold the Trust harmless from and against any and all claims,
demands, losses, expenses, and liabilities of any and every nature (including
reasonable attorneys' fees) that the Trust may sustain or incur or that may be
asserted against the Trust by any person arising out of any action taken or
omitted to be taken by USBFS as a result of USBFS’s refusal or failure to comply
with the terms of this Agreement, its bad faith, negligence, or willful
misconduct.
In
the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, USBFS shall take all reasonable steps to minimize
service interruptions for any period that such interruption continues beyond
USBFS’s control. USBFS 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 USBFS. USBFS agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Trust shall be entitled to
inspect USBFS’s premises and operating capabilities at any time during regular
business hours of USBFS, upon reasonable notice to USBFS.
5
Notwithstanding
the above, USBFS 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 if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the indemnitor shall be fully
and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the indemnitee will use all
reasonable care to notify the indemnitor promptly concerning any situation
that presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim that may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over
complete defense of the claim, and the indemnitee shall in such situation
initiate no further legal or other expenses for which it shall seek
indemnification under this section. Indemnitee shall in no case confess
any claim or make any compromise in any case in which the indemnitor will
be asked to indemnify the indemnitee except with the indemnitor’s prior
written consent. |
| C. |
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 Declaration of Trust, 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 trust property of the Trust as provided in the
above-mentioned Declaration of Trust. |
| 8. |
Proprietary
and Confidential Information |
USBFS
agrees on behalf of itself and its directors, officers, and employees to treat
confidentially and as proprietary information of the Trust all records and other
information relative to the Trust and prior, present, or potential shareholders
of the Trust (and clients of said shareholders), and not to use such records and
information for any purpose other than the 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 USBFS 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.
6
Further,
USBFS will adhere to the privacy policies adopted by the Trust pursuant to Title
V of the Xxxxx-Xxxxx-Xxxxxx Act, as may be modified from time to time (the
“Act”). Notwithstanding the foregoing, USBFS will not share any nonpublic
personal information concerning any of the Trust’s shareholders to any third
party unless specifically directed by the Trust or allowed under one of the
exceptions noted under the Act.
| 9. |
Term
of Agreement; Amendment |
This
Agreement shall become effective as of the date first written above and will
continue in effect for a successive annual periods. This 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 by the
parties. However, this Agreement may be amended by mutual written consent of the
parties.
| 10. |
Records |
USBFS
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 agreeable
to the Trust, but not inconsistent with the rules and regulations of appropriate
government authorities, in particular, Section 31 of the 1940 Act and the rules
thereunder. USBFS agrees that all such records prepared or maintained by USBFS
relating to the services to be performed by USBFS hereunder are the property of
the Trust and will be preserved, maintained, and made available in accordance
with such applicable sections and rules of the 1940 Act and will be promptly
surrendered to the Trust on and in accordance with its request.
| 11. |
Governing
Law |
This
Agreement shall be construed in accordance with the laws of the State of
Wisconsin, without regard to conflicts of law principles. To the extent that the
applicable laws of the State of Wisconsin, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control, and nothing herein shall be construed in a manner inconsistent with the
1940 Act or any rule or order of the SEC thereunder.
| 12. |
Duties
in the Event of Termination |
In the
event that, in connection with termination, a successor to any of USBFS’s duties
or responsibilities hereunder is designated by the Trust by written notice to
USBFS, USBFS will promptly, upon such termination and at the expense of the
Trust, transfer to such successor all relevant books, records, correspondence
and other data established or maintained by USBFS under this Agreement in a form
reasonably acceptable to the Trust (if such form differs from the form in which
USBFS has maintained the same, the Trust shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from USBFS’s
personnel in the establishment of books, records and other data by such
successor.
7
| 13. |
No
Agency Relationship |
Nothing
herein contained shall be deemed to authorize or empower USBFS to act as agent
for the other party to this Agreement, or to conduct business in the name, or
for the account, of the other party to this Agreement.
| 14. |
Data
Necessary to Perform Services |
The
Trust or its agent shall furnish to USBFS the data necessary to perform the
services described herein at such times and in such form as mutually agreed
upon. If USBFS is also acting in another capacity for the Trust, nothing herein
shall be deemed to relieve USBFS of any of its obligations in such
capacity.
| 15. |
Notification
of Error |
The
Trust will notify USBFS of any discrepancy between USBFS and the Trust,
including, but not limited to, failing to account for a security position in the
fund’s portfolio, by the later of: within three (3) business days after receipt
of any reports rendered by USBFS to the Trust; within three (3) business days
after discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
| 16. |
Assignment |
This
Agreement may not be assigned by either party without the prior written consent
of the other party.
| 17. |
Merger
of Agreement |
This
Agreement constitutes the entire agreement between the parties hereto and
supersedes any prior agreement with respect to the subject matter hereof whether
oral or written.
| 18. |
Notices |
Any
notice required or permitted to be given by either party to the other shall be
in writing and shall be deemed to have been given on the date delivered
personally or by courier service, or three (3) days after sent by registered or
certified mail, postage prepaid, return receipt requested, or on the date sent
and confirmed received by facsimile transmission to the other party’s address
set forth below:
8
Notice
to USBFS shall be sent to:
U.S.
Bancorp Fund Services, LLC
000
Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx,
XX 00000
and
notice to the Trust shall be sent to:
000
0xx
Xxx., Xxxxx 000
Xxx
Xxxx, XX 00000
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
a duly authorized officer on one or more counterparts as of the date first above
written.
| POTOMAC FUNDS | U.S. BANCORP FUND SERVICES, LLC | ||
| By: /s/ Xxxxxx X’Xxxxx | By: /s/ Xxx X. Xxxxxxx | ||
| Title: President | Title: President |
Exhibit
A
to
the
Fund
Names
Separate
Series of Potomac Funds
|
Name
of Series |
|
|
Potomac
U.S. Plus Fund |
Potomac
U.S./Short Fund |
|
Potomac
OTC Plus Fund |
Potomac
OTC/Short Fund |
|
Potomac
Small Cap Plus Fund |
Potomac
Small Cap/Short Fund |
|
Potomac
Dow 30 Plus Fund |
Potomac
Dow 30/Short Fund |
|
Potomac
Japan Plus Fund |
Potomac
Japan/Short Fund |
|
Potomac
MidCap Plus Fund |
Potomac
MidCap/Short Fund |
|
Potomac
Total Market Plus Fund |
Potomac
Total Market/Short Fund |
|
Potomac
Warwick Fund |
Potomac
Cardinal Fund |
|
Potomac
Portfolio Strategies Fund |
Potomac
Horizon Fund |
|
Potomac
U.S. Government Money Market Fund |
|
|
Potomac
Evolution Managed Bond Fund |
|
|
Potomac
Evolution Managed Equity Fund |
