POTOMAC FUNDS
POTOMAC INSURANCE TRUST
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of November 1, 2002, between
▇▇▇▇▇▇▇▇ Asset Management, LLC, a New York limited liability corporation (the
"Adviser"), and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 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
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the Subadviser as soon as such change is reasonably anticipated and, in any
event, prior to such change.
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
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writing of the occurrence of any of the following events:
(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, ▇▇▇▇▇▇▇▇ Asset Management, LLC and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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: ▇▇▇▇▇▇▇▇ ASSET MANAGEMENT, LLC
By: By:
------------------------------ ---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Title: Managing Director
Attest: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ FINANCIAL
SERVICES, INC.
By: By:
------------------------------ ---------------------------------
Name:
Title:
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SCHEDULE A
TO THE
POTOMAC FUNDS
AND
POTOMAC INSURANCE TRUST
SUBADVISORY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇ ASSET MANAGEMENT, LLC
AND
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ FINANCIAL SERVICES, INC.
As compensation pursuant to section 4 of the Subadvisory Agreement
between ▇▇▇▇▇▇▇▇ Asset Management, LLC (the "Adviser") and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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