EX-99.(H)(II) 5 tse16d.htm TRANSFER AGENT SERVICING AGMT

Exhibit (h)(ii)

TRANSFER AGENT SERVICING AGREEMENT

THIS TRANSFER AGENT SERVICING AGREEMENT (this “Agreement”) is made and entered into as of this 7^th day of August, 2004, by and between Perritt Funds, Inc., a Maryland corporation (the “Corporation”) and U.S. Bancorp Fund Services, LLC, a Wisconsin limited liability company (“USBFS”).

RECITALS

WHEREAS, the Corporation 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 common stock 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 administering transfer and dividend disbursing agent functions to investment companies; and

WHEREAS, the Corporation desires to retain USBFS to provide transfer and dividend disbursing agent services to each series of the Corporation listed on Exhibit A hereto (as amended from time to time) (each a “Fund”, collectively the “Funds”).

AGREEMENT

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 Transfer Agent

The Corporation hereby appoint USBFS as transfer agent of each Fund 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 perform all of the customary services of a transfer agent and dividend disbursing agent for each Fund, and as relevant, agent in connection with accumulation, open account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to:

Receive and process all orders for the purchase, exchange, and/or redemption of Fund shares in accordance with Rule 22c-1 of the 1940 Act.

Process purchase orders with prompt delivery, where appropriate, of payment and supporting documentation to each Fund’s custodian, and issue the appropriate number of uncertificated shares with such uncertificated shares being held in the appropriate shareholder account.

Arrange for the issuance of shares obtained through transfers of funds from shareholders’ accounts at financial institutions and arrange for the exchange of shares for shares of other eligible investment companies, when permitted by the current prospectus (“Prospectus”) of the Fund in question.

Process redemption requests received in good order and, where relevant, deliver appropriate documentation to each Fund’s custodian.

Pay monies upon receipt from each Fund’s custodian, where relevant, in accordance with the instructions of redeeming shareholders.

Process transfers of shares in accordance with the shareholder’s instructions.

Process exchanges between Funds and/or classes of shares of Funds both within the same family of funds and with a First American Money Market Fund, if applicable.

Prepare and transmit payments for dividends and distributions declared by the Corporation with respect to the Funds, after deducting any amount required to be withheld by any applicable laws, rules and regulations and in accordance with shareholder instructions.

Make changes to shareholder records, including, but not limited to, address changes in plans (e.g., systematic withdrawal, automatic investment, dividend reinvestment).

Record the issuance of shares of each Fund and maintain, pursuant to Rule 17Ad-10(e) promulgated under the Securities Exchange Act of 1934, as amended, a record of the total number of shares of each Fund which are authorized, issued and outstanding.

Prepare shareholder meeting lists and, if applicable, mail, receive and tabulate proxies.

Mail shareholder reports and Prospectuses to current shareholders.

Prepare and file U.S. Treasury Department Forms 1099 and other appropriate information returns required with respect to dividends and distributions for all shareholders.

Provide shareholder account information upon request and prepare and mail confirmations and statements of account to shareholders for all purchases, redemptions and other confirmable transactions as agreed upon with the Corporation.

Mail requests for shareholders’ certifications under penalties of perjury and pay on a timely basis to the appropriate federal authorities any taxes to be withheld on dividends and distributions paid by the Corporation, all as required by applicable federal tax laws and regulations.

Provide a Blue Sky system that will enable each Fund to monitor the total number of shares of such Fund sold in each state. In addition, the Corporation or its agent, including USBFS, shall identify to USBFS in writing those transactions and assets to be treated as exempt from the Blue Sky reporting for each state. The responsibility of USBFS for the each Fund’s Blue Sky state registration status pursuant to this Agreement is limited solely to the reporting of such transactions to such Fund or its agent.

Answer correspondence from shareholders, securities brokers and others relating to USBFS’ duties hereunder and such other correspondence as may from time to time be mutually agreed upon between USBFS and the Corporation.

Annually, provide to each Fund’s board of directors a study that details industry trends and practices respecting market timing employed by the funds serviced by USBFS

Reimburse each Fund each month for all material losses resulting from “as of” processing errors for which USBFS is responsible in accordance with the “as of” processing guidelines set forth on Exhibit B hereto.

3. Representations of USBFS

USBFS represents and warrants to the Corporation that:

It is a limited liability corporation duly organized, existing and in good standing under the laws of Wisconsin;

This Agreement has been duly authorized by USBFS and, when executed and delivered by USBFS, will constitute a legal, valid and binding obligation of USBFS enforceable against USBFS in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting rights and remedies of creditors and secured parties;

It is duly registered with the appropriate regulatory agencies as a transfer agent and such registration will remain in full force and effect for the duration of this Agreement.

It will maintain a disaster recovery plan and procedures, including provisions for emergency use of electronic data processing equipment, which is reasonable in light of the services to be provided, and will, at no additional expense to the Corporation and the Funds, take reasonable steps to minimize service interruptions; and

It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.

4. Representations of the Corporation

The Corporation represents and warrants to USBFS that:

The Corporation is an open-end investment company under the 1940 Act;

The Corporation is a business company organized, existing, and in good standing under the laws of Maryland;

The Corporation is a business company organized, existing, and in good standing under the laws of Maryland; and

This Agreement has been duly authorized by the Corporation and, when executed and delivered by the Corporation, will constitute a legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting rights and remedies of creditors and secured parties.

5. Compensation

USBFS shall be compensated for providing the services set forth in this Agreement to each Fund in accordance with the fee schedule set forth on Exhibit C hereto (as amended from time to time). The Corporation 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 Corporation shall notify USBFS in writing within thirty (30) calendar days following receipt of each invoice if the Corporation is disputing any amounts in good faith. The Corporation 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 Corporation 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 Corporation to USBFS shall only be paid out of assets and property of the particular Fund involved.

6. Indemnification; Limitation of Liability

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 Corporation or any Fund in connection with matters to which this Agreement relates, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond USBFS’ control, except a loss arising out of or relating to USBFS’ 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 Corporation 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) which USBFS may sustain or incur or which 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’ 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 Corporation, 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 Directors of the Corporation. Notwithstanding anything to the contrary, any such indemnification payment shall be made only from the assets of the particular Fund to which the indemnification obligation relates.

USBFS shall indemnify and hold the Corporation and the Funds harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Corporation or any Fund may sustain or incur or that may be asserted against the Corporation by any person arising out of any action taken or omitted to be taken by USBFS as a result of USBFS’ refusal or failure to comply with the terms of this Agreement, its bad faith, negligence, or willful misconduct. Notwithstanding anything to the contrary, any such indemnification payment shall be made only to the particular Fund to which the indemnification obligation relates.

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’ 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 will maintain a disaster recovery plan and procedures, including provisions for emergency use of electronic data processing equipment, which is reasonable in light of the services to be provided under this Agreement. Representatives of the Corporation shall be entitled to inspect USBFS’ premises and operating capabilities at any time during regular business hours of USBFS, upon reasonable notice to USBFS.

Notwithstanding the above, USBFS reserves the right to reprocess and correct administrative errors at its own expense.

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. The 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.

7. 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 Corporation and the Funds all records and other information relative to the Corporation and the Funds and prior, present, or potential shareholders of the Corporation and the Funds (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 Corporation, 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 Corporation.

Further, USBFS will adhere to the privacy policies adopted by the Corporation and the Funds pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time (the “Gramm-Leach Act”). Notwithstanding the foregoing, USBFS will not share any nonpublic personal information concerning any of the Corporation’s shareholders to any third party unless specifically directed by the Corporation or allowed under one of the exceptions noted under the Gramm-Leach Act.

8. Anti-Money Laundering Program

The Corporation acknowledges that it has had an opportunity to review, consider and comment upon the procedures provided by USBFS describing various tools designed to promote the detection and reporting of potential money laundering activity by monitoring certain aspects of shareholder activity (the “Monitoring Procedures”) as well as written procedures for verifying a customer’s identity (the “Customer Identification Procedures”), together referred to as the “Procedures,” and the Corporation has determined that the Procedures, as part of the Corporation’s overall anti-money laundering program, are reasonably designed to prevent each Fund from being used for money laundering or the financing of terrorist activities and to achieve compliance with the applicable provisions of the Bank Secrecy Act and the implementing regulations thereunder.

Based on this determination, the Corporation hereby instructs and directs USBFS to implement the Procedures on the Corporation’s behalf, as such may be amended or revised from time to time.

It is contemplated that these Procedures will be amended from time to time by the parties as additional regulations are adopted and/or regulatory guidance is provided relating to the Corporation’s anti-money laundering responsibilities.

USBFS agrees to provide to the Corporation:

(a)

Prompt written notification of any transaction or combination of transactions that USBFS believes, based on the Procedures, evidence money laundering activity in connection with the Corporation or any shareholder of a Fund;

(b)

Prompt written notification of any customer(s) that USBFS reasonably believes, based upon the Procedures, to be engaged in money laundering activity, provided that the Corporation agrees not to communicate this information to the customer unless otherwise required by applicable law;

(c)

Any reports received by USBFS from any government agency or applicable industry self-regulatory organization pertaining to USBFS’ anti-money laundering monitoring on behalf of the Corporation;

(d)

Prompt written notification of any action taken in response to anti-money laundering violations as described in (a), (b) or (c);

(e)

A certified annual report of its Monitoring Procedures and Customer Identification Procedures on behalf of the Corporation. USBFS shall provide such other reports on the Monitoring Procedures and Customer Identification Procedures conducted at the direction of the Corporation as may be agreed to from time to time by USBFS and the Corporation; and

(f)

Such other certifications and representations regarding USBFS’ Monitoring Procedures and Customer Identification Procedures as the Corporation may reasonably request.

The Corporation hereby directs, and USBFS acknowledges, that USBFS shall (i) permit federal regulators access to such information and records maintained by USBFS and relating to USBFS’ implementation of the Procedures on behalf of the Corporation, as they may request, and (ii) permit such federal regulators to inspect USBFS’ implementation of the Procedures on behalf of the Corporation.

9. Term of Agreement; Amendment

This Agreement shall become effective as of the date first written above and, unless sooner terminated as provided herein, will continue in effect for a period of two years. Subsequent to the two year term, this Agreement will renew automatically for an annual period, subject to the approval of the Board of Directors of the Corporation. 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. This Agreement may be amended by mutual written consent of the parties.

10. Duties in the Event of Termination

In the event that, in connection with termination, a successor to any of USBFS’ duties or responsibilities hereunder is designated by the Corporation by written notice to USBFS, USBFS will promptly, upon such termination and at the expense of the Corporation, 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 Corporation (if such form differs from the form in which USBFS has maintained, the Corporation shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from USBFS’ personnel in the establishment of books, records, and other data by such successor.

11. 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 Corporation, 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 Corporation 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 Corporation on and in accordance with its request. Further, federal examiners shall have access to information and records relating to anti-money laundering activities performed by USBFS hereunder and USBFS consents to any inspection authorized by law or regulation in connection therewith.

12. 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 Securities and Exchange Commission thereunder.

13. Data Necessary to Perform Services

The Corporation or its agent, which may be USBFS, 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 Corporation, nothing herein shall be deemed to relieve USBFS of any of its obligations in such capacity.

14. Assignment

This Agreement may not be assigned by either party without the prior written consent of the other party.

15. 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) calendar days after sent by registered or certified mail, postage prepaid, return receipt requested, to the other party’s address set forth below:

Notice to USBFS shall be sent to:

U.S. Bancorp Fund Services, LLC
Attention: President
615 East Michigan Street
Milwaukee, WI 53202

and notice to the Corporation prior to September 1, 2004 shall be sent to:

Perritt Capital Management, Inc.
Attention: President
10 S. Riverside Plaza, Suite 1520
Chicago, IL 60606

and notice to the Corporation after September 1, 2004 shall be sent to:

Perritt Capital Management, Inc.
Attention: President
300 South Wacker Drive, Suite 2880
Chicago, IL 60606

16. Miscellaneous

Headings in this Agreement are included for convenience only and are not to be used to construe or interpret this Agreement.

This Agreement constitutes the complete agreement of the parties hereto as to the subject matter covered by this Agreement, and supersedes all prior negotiations, understandings and agreements bearing upon the subject matter covered herein.

This Agreement may be executed in counterparts, each of which shall be an original, but all of which, taken together, shall constitute one and the same agreement.

Every reference to a Fund will be deemed a reference solely to the particular Fund in question. Under no circumstances shall the rights, obligations or remedies with respect to a particular Fund constitute a right, obligation or remedy applicable to any other Fund. In particular, USBFS shall not have any right to set off claims of a Fund by applying the property of any other Fund.

IN WITNESS WHEREOF, the parties hereto have caused this Transfer Agent Servicing Agreement to be executed by a duly authorized officer on one or more counterparts as of the date first above written.


PERRITT FUNDS, INC			U.S. BANCORP FUND SERVICES, LLC
By: /s/ Michael J. Corbett			By: /s/ Joe D. Redwine
			Joe D. Redwine
Title: President			Title: President

Exhibit A
to the
Transfer Agent Servicing Agreement

Fund Names


Name of Series			Date Added
Perritt Emerging Opportunities Fund, a series of Perritt Funds, Inc.			August 7, 2004

Exhibit B
to the
Transfer Agent Servicing Agreement

As Of Processing Policy

USBFS will promptly reimburse each Fund for any net material loss that may exist on the Fund’s books and for which USBFS is responsible, at the end of each calendar month. “Net material loss” shall be defined as any remaining loss, after netting losses against any gains, which impacts a Fund’s net asset value per share by more than ½ cent. Gains and losses will be reflected on the Fund’s daily share sheet, and the Fund will be reimbursed for any net material loss on a monthly basis. USBFS will reset the as of ledger each calendar month so that any losses which do not exceed the materiality threshold of ½ cent will not be carried forward to the next succeeding month. USBFS will promptly notify the Fund’s investment adviser of any losses on the daily share sheet for which the adviser may be held accountable.

Exhibit C to the Transfer Agent Servicing Agreement

TRANSFER AGENT & SHAREHOLDER SERVICES
ANNUAL FEE SCHEDULE
Perritt Funds, Inc.


Service Charges to the Fund*	Service Charges to Investors
Shareholder Account Fee (Subject to Minimum)	Qualified Plan Fees (Billed to Investors)
No-Load - $14.00 /account	$15.00 /qualified plan acct (Cap at $25.00/SSN)
Annual Minimum	$15.00 /Coverdell ESA acct (Cap at $25.00/SSN)
$10,000 - Increases to $21,000 after twelve months.	$25.00 /transfer to successor trustee
Perritt Emerging Opportunities Fund	$25.00 /participant distribution (Excluding SWPs)
	$25.00 /refund of excess contribution
	Additional Shareholder Fees (Billed to Investors)
Telephone Calls - $1.00 /call	$15.00 /outgoing wire transfer
Draft Check Processing - $1.00 /draft	$15.00 /overnight delivery
Daily Valuation Trades - $6.75 /trade	$ 5.00 /telephone exchange
Lost Shareholder Search - $5.00 /search	$25.00 /return check or ACH
E-mail Services	$25.00 /stop payment
$200 /month administration	$ 5.00 /research request per account (Cap at
$3.00 /e-mail received	$25.00/request) (For requested items of the second
AML Base Service (excl Level 3 accounts)	calendar year [or previous] to the request)
0-999 accounts - $500.00/year
1,000-4,999 accounts - $1,000/year
5,000-9,999 accounts - $2,500/year	Technology Charges
10,000+ accounts - $5,000/year	1. NSCC Service Interface - All NSCC Services
AML New Account Service - $1.00/new domestic	Setup - $1,500 /fund group
accounts and $2.00/new foreign account
ACH/EFT Shareholder Services:	2. Telecommunications and Voice Services
$125.00 /month/fund group	Service Setup - $1,500 ATT transfer connect
$ .50 /ACH item, setup, change	VRU Setup - $500 /fund group
$5.00 /correction, reversal
	3. Asset Allocation Services - $8.00 /account
Out-of-pocket Costs - Including but not limited to:	group/year (4 reallocations)
Telephone toll-free lines, call transfers, etc.	4. 12b-1 Aging - $1.50 /account/year
Mailing, sorting and postage	5. Fund Group Setup (first class) - $5,000 /fund group
Stationery, envelopes	6. Fund Setup - $2,500 /fund/class (beyond first class)
Programming, special reports	7. Development/Programming - $150 /hour
Insurance, record retention, microfilm/fiche	8. File Transmissions - subject to requirements
Proxies, proxy services	9. Selects - $300 per select, plus $50 /Excel
ACH fees, NSCC charges	10. Extraordinary services - charged as incurred
All other out-of-pocket expenses	Conversion of Records (if necessary) - Estimate to
	be provided.
	Custom processing, re-processing
	All other extraordinary services
* Subject to CPI increase
	Fees are billed monthly.