INVESTMENT SUB-ADVISORY AGREEMENT
CONSTELLATION FUNDS
AGREEMENT made this 21st day of December, 2005, by and between
Constellation Investment Management Company, L.P. (the "Adviser") and Diamond
Hill Capital Management, Inc. (the "Sub-Adviser").
WHEREAS, Constellation Funds, a Delaware business trust (the "Trust")
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated March 1, 2004 (the "Advisory Agreement") with the Trust, pursuant to which
the Adviser will act as investment adviser to each series of the Trust set forth
on Schedule A of this Agreement (each a "Fund" and collectively the "Funds");
and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser to provide investment advisory services to the Adviser in
connection with the management of a Fund, and the Sub-Adviser is willing to
render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and
the Trust's Board of Trustees, the Sub-Adviser shall manage those
assets of a Fund that the Adviser determines to allocate to the
Sub-Adviser (the "Allocated Assets"), including the purchase, retention
and disposition of the Allocated Assets, in accordance with each Fund's
investment objectives, policies and restrictions as stated in the
Fund's prospectus and statement of additional information, as currently
in effect and as amended or supplemented from time to time (referred to
collectively as the "Prospectus"), and subject to the following:
(a) The Sub-Adviser shall, subject to the direction of the Adviser,
determine from time to time what Allocated Assets will be
purchased, retained or sold by the Fund, and what portion of the
Allocated Assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Trust's Declaration of Trust (as defined herein) and the
Prospectus and with the instructions and directions of the
Adviser and of the Board of Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal
and state laws and regulations, as each is amended from time to
time.
(c) The Sub-Adviser shall determine the Allocated Assets to be
purchased or sold by the Fund as provided in subsection (a) and
will place orders with or through such persons, brokers or
dealers to carry out the policy with respect to brokerage set
forth in each Fund's Registration Statement (as defined herein)
and Prospectus or as the Board of Trustees or the Adviser may
direct from time to time, in conformity with federal securities
laws. In executing Fund transactions and selecting brokers or
dealers, the Sub-Adviser will use its best efforts to seek on
behalf of each Fund the best overall terms available. In
assessing the best overall terms available for any transaction,
the Sub-Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution
1
capability of the broker or dealer, and the reasonableness of
the commission, if any, both for the specific transaction and on
a continuing basis. In evaluating the best overall terms
available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the
brokerage and research services provided (as those terms are
defined in Section 28(e) of the Securities Exchange Act of
1934). Consistent with any guidelines established by the Board
of Trustees of the Trust, the Sub-Adviser is authorized to pay
to a broker or dealer who provides such brokerage and research
services a commission for executing a fund transaction for a
Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such
broker or dealer -- viewed in terms of that particular
transaction or in terms of the overall responsibilities of the
Sub-Adviser to the Fund and other accounts as to which it
exercises investment discretion. In addition, the Sub-Adviser is
authorized to allocate purchase and sale orders for securities
to brokers or dealers (including brokers and dealers that are
affiliated with the Adviser, Sub-Adviser or the Trust's
principal underwriter) to take into account the sale of shares
of the Trust if the Sub-Adviser believes that the quality of the
transaction and the commission are comparable to what they would
be with other qualified firms. In no instance, however, will a
Fund's Allocated Assets be purchased from or sold to the
Adviser, Sub-Adviser, the Trust's principal underwriter, or any
affiliated person of either the Trust, Adviser, the Sub-Adviser
or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities
and Exchange Commission ("SEC") and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with
respect to transactions involving the Allocated Assets required
by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser
shall provide to the Adviser or the Board of Trustees such
periodic and special reports, balance sheets or financial
information, and such other information with regard to its
affairs as the Adviser or Board of Trustees may reasonably
request.
The Sub-Adviser shall keep the books and records relating to the
Allocated Assets required to be maintained by the Sub-Adviser
under this Agreement and shall timely furnish to the Adviser all
information relating to the Sub-Adviser's services under this
Agreement needed by the Adviser to keep the other books and
records of a Fund required by Rule 31a-1 under the 1940 Act. The
Sub-Adviser shall also furnish to the Adviser any other
information relating to the Allocated Assets that is required to
be filed by the Adviser or the Trust with the SEC or sent to
shareholders under the 1940 Act (including the rules adopted
thereunder) or any exemptive or other relief that the Adviser or
the Trust obtains from the SEC. The Sub-Adviser agrees that all
records that it maintains on behalf of a Fund are property of
the Fund and the Sub-Adviser will surrender promptly to the Fund
any of such records upon the Fund's request; provided, however,
that the Sub-Adviser may retain a copy of such records. In
addition, for the duration of this Agreement, the Sub-Adviser
shall preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act any such records as are required to be maintained
by it pursuant to this Agreement, and shall transfer said
records to any successor sub-adviser upon the termination of
this Agreement (or, if there is no successor sub-adviser, to the
Adviser).
2
(e) The Sub-Adviser shall provide each Fund's custodian on each
business day with information relating to all transactions
concerning the Fund's Allocated Assets and shall provide the
Adviser with such information upon request of the Adviser.
(f) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to others,
as long as such services do not impair the services rendered to
the Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any
financial condition that is likely to impair the Sub-Adviser's
ability to fulfill its commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials
and be responsible for voting and handling all proxies in
relation to the Allocated Assets. The Adviser shall instruct the
custodian and other parties providing services to the Fund to
promptly forward misdirected proxies to the Sub-Adviser.
(i) Except as specifically permitted in writing by the Adviser, or
as otherwise permitted or required to comply with the
requirements of the 1940 Act (including the rules adopted
thereunder), the Sub-Adviser shall not consult with any other
sub-adviser to the Trust or a Fund concerning the purchase,
retention or disposition of Fund Allocated Assets.
Services to be furnished by the Sub-Adviser under this Agreement
may be furnished through the medium of any of the Sub-Adviser's
partners, officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to each Fund pursuant to
the Advisory Agreement and shall oversee and review the Sub-Adviser's
performance of its duties under this Agreement; provided, however, that
in connection with its management of the Allocated Assets, nothing
herein shall be construed to relieve the Sub-Adviser of responsibility
for compliance with the Trust's Declaration of Trust (as defined
herein), the Prospectus, the instructions and directions of the Board
of Trustees of the Trust, the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and
state laws and regulations, as each is amended from time to time.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with
the Secretary of State of the State of Delaware (such Agreement
and Declaration of Trust, as in effect on the date of this
Agreement and as amended from time to time, herein called the
"Declaration of Trust");
3
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of
this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Prospectus(es) of each Fund.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified on Schedule C of
this Agreement. The fee will be calculated based on the monthly average
net value of the Allocated Assets under the Sub-Adviser's management.
Except as may otherwise be prohibited by law or regulation (including
any then current SEC staff interpretation), the Sub-Adviser may, in its
discretion and from time to time, waive a portion of its fee.
5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorney's fees and other related
expenses) howsoever arising from or in connection with the performance
of the Sub-Adviser's obligations under this Agreement; provided,
however, that the Sub-Adviser's obligation under this Section 5 shall
be reduced to the extent that the claim against, or the loss, liability
or damage experienced by the Adviser, is caused by or is otherwise
directly related to the Adviser's own, or any other sub-adviser's,
willful misfeasance, bad faith or negligence, or to the reckless
disregard of its duties under this Agreement.
6. DURATION AND TERMINATION. This Agreement shall become effective as to a
Fund upon its approval by the Trust's Board of Trustees and by the vote
of a majority of the outstanding voting securities of each Fund, if
required. This Agreement shall continue in effect as to a Fund for a
period of more than two years from the date that the Sub-Adviser began
providing services hereunder only so long as continuance is
specifically approved at least annually in conformance with the 1940
Act; provided, however, that this Agreement may be terminated with
respect to a Fund (a) by the Fund at any time, without the payment of
any penalty, by the vote of a majority of Trustees of the Trust or by
the vote of a majority of the outstanding voting securities of the
Fund, (b) by the Adviser at any time, without the payment of any
penalty, on not less than 30 days' written notice to the Sub-Adviser,
or (c) by the Sub-Adviser at any time, without the payment of any
penalty, on 90 days' written notice to the Adviser. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Trust. As used in this Section 6, the terms "assignment" and
"vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the SEC under the 1940 Act.
7. GOVERNING LAW. This Agreement shall be governed by the internal laws of
the Commonwealth of Pennsylvania, without regard to conflict of law
principles; provided, however, that nothing herein shall be construed
as being inconsistent with the 1940 Act.
8. SEVERABILITY. Should any part of this Agreement be held 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.
4
9. ACKNOWLEDGEMENT. The Advisor acknowledges receipt of Form ADV, Part 2
at least 48 hours in advance of entering this Agreement.
10. NOTICE. Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by
registered, certified or overnight mail, postage prepaid addressed by
the party giving notice to the other party at the last address
furnished by the other party:
To the Adviser at: Constellation Investment Management
Company, L.P.
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx
To the Sub-Adviser at: Diamond Hill Capital Management, Inc.
000 X. Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx
11. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject
matter. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
A copy of the Declaration of Trust is on file with the Secretary of
State of the State of Delaware, and notice is hereby given that the obligations
of this instrument are not binding upon any of the Trustees, officers or
shareholders of the Fund or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
CONSTELLATION INVESTMENT MANAGEMENT COMPANY, L.P.
By: /s/Xxxx X. Xxxxx
----------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
DIAMOND HILL CAPITAL MANAGEMENT, INC.
By: /s/Xxxxx X. Xxxxx
-----------------
Name: Xxxxx X. Xxxxx
Title: Chief Financial Officer
6
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
DECEMBER 21, 2005
LISTING OF FUND(S)
Constellation Small Cap Value Opportunities Fund
7
SCHEDULE C
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
FOR FUNDS WITH NO PERFORMANCE ADJUSTMENT
This Schedule C shall apply to each of the Funds identified on Schedule C-1
hereto.
(a) The Adviser shall pay to the Sub-Adviser a fee for each Fund
calculated daily and payable monthly in arrears, computed as a percentage of the
net value of the Allocated Assets for such month at the rate set forth in
Schedule C-1 hereto.
8
SCHEDULE C-1
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
LISTING OF FUNDS AND FEE RATES
Name of Fund Fee Rate
------------ --------
Constellation Small Cap Value 0.55% on the first $50 million of Allocated Assets;
Opportunities Fund 0.50% on Allocated Assets above $50 million
9
