INVESTMENT ADVISORY AGREEMENT
CONSTELLATION FUNDS
AGREEMENT made as of this 17th day of February, 2006, by and between
Constellation Funds, a Delaware business trust (the "Trust"), and Touchstone
Advisors, Inc. (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to each series of the Trust set forth on
Schedule A of this Agreement (each a "Fund" and collectively the "Funds"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF ADVISER. The Trust employs the Adviser to manage the investment
and reinvestment of the assets of the Funds, and to hire (subject to the
approval of the Trust's Board of Trustees and, except as otherwise
permitted under the terms of any applicable exemptive relief obtained from
the Securities and Exchange Commission, or by rule or regulation, a
majority of the outstanding voting securities of each Fund) and thereafter
supervise the investment activities of one or more sub-advisers deemed
necessary to carry out the investment program of each Fund, and to
continuously review, supervise and (where appropriate) administer the
investment program of each Fund, to determine in its discretion (where
appropriate) the securities to be purchased or sold, to provide the Trust
with records concerning the Adviser's activities which the Trust is
required to maintain, and to render regular reports to the Trust's
officers and Trustees concerning the Adviser's discharge of the foregoing
responsibilities. The retention of a sub-adviser by the Adviser shall not
relieve the Adviser of its responsibilities under this Agreement.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the Board of Trustees of the Trust and in compliance with such
policies as the Trustees may from time to time establish, and in
compliance with the objectives, policies, and limitations for each such
Fund set forth in the Fund's prospectus and statement of additional
information as amended from time to time, and applicable laws and
regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
equipment and the personnel (including any sub-advisers) required by it to
perform the services on the terms and for the compensation provided
herein. The Adviser will not, however, pay for the cost of securities,
commodities, and other investments (including brokerage commissions and
other transaction charges, if any) purchased or sold for any Fund.
2. FUND TRANSACTIONS. The Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities
for the Funds and is directed to use its best efforts to obtain the best
net results as described from time to time in the Funds' Prospectus(es)
and Statement(s) of Additional Information. The Adviser will promptly
communicate to the officers and the Trustees of the Trust such information
relating to portfolio transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, by reason of its having directed a securities transaction on
behalf of the Trust to a broker-dealer in compliance with the provisions
of Section 28(e) of the Securities Exchange Act of 1934 or as described
from time to time by the Funds' Prospectuses and Statement of Additional
Information.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall
pay to the Adviser compensation at the rate specified on Schedule B or
Schedule C, as applicable, of this Agreement. Such compensation shall be
paid to the Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified in the
appropriate Schedule, to the assets. The fee shall be based on the average
daily net assets for the month involved (less any assets of such Funds
held in non-interest bearing special deposits with a Federal Reserve
Bank). The Adviser may, in its discretion and from time to time, waive a
portion of its fee.
All rights of compensation under this Agreement for services performed as
of the termination date shall survive the termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of printing and mailing
reports, prospectuses, statements of additional information, and sales
literature relating to the solicitation of prospective clients. The Trust
shall pay all expenses relating to mailing to existing shareholders
prospectuses, statements of additional information, proxy solicitation
material and shareholder reports.
5. EXCESS EXPENSES. If the expenses for any Fund for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary
costs) as calculated every business day would exceed the expense
limitations imposed on investment companies by any applicable statute or
regulatory authority of any jurisdiction in which shares of a Fund are
qualified for offer and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of any Fund which would result
in the Fund's inability to qualify as a regulated investment company under
provisions of the Internal Revenue Code. Payment of expenses by the
Adviser pursuant to this Section 5 shall be settled on a monthly basis
(subject to fiscal year end reconciliation) by a reduction in the fee
payable to the Adviser for such month pursuant to Section 3(a) or 3(b)
and, if such reduction shall be insufficient to offset such expenses, by
reimbursing the Trust.
2
6. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. STATUS OF ADVISER. The services of the Adviser to the Trust are not to be
deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Trust are not impaired thereby.
The Adviser shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Trust in any way or otherwise be deemed an agent
of the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under
the 1940 Act which are prepared or maintained by the Adviser on behalf of
the Trust are the property of the Trust and will be surrendered promptly
to the Trust on request.
9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Adviser hereunder. The Adviser
shall not be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of
applicable state law or Federal securities law which cannot be waived or
modified hereby. (As used in this Paragraph 9, the term "Adviser" shall
include directors, officers, employees and other corporate agents of the
Adviser as well as that corporation itself).
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are
or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise; directors,
partners, officers, agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or otherwise; and the
Adviser (or any successor) is or may be interested in the Trust as a
shareholder or otherwise. In addition, brokerage transactions for the
Trust may be effected through affiliates of the Adviser if approved by the
Board of Trustees, subject to the rules and regulations of the Securities
and Exchange Commission.
3
11. LICENSE OF ADVISER'S NAME. The Adviser hereby agrees to grant a license to
the Trust for use of its name in the names of the Funds for the term of
this Agreement and such license shall terminate upon termination of this
Agreement.
12. 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. This
Agreement shall continue in effect for a period of more than two years
from the date that the Adviser began providing services hereunder only so
long as continuance is specifically approved at least annually in
conformance with the 1940 Act, however, that if the shareholders of any
Fund fail to approve the Agreement as provided herein, the Adviser may
continue to serve hereunder in the manner and to the extent permitted by
the 1940 Act and rules and regulations thereunder. The foregoing
requirement that continuance of this Agreement be "specifically approved
at least annually" shall be construed in a manner consistent with the 1940
Act and the rules and regulations thereunder.
This Agreement may be terminated as to any Fund at any time, without the
payment of any penalty by vote of a majority of the Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Fund
on not less than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser at any time without the payment of any penalty,
on 90 days written notice to the Trust. This Agreement will automatically
and immediately terminate in the event of its assignment. Any notice under
this Agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
As used in this Section 11, the terms "assignment", "interested persons",
and a "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 exemptions as may be granted by
the Securities and Exchange Commission under said Act.
13. NOTICE. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 000 Xxxxxxxx, Xxxxx 0000, Xxxxxxxxxx, XX
00000, Attn: President, and if to the Adviser at 000 Xxxxxxxx, Xxxxx 0000,
Xxxxxxxxxx, XX 00000, Attn: President.
14. 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.
15. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Delaware and the applicable provisions of the 1940
Act. To the extent that the applicable laws of the State of Delaware, or
any of the provisions herein, conflict with the applicable provisions of
the 1940 Act, the latter shall control.
4
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
the State of Delaware, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Trust as Trustees, and are not binding
upon any of the Trustees, officers, or shareholders of the Trust individually
but binding only upon the assets and property of the Trust. Further, the
obligations of the Trust with respect to any one Fund shall not be binding upon
any other Fund.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
CONSTELLATION FUNDS
By: /s/ Xxxx Xxxxx
----------------------------------
Attest: /s/ Illegible
------------------------------
TOUCHSTONE ADVISORS, INC.
By: /s/ Xxxxx Xxxxx
----------------------------------
Attest: /s/ Xxxxxxx Xxxx
5
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS
----------------
Name of Fund
------------
Touchstone Value Opportunities Fund
Touchstone Diversified Small Cap Value Fund
Touchstone Clover Core Fixed Income Fund
Touchstone Ultra Short Duration Fixed Income Fund
Touchstone Short Duration Fixed Income Fund
Touchstone Diversified Value Fund
Touchstone Diversified Growth Fund
Touchstone Small Cap Fund
Touchstone Family Heritage(R) Fund
Touchstone Pitcairn Taxable Bond Fund
Touchstone Tax-Exempt Bond Fund
Touchstone Sands Capital Select Growth Fund
Touchstone Mid Cap Fund
Touchstone Healthcare & Biotechnology Fund
Touchstone International Equity Fund
Touchstone Small Cap Value Opportunities Fund
Touchstone Strategic Value and High Income Fund
Touchstone Premium Yield Equity Fund
6
SCHEDULE B
TO THE
INVESTMENT ADVISORY AGREEMENT
FOR FUNDS WITH PERFORMANCE ADJUSTMENTS
--------------------------------------
This Schedule B shall apply to each of the Funds identified on Schedule B-1
hereto.
(a) GENERAL. The Trust shall pay to the Adviser, as compensation for the
Adviser's services and expenses assumed hereunder, a fee determined with respect
to each Fund, which shall be composed of the Basic Fee (defined below) and a
Performance Adjustment (defined below) to the Basic Fee based upon the
investment performance of a class of shares of the Fund in relation to the
investment record of a securities index determined by the Trustees of the Trust
to be appropriate over the same period.
(b) INDEX, CLASS AND CHANGES TO THE CLASS. The Trustees have initially
designated for each Fund the index and class of shares of the Fund identified on
Schedule B-1 as the index and class to be used for purposes of determining the
Performance Adjustment (referred to herein as the "Index" and the "Class,"
respectively). From time to time, the Trustees may, by a vote of the Trustees of
the Trust voting in person, including a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the 0000 Xxx)
of any such parties, determine that a different class of shares of the Trust
representing interests in a Fund other than the Class is most appropriate for
use in calculating the Performance Adjustment. If a different class of shares
(the "Successor Class") is substituted in calculating the Performance Adjustment
the use of a Successor Class of shares for purposes of calculating the
Performance Adjustment shall apply to the entire performance period so long as
such Successor Class was outstanding at the beginning of such period. In the
event that such Successor Class of shares was not outstanding for all or a
portion of the Performance Period, it may only be used in calculating that
portion of the Performance Adjustment attributable to the period during which
such Successor Class was outstanding and any prior portion of the Performance
Period shall be calculated using the Successor Class of shares previously
designated.
(c) BASIC FEE. The basic fee for a Fund (the "Basic Fee") for any period
shall equal: (i) the Fund's average net assets during such period, multiplied by
(ii) the annual rate identified for such Fund on Schedule B-1 hereto, multiplied
by (iii) a fraction, the numerator of which is the number of calendar days in
the payment period and the denominator of which is 365 (366 in leap years).
(d) PERFORMANCE ADJUSTMENT. The amount of the performance adjustment (the
"Performance Adjustment") shall equal: (i) the average net assets of the Fund
over the Performance Period (as defined below), multiplied by (ii) the
Adjustment Rate (as defined below), multiplied by (iii) a fraction, the
numerator of which shall be the number of days in the last month of the
Performance Period and the denominator of which shall be 365 (366 in leap
years). The resulting dollar figure will be added to or subtracted from the
Basic Fee depending on whether the Fund experienced better or worse performance
than the Index.
(e) ADJUSTMENT RATE. The adjustment rate (the "Adjustment Rate") shall be
as set forth in Schedule B-2 for each Fund, provided, however, that the
Performance Adjustment may be further adjusted to the extent necessary to insure
that the total adjustment to the Basic Fee on an annualized basis does not
exceed the maximum Performance Adjustment identified for such Fund in Schedule
B-2.
(f) PERFORMANCE PERIOD. The performance period (the "Performance Period")
shall commence on the first day of the month next occurring after this Agreement
becomes effective with respect to the Fund (the "Commencement Date"), provided,
however, that if this Agreement should become effective on the first day of a
month with respect to a Fund, then the Commencement Date shall be the first day
of such month. The Performance Period shall consist of a rolling 12-month period
that includes the most current month for which performance is available plus the
previous 11 months.
7
(g) MEASUREMENT CALCULATION. The Fund's investment performance will be
measured by comparing the (i) opening net asset value of one share of the Class
of the Fund on the first business day of the Performance Period with (ii) the
closing net asset value of one share of the Class of the Fund as of the last
business day of such period. In computing the investment performance of the Fund
and the investment record of the Index, distributions of realized capital gains,
the value of capital gains taxes per share paid or payable undistributed
realized long-term capital gains accumulated to the end of such period and
dividends paid out of investment income on the part of the Fund, and all cash
distributions of the companies whose securities comprise the Index, will be
treated as reinvested in accordance with Rule 205-1 or any other applicable rule
under the Investment Advisers Act of 1940, as the same from time to time may be
amended.
(h) PAYMENT OF FEES. The Management Fee payable hereunder shall be
computed daily and paid monthly in arrears.
(i) AVERAGE NET ASSETS. The term "average net assets" of a Fund as used
herein for any period shall mean the quotient produced by dividing (i) the sum
of the net assets of the Fund, as determined in accordance with procedures
established from time to time under the direction of the Board of Trustees of
the Trust, for each calendar day of such period, by (ii) the number of such
days.
(j) TERMINATION. In the event this Agreement with respect to any Fund is
terminated as of a date other than the last day of any month, the Basic Fee
shall be computed on the basis of the period ending on the last day on which
this Agreement is in effect for such Fund, subject to a pro rata adjustment
based on the number of days elapsed in the current month as a percentage of the
total number of days in such month. The amount of any Performance Adjustment to
the Basic Fee will be computed on the basis of and applied to the average net
assets over the Performance Period ending on the last day on which this
Agreement is in effect for such Fund.
8
SCHEDULE B-1
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS WITH PERFORMANCE ADJUSTMENTS
---------------------------------------------
-------------------------------------------------------------------------------------------
NAME OF FUND PERFORMANCE INDEX ANNUAL BASIC FEE
RATE
-------------------------------------------------------------------------------------------
Touchstone Sands Capital Select Growth Fund Xxxxxxx 1000 Growth Index 0.85%
-------------------------------------------------------------------------------------------
9
SCHEDULE B-2
TO THE
INVESTMENT ADVISORY AGREEMENT
PERFORMANCE ADJUSTMENT RATE
---------------------------
--------------------------------------------------------------------------------
NAME OF FUND / CLASS MAXIMUM RATE METHODOLOGY
ADJUSTMENT
--------------------------------------------------------------------------------
Touchstone Sands Capital Select +/- 0.15% As detailed in Schedule B-3
Growth Fund
--------------------------------------------------------------------------------
10
SCHEDULE B-3
TO THE
INVESTMENT ADVISORY AGREEMENT
METHODOLOGY FOR PERFORMANCE ADJUSTMENT RATE
-------------------------------------------
The tables below describes the applicable advisory fees that the Adviser would
receive based on each Fund's performance as compared to its benchmark index over
a given performance period:
1. TOUCHSTONE SANDS CAPITAL SELECT GROWTH FUND.
The Base Fee The Base Fee
If the Fund: Increases by: If the Fund: Decreases by:
------------ ------------- ------------ -------------
Outperforms the Index by 2.50% or more + 0.15% Underperforms the Index by 2.50% or more - 0.15%
Outperforms the Index by 2.49% or less 0.00% Underperforms the Index by 2.49% or less 0.00%
11
SCHEDULE C
TO THE
INVESTMENT 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 Trust shall pay to the Adviser a fee for each Fund calculated
daily and payable monthly in arrears, computed as a percentage of the average
net assets of the Fund for such month at the rate set forth in Schedule C-1
hereto.
(b) The "average net assets" of the Fund for any month shall be equal to
the quotient produced by dividing (i) the sum of the net assets of such Fund,
determined in accordance with procedures established from time to time by or
under the direction of the Board of Trustees of the Trust, for each calendar day
of such month, by (ii) the number of such days.
12
SCHEDULE C-1
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS AND FEE RATES
------------------------------
--------------------------------------------------------------------------------
NAME OF FUND ANNUAL BASIC FEE RATE
--------------------------------------------------------------------------------
Touchstone Value Opportunities Fund 0.74%
--------------------------------------------------------------------------------
Touchstone Diversified Small Cap Value Fund 0.85%
--------------------------------------------------------------------------------
Touchstone Clover Core Fixed Income Fund 0.45%
--------------------------------------------------------------------------------
Touchstone Ultra Short Duration Fixed Income Fund 0.25%
--------------------------------------------------------------------------------
Touchstone Short Duration Fixed Income Fund 0.25%
--------------------------------------------------------------------------------
Touchstone Diversified Value Fund 0.70%
--------------------------------------------------------------------------------
Touchstone Diversified Growth Fund 0.70%
--------------------------------------------------------------------------------
Touchstone Small Cap Fund 0.70%
--------------------------------------------------------------------------------
Touchstone Family Heritage(R) Fund 0.90%
--------------------------------------------------------------------------------
Touchstone Pitcairn Taxable Bond Fund 0.40%
--------------------------------------------------------------------------------
Touchstone Tax-Exempt Bond Fund 0.30%
--------------------------------------------------------------------------------
Touchstone Mid Cap Fund 0.80%
--------------------------------------------------------------------------------
Touchstone Healthcare & Biotechnology Fund 1.00%
--------------------------------------------------------------------------------
Touchstone International Equity Fund 0.95%
--------------------------------------------------------------------------------
Touchstone Small Cap Value Opportunities Fund 0.95%
--------------------------------------------------------------------------------
Touchstone Strategic Value and High Income Fund 0.10%
--------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund 0.70% on the first
$100 million f assets; 0.65%
on the value of assets above
that amount
--------------------------------------------------------------------------------
13
