INVESTMENT SUB-ADVISORY AGREEMENT
CONSTELLATION FUNDS
AGREEMENT made this __day of ______, 2004, by and between Constellation
Investment Management Company, LP (the "Adviser") and Brandywine Asset
Management, LLC (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 , 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-
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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
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).
(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.
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(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");
(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 B 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
and will be paid to the Sub-Adviser monthly. 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.
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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 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 hereof 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 more
than 60 days' nor 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.
9. 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, LP
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxx X. Xxxxx
To the Sub-Adviser at: Brandywine Asset Management, LLC
0 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
000 X. Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Chief Operating Officer
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the
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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.
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 BRANDYWINE ASSET MANAGEMENT, LLC
COMPANY, LP
By: By:
---------------------------------- ----------------------------------
Name: Xxxx X. Xxxxx Name: Xxxxxx X. Xxxxxxxxx
-------------------------------- --------------------------------
Title: President and Chief Executive Title: Managing Director
Officer
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SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
LISTING OF FUND(s)
Name of Fund
Constellation International Equity Fund
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SCHEDULE B
TO THE
INVESTMENT SUB-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 Adviser shall pay to the Sub-Adviser, as compensation
for the Sub-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. 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
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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 current month plus the preceding 11 months
following the commencement of Fund operations under this Agreement. No
Performance Adjustment shall be made with respect to any period that is less
than 12 months, provided, however, that the Adviser may calculate a Performance
Adjustment for the Constellation International Equity Fund based upon
performance achieved by Brandywine prior to the effective date of this
Agreement.
(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 sub-advisory fee payable hereunder shall be
computed daily and paid monthly in arrears, on the first business day of the
following month.
(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.
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SCHEDULE B-1
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
LISTING OF FUND(s) WITH PERFORMANCE ADJUSTMENTS
ANNUAL BASIC
NAME OF FUND / APPLICABLE CLASS PERFORMANCE INDEX FEE RATE
------------------------------- ------------------- ------------
Constellation International Equity Fund - Class II Shares MSCI All Country 0.45%
World ex U.S. Index
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SCHEDULE B-2
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
PERFORMANCE ADJUSTMENT RATE
Basic Performance Fee Structure: Fulcrum fee of 45 bps (associated with
baseline performance equal to EAFE1), +/- a performance fee of 25 bps -
i.e., a total fee ranging from 20 bps for underperforming EAFE by 125
bps, to 70 bps for exceeding EAFE by 125 bps. Brandywine's fee rate
will be based on a measurement of the changes in the net asset value
("NAV") 2 of the International Fund assets managed by Brandywine,
relative to the Benchmark.
The performance adjustment is equal to 20% of the excess return (positive or
negative) of the assets managed by Brandywine measured against the
Benchmark, based on rolling twelve month periods, and subject to a
maximum adjustment (positive or negative) of 25 bps.
Performance Measurement Period: A rolling 12-month period will be used for
measuring long term Net Relative Performance. AIMR-compliant time
weighted rate of return will be used to determine Net Relative
Performance each month.
Fee Calculation - Asset Base: Average daily net assets will be calculated at the
end of each month. Brandywine's fee will be paid promptly after the end
of each calendar month. Beginning with the 12th month pursuant to the
subadvisory agreement, Brandywine's monthly fee will be calculated by
multiplying the immediately preceding month's average daily net assets
by the fulcrum fee of 3.75 bps (1/12 of the annualized 45 bps),
adjusted for the performance fee based on the Net Relative Performance
over the immediately preceding 12-month period.
----------
(1) The terms "EAFE" or "Benchmark" when used herein shall mean The Xxxxxx
Xxxxxxx Capital International All Country World Free ex-U.S. Index.
(2) The NAV, as calculated by the Fund's sub-administrator, SEI, shall reflect
the allocable Total Annual Operating Expenses, net of securities lending
revenue, if any, and exclusive of interest, taxes, brokerage fees and
commissions, and extraordinary expenses, calculated in accordance with
applicable SEC and accounting guidelines. The Fund's Adviser has agreed to limit
the Fund's "Other Expenses", through July 31, 2007, to 0.45% of the Fund's
average daily net assets. This fee waiver obligation will be reduced by up to
0.01% to the extent that the Fund earns revenues from securities lending
activities.
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