ADVISORY AGREEMENT
AGREEMENT made this ____ day of ______, 1997, between Capitol Square
Funds (the "Trust"), a business trust organized under the laws of the State of
Ohio, and Xxxxxx Capital Management (the "Adviser"), a limited partnership
organized under the laws of the State of Ohio.
WHEREAS, the Trust has been organized to operate as an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series or funds, each having separate investment objectives and
policies; and
WHEREAS, the Capitol Square Balanced Fund (the "Fund") has been
established as series of the Trust; and
WHEREAS, the Fund has been created for the purpose of investing and
reinvesting its assets in securities pursuant to its investment objective and
policies as set forth in the Trust's registration statements under the 1940 Act
and the Securities Act of 1933 ("Registration Statements"), as heretofore
amended and supplemented; and the Trust desires to avail itself of the services,
information, advice, assistance and facilities of a manager and to have a
manager provide or perform for it various management, statistical and other
services for the Fund;
NOW, THEREFORE, the Trust and the Adviser agree as follows:
1. Employment of the Adviser. The Trust hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Fund in the manner
set forth in paragraph 2 of this Agreement, subject to the direction of the
Board of Trustees and the officers of the Trust, for the period, in the manner,
and on the terms hereinafter set forth. The Adviser hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
2. Obligation of and Services to be Provided by the Adviser. The
Adviser undertakes to provide the services hereinafter set forth and to assume
the following obligations:
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A. Investment Management Services.
(a) The Adviser shall have responsibility for the
management and investment of the assets and portfolio
securities of the Fund subject to and in accordance
with the investment objective and policies of the
Fund, and any directions which the Trust's Board of
Trustees may issue to the Adviser from time to time.
(b) The Adviser shall provide overall investment programs
and strategies for the Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Adviser shall provide or arrange for and
supervise the provision by third parties to the Fund
of custody, transfer agency, administrative,
accounting, legal, audit and similar services.
(d) The Adviser shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Fund and measurement and analysis of the results
achieved by the Fund.
B. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and
Other Materials.
The Adviser will make available and provide financial,
accounting and statistical information required by the Trust
in the preparation of registration statements, reports and
other documents required by federal and state securities laws,
and such information as the Trust may reasonably request for
use in the preparation of registration statements, reports and
other documents required by federal and state securities laws.
C. Other Obligations and Services.
The Adviser shall make available its officers and employees to
the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the limitations contained in this paragraph 3, shall place,
on behalf of the Fund, orders for the execution of portfolio transactions. The
Adviser is not authorized by the Fund to take any action, including the purchase
or sale of securities for the Fund's account, (a) in contravention
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of (i) any investment restrictions set forth in the 1940 Act and the rules
thereunder, (ii) specific instructions adopted by the Board of Trustees and
communicated to the Adviser, (iii) the investment objective, policies and
restrictions of the Fund as set forth in the Trust's Registration Statement, or
(iv) instructions from the Trust communicated to the Adviser, or (b) which would
have the effect of causing the Fund to fail to qualify or to cease to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, or any succeeding statute.
Subject to the foregoing, the Adviser shall determine the securities to
be purchased or sold by the Fund and will place orders pursuant to its
determination with or through such persons, brokers or dealers in conformity
with the policy with respect to brokerage as set forth in the Trust's
Registration Statement or as the Board of Trustees may direct from time to time.
It is recognized that, in providing the Fund with investment supervision of the
placing of orders for portfolio transactions, the Adviser will give primary
consideration to securing the best qualitative execution, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. Consistent with this policy, the Adviser may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust nor the Adviser have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Adviser have access to supplemental investment
and market research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher commission to the
Fund than may result when allocating brokerage to other brokers on the basis of
seeking the lowest commission. Therefore, the Adviser is authorized to place
orders for the purchase and sale of securities for the Fund with such certain
brokers, subject to review by the Trust's Board of Trustees from time to time
with respect to the extent and continuation of this practice, provided that the
Adviser determines in good faith that the amount of the commission is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker or dealer. The determination may be viewed in terms of either a
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and to other accounts over which it exercises investment discretion. It
is understood that although the information may be useful to the Fund and the
Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National
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Association of Securities Dealers, Inc., and subject to seeking best qualitative
execution, the Adviser may give consideration to sales of shares of the Fund as
a factor in the selection of brokers and dealers to execute portfolio
transactions of the Fund.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
Consistent with the policies described in this paragraph 3, the Adviser
may execute any portfolio transactions for the Fund's account with a broker or
dealer which is an "affiliated person" (as defined in the Act) of the Trust or
the Adviser, subject to review by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of this practice.
For each fiscal quarter of the Fund, the Adviser shall render reports
to the Trust's Board of Trustees of the total brokerage business placed by the
Fund and the manner in which the allocation has been accomplished.
4. Expenses of the Fund. The Adviser will pay all of the expenses of
the Fund (including the fees and charges of third-party service providers
engaged pursuant to paragraph 2 above) except the following: interest; taxes;
brokerage commissions; extraordinary expenses; and the fees and expenses,
including ordinary counsel fees, of those Trustees who are not "interested
persons" as defined in the 1940 Act (hereinafter referred to as the "Independent
Trustees"). The Adviser will provide the Trust with such facilities and
personnel as may, from time to time, be required to carry on the business of the
Fund including but not limited to office space, office furniture, fixtures and
equipment, office supplies, computer hardware and software and salaried and
hourly paid personnel. The Adviser may at its expense employ others to provide
all or any part of such facilities and personnel.
5. Activities and Affiliates of the Adviser.
A. The services of the Adviser hereunder are not to be
deemed exclusive, and the Adviser and any of its
affiliates shall be free to render similar services to
others. The Adviser shall use the same skill and care
in the management of the Fund's assets as it uses in
the administration of other accounts to which it
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provides asset management, consulting and portfolio manager
selection services, but shall not be obligated to give the
Fund more favorable or preferential treatment vis-a-vis its
other clients.
B. Subject to and in accordance with the Agreement and
Declaration of Trust and Bylaws of the Trust and to Section
10(a) of the 1940 Act, it is understood that Trustees,
officers and agents of the Trust and shareholders of the Fund
are or may be interested in the Adviser or its affiliates as
directors, officers, agents, stockholders or partners of the
Adviser or its affiliates; that directors, officers, agents,
stockholders or partners of the Adviser or its affiliates are
or may be interested in the Trust as Trustees, officers,
agents, shareholders or otherwise; that the Adviser or its
affiliates may be interested in the Trust as shareholders or
otherwise; and that the effect of any such interests shall be
governed by said Declaration of Trust, Bylaws and the 1940
Act.
6. Compensation of Adviser.
A. As full compensation for the services and such facilities as
may from time to time be furnished by the Adviser under this
Agreement, the Capitol Square Balanced Fund agrees to pay the
Adviser a fee equal to the annual rate of .25% of the average
value of its daily net assets, less the accrued fees and
expenses, including ordinary counsel fees, of the Independent
Trustees of the Trust. Such fees shall be accrued daily and
payable monthly. For purposes of calculating such fees, net
asset value shall be determined by taking the average of all
daily determinations of net asset value made in the manner
provided in the Fund's current Prospectus and Statement of
Additional Information.
B. For any period less than a full month during which this
Agreement is in effect the compensation payable to the Adviser
hereunder shall be prorated according to the proportion which
such period bears to a full month.
7. Liabilities of the Adviser.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be
subject to liability to the Fund or to any shareholder of the
Fund for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
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B. No provision of this Agreement shall be construed to protect
any Trustee, director, officer or agent of the Trust or the
Adviser from liability in violation of Sections 17(h) and (i)
of the 1940 Act.
8. Renewal and Termination.
A. This Agreement shall become effective on the date first
written above and shall remain in full force and effect
until August 27, 1998 and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually by the vote of a majority of the Trustees who
are not interested persons of the Trust or the Adviser, cast
in person at a meeting called for the purpose of voting on
such approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund.
The aforesaid provision that this Agreement may be continued
"annually" shall be construed in a manner consistent with the
Act and the rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated, without the payment of
any penalty, either by vote of the Board of Trustees
of the Trust or, with respect to the Fund, by vote of
a majority of the outstanding voting securities of
the Fund, on sixty (60) days' written notice to the
Adviser;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Adviser on sixty (60)
days' written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act
and the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other party
to this Agreement at its principal place of business.
9. 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.
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10. Limitation of Liability. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust,
personally, but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the Trustees and shareholders of the Trust and signed by
the officers of the Trust, acting as such, and neither such authorization by
such Trustees and shareholders nor such execution and delivery by such officers
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust.
11. Use of Name. The Adviser may use the name "Capitol Square" or any
derivation thereof in connection with another business enterprise, including any
registered investment company with which the Adviser is, or may become
associated, so long as such use is permitted under the Act and other applicable
law. The Trust will discontinue any use of the name "Capitol Square" if the
Adviser ceases to be employed as the Trust's investment manager.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the affected Fund and by the Board of
Trustees, including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
13. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
ATTEST: CAPITOL SQUARE FUNDS
By:
Title: President
ATTEST: XXXXXX CAPITAL MANAGEMENT
By:
Title: President
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