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.
2
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.
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
------------
Constellation Clover Core Value Fund
Constellation Clover Small Cap Value Fund
Constellation Clover Core Fixed Income Fund
Constellation Chartwell Ultra Short Duration Fixed
Income Fund
Constellation Chartwell Short Duration Fixed Income Fund
Constellation HLAM Large Cap Quality Stock Fund
Constellation Pitcairn Diversified Value Fund
Constellation Pitcairn Select Value Fund
Constellation Pitcairn Diversified Growth Fund
Constellation Pitcairn Small Cap Fund
Constellation Pitcairn Family Heritage(R) Fund
Constellation Pitcairn Taxable Bond Fund
Constellation Pitcairn Tax-Exempt Bond Fund
Constellation Sands Capital Select Growth Fund
Constellation TIP Mid Cap Fund
Constellation TIP Healthcare & Biotechnology Fund
Constellation International Equity Fund
Constellation Small Cap Value Opportunities Fund
Constellation Strategic Value and High Income 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.
7
(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.
(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
--------
--------------------------------------------------------------------------------
Constellation Sands Capital Xxxxxxx 1000 Growth Index 0.85%
Select Growth Fund
--------------------------------------------------------------------------------
9
SCHEDULE B-2
TO THE
INVESTMENT ADVISORY AGREEMENT
PERFORMANCE ADJUSTMENT RATE
---------------------------
--------------------------------------------------------------------------------
NAME OF FUND / CLASS MAXIMUM RATE METHODOLOGY
-------------------- ------------ -----------
ADJUSTMENT
----------
--------------------------------------------------------------------------------
Constellation Sands +/- 0.15% As detailed in Schedule B-3
Capital Select 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. CONSTELLATION SANDS CAPITAL SELECT GROWTH FUND.
If the Fund: The Base Fee If the Fund: The Base Fee
Increases Decreases
by: by:
--- ---
Outperforms the Index by + 0.15% Underperforms the Index by - 0.15%
2.50% or more 2.50% or more
Outperforms the Index by 0.00% Underperforms the Index by 0.00%
2.49% or less 2.49% or less
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
----
--------------------------------------------------------------------------
Constellation Clover Core Value Fund 0.74%
--------------------------------------------------------------------------
Constellation Clover Small Cap Value Fund 0.85%
--------------------------------------------------------------------------
Constellation Clover Core Fixed Income Fund 0.45%
--------------------------------------------------------------------------
Constellation Chartwell Ultra Short Duration Fixed 0.25%
Income Fund
--------------------------------------------------------------------------
Constellation Chartwell Short Duration Fixed Income 0.25%
Fund
--------------------------------------------------------------------------
Constellation HLAM Large Cap Quality Stock Fund 0.75%
--------------------------------------------------------------------------
Constellation Pitcairn Diversified Value Fund 0.70%
--------------------------------------------------------------------------
Constellation Pitcairn Diversified Growth Fund 0.70%
--------------------------------------------------------------------------
Constellation Pitcairn Select Value Fund 0.70%
--------------------------------------------------------------------------
Constellation Pitcairn Small Cap Fund 0.70%
--------------------------------------------------------------------------
Constellation Pitcairn Family Heritage(R) Fund 0.90%
--------------------------------------------------------------------------
Constellation Pitcairn Taxable Bond Fund 0.40%
--------------------------------------------------------------------------
Constellation Pitcairn Tax-Exempt Bond Fund 0.30%
--------------------------------------------------------------------------
Constellation TIP Mid Cap Fund 0.80%
--------------------------------------------------------------------------
Constellation TIP Healthcare & Biotechnology Fund 1.00%
--------------------------------------------------------------------------
Constellation International Equity Fund 0.95%
--------------------------------------------------------------------------
Constellation Small Cap Value Opportunities Fund 0.95%
--------------------------------------------------------------------------
Constellation Strategic Value and High Income Fund 0.10%
--------------------------------------------------------------------------
13
