INVESTMENT ADVISORY AGREEMENT
between
CONESTOGA FUNDS
and
CONESTOGA CAPITAL ADVISORS, LLC
------------------------
October 1, 2002
INVESTMENT ADVISORY AGREEMENT
This AGREEMENT (the "Agreement") made this 1st day of October, 2002, by
and between Conestoga Funds, a Delaware business trust which may issue one or
more series of shares of beneficial interest (the "Trust"), and Conestoga
Capital Advisors, LLC, a Delaware limited liability company (the "Adviser").
WHEREAS, 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 Trust desires to retain the Adviser to furnish investment
advisory services to the funds listed on Schedule A (each, a "Fund" and
collectively, the "Funds"), and the Adviser represents that it is willing and
possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) General. The Trust hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein
provided.
(b) Employees of Affiliates. The Adviser may, in its discretion, provide
such services through its own employees or the employees of one or
more affiliated companies that are qualified to act as an investment
adviser to the Trust under applicable laws; provided that (i) all
persons, when providing services hereunder, are functioning as part
of an organized group of persons, and (ii) such organized group of
persons is managed at all times by authorized officers of the
Adviser.
(c) Sub-Advisers. It is understood and agreed that the Adviser may from
time to time employ or associate with such other entities or persons
as the Adviser believes appropriate to assist in the performance of
this Agreement with respect to a particular Fund or Funds (each a
"Sub-Adviser"), and that any such Sub-Adviser shall have all of the
rights and powers of the Adviser set forth in this Agreement;
provided that a Fund shall not pay any additional compensation for
any Sub-Adviser and the Adviser shall be as fully responsible to the
Trust for the acts and omissions of the Sub-Adviser as it is for its
own acts and omissions; and provided further that the retention of
any Sub-Adviser shall be approved in advance by (i) the Board of
Trustees of the Trust (the "Board") and (ii) the shareholders of the
relevant Fund if required under any applicable provisions of the
1940 Act or any exemptive relief granted thereunder. The Adviser
will review, monitor and report to the Trust's Board regarding the
performance and investment procedures of any Sub-Adviser. In the
event that the services of any Sub-Adviser are terminated, the
Adviser may provide investment advisory services pursuant to this
Agreement to the Fund without a Sub-Adviser or employ another
Sub-Adviser without
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further
shareholder approval, to the extent consistent with the 1940 Act or
any exemptive relief granted thereunder. A Sub-Adviser may be an
affiliate of the Adviser.
2. Delivery of Documents. The Trust has delivered to the Adviser
copies of each of the following documents, and will promptly deliver to it
all future amendments and supplements thereto, if any:
(a) the Trust's Trust Instrument;
(b) the Bylaws of the Trust;
(c) resolutions of the Board of the Trust authorizing the execution and
delivery of this Agreement;
(d) the Trust's Registration Statement under the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act, on Form N-1A as filed
with the U.S. Securities and Exchange Commission (the "Commission");
(e) Notification of Registration of the Trust under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) the currently effective Prospectus and Statement of Additional
Information of the Funds.
3. Investment Advisory and Other Services.
(a) Management of the Funds. The Adviser hereby undertakes to act as
investment adviser to the Funds. The Adviser shall regularly provide
investment advice to the Funds and continuously supervise the
investment and reinvestment of cash, securities and other property
composing the assets of the Funds and, in furtherance thereof,
shall:
(i) supervise all aspects of the operations of the Trust and each
Fund;
(ii) obtain and evaluate pertinent economic, statistical and
financial data, as well as other significant events and
developments, which affect the economy generally, the Funds'
investment programs, and the issuers of securities included in
the Funds' portfolios and the industries in which they engage,
or which may relate to securities or other investments which
the Adviser may deem desirable for inclusion in a Fund's
portfolio;
(iii) determine which issuers and securities shall be included in
the portfolio of each Fund;
(iv) furnish a continuous investment program for each Fund;
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(v) in its discretion and without prior consultation with the
Trust, buy, sell, lend and otherwise trade any stocks, bonds
and other securities and investment instruments on behalf of
each Fund; and
(vi) take, on behalf of each Fund, all actions the Adviser may deem
necessary in order to carry into effect such investment
program and the Adviser's functions as provided above,
including the making of appropriate periodic reports to the
Trust's Board of Trustees.
(b) Other Services. The Adviser also hereby undertakes to provide, or,
upon receipt of written approval of the Trust, arrange for other
companies to provide, the following services to the Funds in the
manner and to the extent that such services are reasonably necessary
for the operation of the Funds:
(i) accounting services and functions, including costs and
expenses of any independent public accountants;
(ii) non-litigation related legal and compliance services,
including the expenses of maintaining registration and
qualification of the Fund and the Portfolio under federal,
state and any other applicable laws and regulations;
(iii) dividend disbursing agent, dividend reinvestment agent,
transfer agent, and registrar services and functions
(including answering inquiries related to shareholder Fund
accounts);
(iv) custodian and depository services and functions;
(v) distribution, marketing, and/or underwriting services;
(vi) independent pricing services;
(vii) preparation of reports describing the operations of the Funds,
including the costs of providing such reports to
broker-dealers, financial institutions and other organizations
which render services and assistance in connection with the
distribution of shares of the Funds;
(viii) sub-accounting and recordkeeping services and functions,
including maintenance of shareholder records and shareholder
information concerning the status of their Fund accounts by
investment advisers, broker-dealers, financial institutions,
and other organizations on behalf of the Adviser;
(ix) shareholder and Board of Trustee communication services,
including the costs of preparing, printing and distributing
notices of shareholders' meetings, proxy statements,
prospectuses, statements of additional information, Fund
reports, and other communications to the Fund's
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shareholders, as well as all expenses of shareholders' and
Board of Trustees' meetings, including the compensation and
reimbursable expenses of the Trustees of the Fund;
(x) other day-to-day administrative services, including the costs
of designing, printing, and issuing certificates representing
shares of the Funds, and premiums for the fidelity bond
maintained by the Funds pursuant to Section 17(g) of the 1940
Act and rules promulgated thereunder (except for such premiums
as may be allocated to third parties, as insureds thereunder).
(c) Covenants. The Adviser shall carry out its investment advisory,
other and supervisory responsibilities in a manner consistent with
the investment objectives, policies, and restrictions provided in:
(i) the Funds' Prospectus and Statement of Additional Information as
revised and in effect from time to time; (ii) the Trust's Trust
Instrument, Bylaws or other governing instruments, as amended from
time to time; (iii) the 1940 Act; (iv) other applicable laws; and
(v) such other investment policies, procedures and/or limitations as
may be adopted by the Trust with respect to a Fund and provided to
the Adviser in writing. The Adviser agrees to use reasonable efforts
to manage each Fund so that it will qualify, and continue to
qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended, and regulations issued
thereunder (the "Code"), except as may be authorized to the contrary
by the Trust's Board. The management of the Funds by the Adviser
shall at all times be subject to the review of the Trust's Board.
(d) Books and Records. Pursuant to applicable law, the Adviser shall
keep each Fund's books and records required to be maintained by, or
on behalf of, the Funds with respect to advisory services rendered
hereunder. The Adviser agrees that all records which it maintains
for a Fund are the property of the Fund and it will promptly
surrender any of such records to the Fund upon the Fund's request.
The Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records of the Fund required
to be preserved by such Rule.
(e) Reports, Evaluations and other Services. The Adviser shall furnish
reports, evaluations, information or analyses to the Trust with
respect to the Funds and in connection with the Adviser's services
hereunder as the Trust's Board may request from time to time or as
the Adviser may otherwise deem to be desirable. The Adviser shall
make recommendations to the Trust's Board with respect to Trust
policies, and shall carry out such policies as are adopted by the
Board. The Adviser shall, subject to review by the Board, furnish
such other services as the Adviser shall from time to time determine
to be necessary or useful to perform its obligations under this
Agreement.
(f) Purchase and Sale of Securities. The Adviser shall place all orders
for the purchase and sale of portfolio securities for each Fund with
brokers or dealers selected by the Adviser, which may include
brokers or dealers affiliated with the
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Adviser to the extent permitted by the 1940 Act and the Trust's
policies and procedures applicable to the Funds. The Adviser shall
use its best efforts to seek to execute portfolio transactions at
prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Funds. In assessing the
best overall terms available for any transaction, the Adviser shall
consider all factors 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, research
services provided to the Adviser, and the reasonableness of the
commission, if any, both for the specific transaction and on a
continuing basis. In no event shall the Adviser be under any duty to
obtain the lowest commission or the best net price for any Fund on
any particular transaction, nor shall the Adviser be under any duty
to execute any order in a fashion either preferential to any Fund
relative to other accounts managed by the Adviser or otherwise
materially adverse to such other accounts.
(g) Selection of Brokers or Dealers. In selecting brokers or dealers
qualified to execute a particular transaction, brokers or dealers
may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) to the Adviser and/or the
other accounts over which the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of
the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good
faith that the total commission is reasonable in relation to the
value of the brokerage and research services provided by such broker
or dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Adviser with respect to accounts
over which it exercises investment discretion. The Adviser shall
report to the Board regarding overall commissions paid by the Fund
and their reasonableness in relation to their benefits to the Fund.
Any transactions for the Fund that are effected through an
affiliated broker-dealer on a national securities exchange of which
such broker-dealer is a member will be effected in accordance with
Section 11(a) of the 1934 Act, and the regulations promulgated
thereunder, including Rule 11a2-2(T). The Fund hereby authorizes any
such broker or dealer to retain commissions for effecting such
transactions and to pay out of such retained commissions any
compensation due to others in connection with effectuating those
transactions.
(h) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, the Adviser may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to,
aggregate the securities to be sold or purchased with those of other
Funds or its other clients if, in the Adviser's reasonable judgment,
such aggregation (i) will result in an overall economic benefit to
the Fund, taking into consideration the advantageous selling or
purchase price, brokerage commission and other expenses, and trading
requirements, and (ii) is not inconsistent with the policies set
forth in the Trust's registration statement and the Fund's
Prospectus and Statement of Additional Information. In
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such event, the Adviser will allocate the securities so purchased or
sold, and the expenses incurred in the transaction, in an equitable
manner, consistent with its fiduciary obligations to the Fund and
such other clients.
4. Representations and Warranties.
(a) The Adviser hereby represents and warrants to the Trust as follows:
(i) The Adviser is a limited liability company duly organized and
in good standing under the laws of the State of Delaware and
is fully authorized to enter into this Agreement and carry out
its duties and obligations hereunder.
(ii) The Adviser is registered as an investment adviser with the
Commission under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is registered or licensed as
an investment adviser under the laws of all applicable
jurisdictions. The Adviser shall maintain such registrations
or licenses in effect at all times during the term of this
Agreement.
(iii) The Adviser at all times shall provide its best judgment and
effort to the Trust in carrying out the Adviser's obligations
hereunder.
(b) The Trust hereby represents and warrants to the Adviser as follows:
(i) The Trust has been duly organized as a business trust under
the laws of the State of Delaware and is authorized to enter
into this Agreement and carry out its terms.
(ii) The Trust is registered as an investment company with the
Commission under the 1940 Act and shares of each Fund are
registered for offer and sale to the public under the 1933 Act
and all applicable state securities laws where currently sold.
Such registrations will be kept in effect during the term of
this Agreement.
5. Compensation. As compensation for the services which the Adviser is to
provide or cause to be provided pursuant to Paragraph 3, each Fund shall pay to
the Adviser out of Fund assets an annual fee, computed and accrued daily and
paid in arrears on the first business day of every month, at the rate set forth
opposite each Fund's name on Schedule A, which shall be a percentage of the
average daily net assets of the Fund (computed in the manner set forth in the
Fund's most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. At the request of the Adviser, some or all of such fee shall be paid
directly to a Sub-Adviser. The fee for any partial month under this Agreement
shall be calculated on a proportionate basis.
In the event that the total expenses of a Fund exceed the limits on
investment company expenses imposed by any statute or any regulatory authority
of any jurisdiction in which shares of such Fund are qualified for offer and
sale, the Adviser will bear the amount of such excess,
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except: (i) the Adviser shall not be required to bear such excess to an extent
greater than the compensation due to the Adviser for the period for which such
expense limitation is required to be calculated unless such statute or
regulatory authority shall so require, and (ii) the Adviser shall not be
required to bear the expenses of the Fund to an extent which would result in the
Fund's or Trust's inability to qualify as a regulated investment company under
the provisions of Subchapter M of the Code.
The Adviser shall have the right, but not the obligation, to voluntarily
defer any portion of the advisory fee or absorb any portion of the expenses
described in Section 7 below. To the extent that the Adviser defers advisory
fees or absorbs operating expenses, it may seek payment of such deferred fees or
reimbursement of such absorbed expenses within two (2) fiscal years after the
fiscal year in which fees were deferred or expenses were absorbed. A Fund will
make no such payment or reimbursement, however, if the Fund's total annual
operating expenses exceed the expense limits disclosed in the Fund's Prospectus
in effect at the time of the proposed payment or reimbursement.
6. Interested Persons. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the Trust are
or may be or become interested in the Adviser as directors, officers or
otherwise and that directors, officers and shareholders of the Adviser are or
may be or become similarly interested in the Trust.
7. Expenses. As between the Adviser and the Funds, the Funds will pay for
all their expenses other than those expressly stated to be payable by the
Adviser hereunder.
8. Non-Exclusive Services; Limitation of Adviser's Liability. The services
of the Adviser to the Funds are not to be deemed exclusive and the Adviser may
render similar services to others and engage in other activities. The Adviser
and its affiliates may enter into other agreements with the Funds and the Trust
for providing additional services to the Funds and the Trust which are not
covered by this Agreement, and to receive additional compensation for such
services. In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Adviser, or a breach of fiduciary duty with respect to receipt of compensation,
neither the Adviser nor any of its directors, officers, shareholders, agents, or
employees shall be liable or responsible to the Trust, the Funds or to any
shareholder of the Funds for any error of judgment or mistake of law or for any
act or omission in the course of, or connected with, rendering services
hereunder or for any loss suffered by the Trust, a Fund or any shareholder of a
Fund in connection with the performance of this Agreement.
9. Effective Date; Modifications; Termination. This Agreement shall become
effective as of the date first written above, provided that it shall have been
approved by a majority of the outstanding voting securities of each Fund, in
accordance with the requirements of the 1940 Act, or such later date as may be
agreed by the parties following such shareholder approval.
(a) This Agreement shall continue in force for a period of two years
from the date of this Agreement. Thereafter, this Agreement shall
continue in effect as to each Fund for successive annual periods,
provided such continuance is specifically
8
approved at least annually (i) by a vote of the majority of the
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval and (ii) by a vote
of the Board of the Trust or a majority of the outstanding voting
shares of the Fund.
(b) The modification of any of the non-material terms of this Agreement
may be approved by a vote of a majority of those Trustees of the
Trust who are not interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such
approval.
(c) Notwithstanding the foregoing provisions of this Paragraph 9, either
party hereto may terminate this Agreement at any time on sixty (60)
days' prior written notice to the other, without payment of any
penalty. Such a termination by the Trust may be effected severally
as to any particular Fund, and shall be effected as to any Fund by
vote of the Trust's Board or by vote of a majority of the
outstanding voting securities of the Fund. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability of Trustees and Shareholders. The Adviser
acknowledges the following limitation of liability:
The terms "Conestoga Funds" and "Trustees" refer, respectively, to the
trust created and the Trustees, as trustees but not individually or personally,
acting from time to time under the Trust Instrument, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of the State of Delaware, such reference being inclusive of any and all
amendments thereto so filed or hereafter filed. The obligations of "Conestoga
Funds" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with the Trust or a Fund must look solely to the assets of the Trust or Fund for
the enforcement of any claims against the Trust or Fund.
11. Service ▇▇▇▇. The service ▇▇▇▇ of the Trust and the name "Conestoga
Funds" (and derivatives thereof) have been licensed to the Trust by the Adviser
and their continued use is subject to the right of the Adviser to withdraw this
permission in the event the Adviser is not the investment adviser to the Trust.
12. Certain Definitions. The terms "vote of a majority of the outstanding
voting securities," "assignment," "control," and "interested persons," when used
herein, shall have the respective meanings specified in the 1940 Act. References
in this Agreement to the 1940 Act and the Advisers Act shall be construed as
references to such laws as now in effect or as hereafter amended, and shall be
understood as inclusive of any applicable rules, interpretations and/or orders
adopted or issued thereunder by the Commission.
13. Independent Contractor. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized
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by the Board of the Trust from time to time, have no authority to act for or
represent a Fund in any way or otherwise be deemed an agent of a Fund.
14. Structure of Agreement. The Trust is entering into this Agreement on
behalf of the Funds listed on Schedule A, severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Fund severally and not jointly. No Fund shall have any responsibility for any
obligation of any other Fund arising out of this Agreement. Without otherwise
limiting the generality of the foregoing:
(a) any breach of any term of this Agreement regarding the Trust with
respect to any one Fund shall not create a right or obligation with
respect to any other Fund;
(b) under no circumstances shall the Adviser have the right to set off
claims relating to a Fund by applying property of any other Fund;
and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and the
consequences of such relationship and consideration relate solely to
the Trust and the particular Fund to which such relationship and
consideration applies.
This Agreement is intended to govern only the relationships between the
Adviser, on the one hand, and the Trust and the Funds, on the other hand, and
(except as specifically provided above in this Paragraph 14) is not intended to
and shall not govern (i) the relationship between the Trust and any Fund or (ii)
the relationships among the respective Funds.
15. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or the Advisers Act.
16. 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 and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
17. Notices. Notices of any kind to be given to the Trust hereunder by the
Adviser shall be in writing and shall be duly given if mailed or delivered to:
Conestoga Funds
Five Tower Bridge
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: W. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Chairman and CEO
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with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
or at such other address or to such individual as shall be so specified by the
Trust to the Adviser. Notices of any kind to be given to the Adviser hereunder
by the Trust shall be in writing and shall be duly given if mailed or delivered
to the Adviser at:
Conestoga Capital Advisors, LLC
Five Tower Bridge
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
Managing Partner
or at such other address or to such individual as shall be so specified by
the Adviser to the Trust. Notices shall be effective upon delivery.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date written
above.
CONESTOGA FUNDS CONESTOGA CAPITAL ADVISORS, LLC
By: /s/ W. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
------------------------------- -----------------------------------
Name: W. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
Title: Chairman and CEO Title: Managing Partner
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SCHEDULE A
to the
INVESTMENT ADVISORY AGREEMENT
between
CONESTOGA FUNDS and CONESTOGA CAPITAL ADVISORS, LLC
Name of Fund Fee (as a percentage of average daily net assets)
------------ -------------------------------------------------
Conestoga Small Cap Fund 1.20%
Approved by the Board of Trustees: July 17, 2002