AQUILA ROCKY MOUNTAIN EQUITY FUND
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made as of May 25, 1994, by and among
AQUILA ROCKY MOUNTAIN EQUITY FUND (the "Fund"), a
Massachusetts business trust, 000 Xxxxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, and XXXXXXXXXXX, PETTIS,
SMITH, POLIAN INC. (the "Original Adviser") and KPM
INVESTMENT MANAGEMENT, INC. (the "Successor Adviser"), both
Nebraska corporations, One Norwest Center, 0000 Xxxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000.
W I T N E S S E T H :
WHEREAS, the Fund, the Original Adviser and the
Successor Adviser wish to enter into an investment advisory
agreement, referred to hereafter as "this Agreement";
WHEREAS, at the date hereof, the Original Adviser is
in the process of reorganizing its business and operations
(the "Reorganization") so that the investment advisory
business it presently conducts in its own name or in that
of its division, KPM Management, will be conducted by its
wholly-owned subsidiary, the Successor Adviser, and the
parties contemplate that upon completion of the
Reorganization, all of the rights, powers, duties and
obligations of the Original Adviser under this Agreement
shall be transferred to the Successor Adviser (the
"Transfer");
WHEREAS, the parties desire that until the
Reorganization and Transfer, the Original Adviser and,
effective upon the Reorganization and Transfer, the
Successor Adviser shall act as investment adviser to the
Fund (the "Adviser"); and
WHEREAS, the Original Adviser and the Successor
Adviser each intends that the Reorganization and the
Transfer will be implemented in such a manner that they
will not result in a change of actual control or management
with respect to the performance of the services to the Fund
contemplated by this Agreement;
NOW THEREFORE, in consideration of the mutual promises
and agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. In General
The Adviser shall, all as more fully set forth herein,
act as managerial investment adviser to the Fund with
respect to the investment of the Fund's assets, and
supervise and arrange the purchase of securities for and
the sale of securities held in the portfolio of the Fund.
2. Duties and Obligations of the Adviser With Respect To
Investment of the Assets of the Fund
(a) Subject to the succeeding provisions of this
section and subject to the direction and control of the
Board of Trustees of the Fund, the Adviser shall:
(i) supervise continuously the investment program
of the Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased
or sold by the Fund;
(iii) arrange for the purchase and the sale of
securities held in the portfolio of the Fund;
(iv) at its expense provide for pricing of the
Fund's portfolio daily using a pricing service or
other source of pricing information satisfactory
to the Fund and, unless otherwise directed by the
Board of Trustees, provide for pricing of the
Fund's portfolio at least quarterly using another
such source satisfactory to the Fund; and
(v) consult with the Sub-Adviser in connection
with its duties hereunder.
(b) Any investment program furnished by the
Adviser under this section shall at all times conform to,
and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any
rules or regulations in force thereunder; (2) any other
applicable laws, rules and regulations; (3) the Declaration
of Trust and By-Laws of the Fund as amended from time to
time; (4) any policies and determinations of the Board of
Trustees of the Fund; and (5) the fundamental policies of
the Fund, as reflected in its registration statement under
the Act or as amended by the shareholders of the Fund.
(c) The Adviser shall give the Fund the benefit
of its best judgment and effort in rendering services
hereunder, but the Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment
policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have
been based upon (i) its own investigation and research or
(ii) investigation and research made by any other
individual, firm or corporation, if such purchase, sale or
retention shall have been made and such other individual,
firm or corporation shall have been selected in good faith
by the Adviser. Nothing herein contained shall, however,
be construed to protect the Adviser against any liability
to the Fund or its security holders by reason of willful
misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this
Agreement.
(d) Nothing in this Agreement shall prevent the
Adviser or any affiliated person (as defined in the Act) of
the Adviser from acting as investment adviser or manager
for any other person, firm or corporation and shall not in
any way limit or restrict the Adviser or any such
affiliated person from buying, selling or trading any
securities for its own or their own accounts or for the
accounts of others for whom it or they may be acting,
provided, however, that each of the Original Adviser and
the Successor Adviser expressly represents that, while
acting as Adviser, it will undertake no activities which,
in its judgment, will adversely affect the performance of
its obligations to the Fund under this Agreement. It is
agreed that the Adviser shall have no responsibility or
liability for the accuracy or completeness of the Fund's
Registration Statement under the Act and the Securities Act
of 1933, except for information supplied by the Adviser for
inclusion therein. The Adviser shall promptly inform the
Fund as to any information concerning the Adviser
appropriate for inclusion in such Registration Statement,
or as to any transaction or proposed transaction which
might result in an assignment (as defined in the Act) of
this Agreement. The Fund agrees to indemnify the Adviser
to the full extent permitted by the Fund's Declaration of
Trust.
(e) In connection with its duties to arrange for
the purchase and sale of the Fund's portfolio securities,
the Adviser shall select such broker-dealers ("dealers") as
shall, in the Adviser's judgment, implement the policy of
the Fund to achieve "best execution," i.e., the most
favorable price and efficient execution, and accordingly
shall seek to execute each transaction at a price and
commission, if any, which provide the most favorable total
cost or proceeds reasonably attainable in the
circumstances. The Fund understands that purchases from
underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions
placed through dealers include a spread between the bid and
asked prices. In allocating transactions to dealers, the
Adviser is authorized to consider, in determining whether a
particular dealer will provide best execution, the dealer's
reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the
difficulty of the transaction in question, and thus need
not pay the lowest spread or commission available if the
Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the
Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to
two or more dealers, the Adviser is authorized, in making
such allocation, to consider (i) whether a dealer has
provided research services, as further discussed below; and
(ii) whether a dealer has sold shares of the Fund. Such
research may be in written form or through direct contact
with individuals and may include quotations on portfolio
securities and information on particular issuers and
industries, as well as on market, economic, or
institutional activities. The Fund recognizes that no
dollar value can be placed on such research services or on
execution services and that such research services may or
may not be useful to the Fund and may be used for the
benefit of the Adviser or its other clients.
3. Allocation of Expenses
The Adviser shall furnish the Fund, at the Adviser's
expense, all office space, facilities, equipment and
clerical personnel necessary for carrying out its duties
under this Agreement. The Adviser shall supply, or cause to
be supplied, to any sub-adviser, administrator or principal
underwriter of the Fund all necessary financial information
in connection with such sub-adviser's, administrator's or
principal underwriter's duties under any agreement between
such sub-adviser, administrator or principal underwriter
and the Fund. The Adviser will also pay all compensation
of the Fund's officers, employees, and Trustees, if any,
who are affiliated persons of the Adviser. The Fund agrees
to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and
reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such
prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and
expenses not expressly assumed by the Adviser under this
Agreement or by such sub-adviser, administrator or
principal underwriter shall be paid by the Fund, including,
but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation
and expenses of its Trustees other than those affiliated
with the Adviser or such sub-adviser, administrator or
principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing
agent, fees and expenses; (vii) expenses incident to the
issuance of its shares (including issuance on the payment
of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or
State securities laws of the Fund or its shares; (ix)
expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders of the Fund; (x)
all other expenses incidental to holding meetings of the
Fund's shareholders; and (xi) such non-recurring expenses
as may arise, including litigation affecting the Fund and
the legal obligations for which the Fund may have to
indemnify its officers and Trustees.
4. Compensation of the Adviser
(a) The Fund agrees to pay the Adviser, and the
Original Adviser and the Successor Adviser each agrees to
accept as full compensation for all services rendered by
the Adviser as such, a management fee payable monthly and
computed on the net asset value of the Fund as of the close
of business each business day at the annual rates of 0.70
of 1% of such net asset value on net assets of the Fund up
to $15,000,000, 0.55 of 1% on net assets of the Fund above
$15,000,000 to $50,000,000 and 0.40 of 1% of the Fund's net
assets above $50,000,000.
(b) The above fee shall be reduced, but not below
zero, by an amount equal to the Adviser's pro-rata portion
(based upon the aggregate fees of the Adviser and the
Administrator) of the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of
taxes, interest, and brokerage fees, shall exceed the most
restrictive expense limitation imposed upon the Fund in the
states in which shares are then or may be eligible for
sale. The payment of the above fee at the end of any month
will be reduced or postponed so that at no time will there
be any accrued but unpaid liability under this expense
limitation, subject to readjustment during the year.
5. The Transfer
With respect to the Transfer:
(a) Until the Reorganization and Transfer are
effective, all of the rights, powers, duties and
obligations of the Adviser hereunder shall be those of the
Original Adviser, and the Successor Adviser shall have no
responsibility therefor or power with respect thereto.
(b) The Transfer shall have the following force
and effect:
(1) All of the rights, powers, duties and
obligations of the Adviser hereunder shall be
transferred to the Successor Adviser; and
(ii) thereupon, the responsibility for provision
of all of the services provided hereunder, the
right to receive all compensation therefor, and
the power to exercise any of the rights and
powers of the Adviser hereunder shall become
those of the Successor Adviser and the Original
Adviser shall have no responsibility therefor or
power with respect thereto, provided, however,
that the Original Adviser and not the Successor
Adviser shall be responsible for, and entitled to
the benefit of, its performance of this Agreement
until the effectiveness of the Transfer.
(c) The Transfer shall take place at such time
as
(i) the registration of the Successor Adviser
under the Investment Advisers Act of 1940 has
been granted by the Securities and Exchange
Commission and the Successor Adviser has
otherwise become qualified to act as the Adviser;
(ii) the Successor Adviser has provided the Fund
with an opinion of counsel satisfactory to the
Fund in form and substance satisfactory to the
Fund that the Transfer will not result in an
"assignment" as defined in the Act; and
(iii) The Fund, upon receipt of the items
specified in the next preceding sub-section,
shall have consented to the Transfer (which
consent shall not be unreasonably withheld), and,
in consultation with the Successor Adviser, shall
have specified a date for, and shall have made
other necessary and appropriate arrangements for,
the Transfer. The Transfer shall take place in
accordance with those arrangements.
6. Duration and Termination
(a) This Agreement shall become effective on the
effective date of the Registration Statement containing the
initial registration of shares of the Fund and shall,
unless terminated as hereinafter provided, continue in
effect until the June 30 next preceding the second
anniversary of the effective date of this Agreement, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1)
by a vote of the Fund's Board of Trustees, including a vote
of a majority of the Trustees who are not parties to this
Agreement or "interested persons" (as defined in the Act)
of any such party, with votes cast in person at a meeting
called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of
the outstanding voting securities of the Fund and by such a
vote of the Trustees. If the Fund's shareholders fail to
approve this Agreement, the Adviser may continue to serve
and act in that capacity pending further action by the
Fund's Board of Trustees or the Fund's shareholders,
provided that the compensation received by the Adviser
during such period is equal to no more than its actual
costs incurred in furnishing such services to the Fund or
the amount it would have received under this Agreement,
whichever is less.
(b) This Agreement may be terminated by the
Adviser at any time without penalty upon giving the Fund
sixty days' written notice (which notice may be waived by
the Fund) and may be terminated by the Fund at any time
without penalty upon giving the Adviser sixty days' written
notice (which notice may be waived by the Adviser),
provided that such termination by the Fund shall be
directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders
of a majority (as defined in the Act) of the voting
securities of the Fund outstanding and entitled to vote.
This Agreement shall automatically terminate in the event
of its assignment (as defined in the Act). However, each
of the Original Adviser and the Successor Adviser agrees
that it will not exercise its termination rights for at
least five years from the effective date of this Agreement,
except for regulatory reasons.
7. Disclaimer of Shareholder Liability
Each of the Original Adviser and the Successor
Adviser understands that the obligations of this Agreement
are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property and each
represents that it has notice of the provisions of the
Fund's Declaration of Trust disclaiming shareholder
liability for acts or obligations of the Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of
the Board of Trustees of the Fund will be sent to the
Adviser and that the Fund will make appropriate
arrangements for the attendance (as persons present by
invitation) of such person or persons as the Adviser may
designate.
IN WITNESS WHEREOF, the parties hereto have
caused the foregoing instrument to be executed by their
duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
ATTEST: AQUILA ROCKY MOUNTAIN EQUITY FUND
/s/Xxxxxxx X. XxxXxxxxxx /s/Xxxx X. Xxxxxxxx
________________________ By:__________________________
Asst. Secy. President
ATTEST: XXXXXXXXXXX, PETTIS, SMITH, POLIAN
INC.
/s/Xxxxxx Xxxxxx /s/Xxxxxx Xxxxx
_______________________ By:__________________________
Vice President Executive Vice President
ATTEST KPM INVESTMENT MANAGEMENT, INC.,
/s/Xxxxxx Xxxxxx /s/Xxxxxxx X. Xxxxx
________________________ By:__________________________
Vice President President & CEO
