XXXXXXXXX TAX-FREE FUND OF KENTUCKY
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of __________, 2008 by and between XXXXXXXXX
TAX-FREE TRUST (the "Business Trust"), 000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000 and AQUILA INVESTMENT MANAGEMENT LLC (the "Manager"), a Delaware
limited liability company, 000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
10017
W I T N E S S E T H:
WHEREAS, the Business Trust is a Massachusetts business trust which is
registered under the Investment Company Act of 1940 (the "Act") as an open-end,
non-diversified management investment company, the sole series and portfolio of
which is Xxxxxxxxx Tax-Free Fund of Kentucky (the "Fund");
WHEREAS, the Business Trust and the Manager wish to enter into an Advisory
and Administration Agreement referred to hereafter as "this Agreement," with
respect to the Fund;
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 Manager shall perform (at its own expense) the functions set forth more
fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding provisions of
this section and subject to the direction and control of the Board of Trustees
of the Business Trust, the Manager 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
Subject to the provisions of Section 5 hereof, the Manager may at its own
expense delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of the Business
Trust, the Manager shall provide all administrative services to the Fund other
than those relating to its investment portfolio delegated to a Sub-Adviser of
the Fund under a Sub-Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Fund;
(ii) oversee all relationships between the Fund and any sub-adviser, transfer
agent, custodian, legal counsel, auditors, fund accounting agent and
principal underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters which are
necessary or desirable for the effective operation of the Fund and for the
sale, servicing or redemption of the Fund's shares;
(iii) maintain the Fund's books and records, and prepare (or assist counsel and
auditors in the preparation of) all required proxy statements, reports to
the Fund's shareholders and Trustees, reports to and other filings with the
Securities and Exchange Commission and any other governmental agencies, and
tax returns, and oversee the insurance relationships of the Fund;
(iv) prepare, on behalf of the Fund and at the Fund's expense, such applications
and reports as may be necessary to register or maintain the registration of
the Fund and/or its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(v) respond to any inquiries or other communications of shareholders of the Fund
and broker-dealers, or if any such inquiry or communication is more properly
to be responded to by the Fund's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer agent's or
distributor's response thereto.
(c) Compliance with Requirements. Any investment program furnished, and any
activities performed, by the Manager or by a Sub-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 Business Trust as
amended from time to time; (4) any policies and determinations of the Board of
Trustees of the Business Trust; 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.
(d) Best Efforts; Responsibility. The Manager shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder, but the
Manager 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 Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall prevent the Manager or
any officer thereof from acting as investment adviser, sub-adviser,
administrator or manager for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its officers,
stockholders or employees 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 the Manager expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for which it may become
responsible to arrange for the purchase and sale of the Fund's portfolio
securities, the Manager shall select, and shall cause any Sub-Adviser to select,
such broker-dealers ("dealers") as shall, in the Manager's judgment, implement
the policy of the Fund to achieve "best execution," i.e., prompt, efficient, and
reliable execution of orders at the most favorable net price. The Manager shall
cause the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Manager
determines that better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be principal
transactions at net prices and that the Fund will incur little or no brokerage
costs. The Business Trust 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 Manager is
authorized and shall authorize any Sub-Adviser, 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 Manager
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 Manager's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Manager is authorized, in making such
allocation, to consider whether a dealer has provided research services, as
further discussed below. 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 Business Trust 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 Manager or its other clients. The Manager shall
cause the foregoing provisions, in substantially the same form, to be included
in any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that the Manager shall
have no responsibility or liability for the accuracy or completeness of the
Business Trust's Registration Statement under the Act and the Securities Act of
1933, except for information supplied by the Manager for inclusion therein. The
Manager shall promptly inform the Business Trust as to any information
concerning the Manager appropriate for inclusion in such Registration Statement,
or as to any transaction or proposed transaction which might result in an
assignment of the Agreement.
(h) Liability for Error. The Manager shall not be liable for any error in
judgment or for any loss suffered by the Fund or its security holders in
connection with the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Fund may have under
federal and state securities laws which may impose liability under certain
circumstances on persons who act in good faith.
(i) Indemnification. The Business Trust shall indemnify the Manager to the
full extent permitted by the Business Trust's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space, facilities,
equipment, and personnel for the performance of its functions hereunder and
shall pay all compensation of Trustees, officers, and employees of the Fund who
are affiliated persons of the Manager.
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 Manager under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-Adviser shall be paid by
the Fund, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation of its Trustees other
than those affiliated with the Manager or such adviser, administrator or
principal underwriter and expenses of all of its Trustees; (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; (xi)
expenses of keeping the Fund's accounting records including the computation of
net asset value per share and the dividends; and (xii) such non-recurring
expenses as may arise, including litigation affecting the Fund and the legal
obligations for which the Business Trust may have to indemnify its officers and
Trustees.
4. Compensation of the Manager The Business Trust agrees to pay the Manager, and
the Manager agrees to accept as full compensation for all services rendered by
the Manager as such, an annual 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
rate of 0.50 of 1% of such net asset value; provided, however, that for any day
that the Business Trust pays or accrues a fee under the Distribution Plan of the
Fund based upon the assets of the Fund, the annual management fee shall be
payable at the annual rate of 0.40 of 1% of such net asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination by the Manager
upon reasonable notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if any, as may be in
effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become as of the date first written above
following approval by the shareholders of the Fund and shall, unless terminated
as hereinafter provided, continue in effect until the June 30 next preceding the
first 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 Business Trust'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.
(b) Termination. This Agreement may be terminated by the Manager at any time
without penalty upon giving the Business Trust sixty days' written notice (which
notice may be waived by the Business Trust) and may be terminated by the
Business Trust at any time without penalty upon giving the Manager sixty days'
written notice (which notice may be waived by the Manager), provided that such
termination by the Business Trust 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. The portions of this Agreement which relate to
providing investment advisory services (Sections 2(a), (c), (d) and (e)) shall
automatically terminate in the event of the assignment (as defined in the Act)
of this Agreement, but all other provisions relating to providing services other
than investment advisory services shall not terminate, provided however, that
upon such an assignment the annual fee payable monthly and computed on the net
asset value of the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.33 of 1% of such net asset value and provided
further that for any day that the Business Trust pays or accrues a fee under the
Distribution Plan of the Fund based upon the assets of the Fund, the annual
management fee shall be payable at the annual rate of 0.26 of 1% of such net
asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agreement are not
binding upon any shareholder of the Fund personally, but bind only the Business
Trust's property; the Manager represents that it has notice of the provisions of
the Business Trust's Declaration of Trust disclaiming shareholder liability for
acts or obligations of the Fund.
8. Notices of Meetings
The Business Trust agrees that notice of each meeting of the Board
of Trustees of the Business Trust will be sent to the Manager and that the
Business Trust will make appropriate arrangements for the attendance (as persons
present by invitation) of such person or persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this 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: XXXXXXXXX TAX-FREE TRUST
_______________________ By:___________________________________
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
_______________________ By:___________________________________
